Why is Watsco (WSO) up 7.8% since its last earnings report?

A month has passed since Watsco’s (WSO) last earnings report. Shares have risen about 7.8% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Watsco headed for a decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Watsco’s first-quarter earnings and revenue lag, margins down YoY

Watsco reported weak first-quarter 2024 results, with earnings and revenue missing the Zacks Consensus Estimate. Year over year, revenues increased and profits decreased.

The quarter’s results reflect a seasonal sales trend in which sales of HVAC equipment and other HVAC products declined year over year. Moreover, high costs and expenses affected the company’s financial results. This was partially offset by increased sales volume of commercial refrigeration products.

As we enter the summer sales season, the company is optimistic about the increase in demand on the end market. By 2024, it is also encouraging to focus on improving operational efficiency, investing in technological innovation, generating healthy cash flow and increasing shareholder value.

Inside the numbers

Watsco reported quarterly earnings per share of $2.17, missing the Zacks Consensus Estimate of $2.26 by 4%. In the year-ago quarter, the company reported adjusted earnings per share of $2.83.

Revenues of $1.56 billion beat the consensus estimate of $1.61 billion by 2.8% but increased 0.9% year-over-year.

Sales of HVAC equipment (heating, ventilation and air conditioning, which account for 68% of sales) fell 1% year-over-year. Sales of other HVAC products (28% of sales) decreased by 6% compared to the previous year’s quarter. Meanwhile, sales of commercial refrigeration products (4% of sales) increased by 2% year-on-year.

Operational highlights

Gross margin declined 140 basis points (bps) to 27.5% in the first quarter. Selling, general and administrative expenses as a percentage of sales increased 130 basis points year-over-year to 19.8% in the quarter.

Operating margin declined 250 basis points year-over-year to 8.1% in the first quarter.

Financial operations

As of March 31, 2024, Watsco’s cash and cash equivalents were $278.9 million, compared to $210.1 million at the end of 2023. As of the first quarter of 2024, net cash from operating activities was $103 .7 million compared to net cash used in operating activities of $47.4 million in the comparable period a year ago.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

VGM results

Currently, Watsco has a solid Growth Score of B, although it lags well behind its Momentum Score of F. However, the stock is rated a C on the value side, sitting in the middle 20%. investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Watsco carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Wattsco, Inc. (WSO): Free stock analysis report

To read this article on Zacks.com click here.

Zacks Investment Research