On October 19, 2023, Watsco Inc (WSO, Financial) announced its third quarter and nine-month period results, setting new records for sales, operating income, operating margin, net income, and earnings per share. The company's strong performance is attributed to improved productivity and operating efficiency.
Financial Highlights
Watsco Inc (WSO, Financial) reported revenues of $2.13 billion for the third quarter, up from $2.04 billion in the same period last year. The company's gross profit margin stood at 26.7%, slightly down from 27.1% in the third quarter of 2022. Operating income reached a record $256.6 million, up from $236.3 million in the previous year. Net income attributable to Watsco was $170.9 million, compared to $157.6 million in the same period last year.
Operational Efficiency and Productivity
The company's 2023 results reflect benefits from investments made to improve productivity and efficiency, as evidenced by lower SG&A as a percentage of sales. Watsco's teams executed on several fronts, including the conversion of inventory for 25+ brands of HVAC equipment across 630 locations in the U.S., implementation of pricing programs to sustain margin and competitiveness, and coordination and execution of large-scale movement of products and logistics with OEM partners.
Acquisition of Gateway Supply Company
Watsco expanded its network with the recent acquisition of Gateway Supply Company, a plumbing and HVAC distribution company. Gateway, which has annual sales of approximately $180 million, serves approximately 4,000 customers from 15 locations throughout South Carolina and one location in Charlotte, North Carolina.
Financial Strength, Cash Flow, and Liquidity
Watsco’s long-term objective is to maintain a strong balance sheet to enable network expansion, investments in more products and brands, and to acquire companies in its marketplace. As of September 30, 2023, the Company had $175 million in cash, $106 million in borrowings, and $2.7 billion of shareholders’ equity. From January 1, 2021 to September 30, 2023, Watsco’s annual dividend increased from $7.10 to $9.80 per share.
Outlook
Watsco's leadership remains confident in the business's strength, particularly given the proven strength of its entrepreneurial culture, substantial scale, technological advantage, and financial resources. The company sees potential for further productivity gains as the operational complexities of the past few years abate.
