Watsco, Inc. (NYSE:WSO) Q4 2023 Earnings Call Transcript
Watsco, Inc. (NYSE:WSO) Q4 2023 Earnings Call Transcript February 13, 2024
Watsco, Inc. misses on earnings expectations. Reported EPS is $2.06 EPS, expectations were $2.5. Watsco, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Watsco Fourth Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Albert Nahmad, Chairman and CEO. Please go ahead.
Albert Nahmad: Thank you, and good morning, everyone. Welcome to our fourth quarter earnings call. This is Al Nahmad, Chairman and CEO. With me is A.J. Nahmad, Watsco's President; and Paul Johnston, Barry Logan and Rick Gomez. Now before we start, our cautionary statement, as always, this conference call has forward-looking statements as defined by the SEC laws and regulations that are made pursuant to safe harbor provisions of these various laws. Ultimate results may differ materially from forward-looking statements. Now, Watsco delivered strong results in 2023 despite some market conditions which were somewhat inevitable after two extraordinary years in 2021 and 2022. While reflecting in the year's results, I am proud of the accomplishments we delivered.
We achieved market share gain in markets we serve. We further scaled Watsco's industry-leading technology platforms. We had a successful start driving down long-term productivity gains. I should say, we had a successful start driving long-term productivity gains. We expanded our network and product offerings by acquiring great businesses through our scale, and we fortified our balance sheet through inventory reduction and generated record fourth quarter cash flow. And once again, shareholders will receive a meaningful dividend increase in 2024, which is in April 2024. This is Watsco's 50th consecutive year of paying dividends. 2023 was also a year of immense change in virtually all equipment products transition to new [indiscernible] systems.
In collaboration with our OEM partners, Watsco introduced new products and SKUs for over 25 brands of HVAC systems. Our teams executed well, and thanks to our scale and speed to market. We are confident that we gained share. We also trained thousands of customers on new products and our digital pilot library was updated with approximately 500,000 new SKUs. In this spring we will begin the next regulatory transition to new A2L products with lower GWP refrigerants. These regulatory transitions are positive for our industry and are good for Watsco's business. They offer meaningful value to homeowners and businesses to upgrade systems that are more efficient and better for the environment. Watsco's residential unit volumes, although still down, stabilized during the second half of 2023.
Commercial end markets remain strong across all markets. Our commercial business continued to grow at a healthy rate, and our backlog of products extends well into next year. Sales of ductless systems, an increasingly important component of our business grew double digits in the year, and offset declines in conventional residential business. SG&A as a percentage of sales on a same-store basis decreased for the year, indicating progress in driving more productivity across the company. We believe we are in early innings of a long-term opportunity to meaningfully improve productivity and overall efficiencies. We have challenged our leaders and provided them with tools and data to implement change. And most importantly, we possess an entrepreneurial culture to execute change in a responsible way.
Over the past year, we expanded our network through acquisitions with three terrific business joining the Watsco family, collectively their annual sales are around $200 million. These businesses will retain their culture, leadership teams and uniqueness in the market, consistent with our long-term practice of honoring and sustaining great legacies. Our industry remains highly fragmented, and we will continue to pursue other great companies to grow scale in our $60 billion North American market. We believe Watsco's technology advantage, market-leading scale and the strength of our balance sheet are all great reasons to join the Watsco family. Now before getting to Q&A, as always, I want to emphasize that our core focus remains on the long term.
We believe our scale, the quality of our balance sheet and unique culture will continue to drive long-term growth and performance. We have an immense technology advantage, and we invested -- investing to grow that advantage. Watsco's broad array of products and brands is also a competitive advantage that allows us to serve contractors in any environment. And finally, our industry is fortunate to benefit from important regulatory and industry catalysts that should positively influence Watsco's performers in the years ahead. With that, let's go on to Q&A.
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