Watsco Inc (WSO) Reports Solid 2023 Results Amid Market Challenges
Revenue: WSO reported annual revenues of $7.28 billion, maintaining stability compared to the previous year.
Net Income: Net income attributable to Watsco stood at $536.3 million for the year, a decrease from the previous year's $601.2 million.
Earnings Per Share (EPS): Diluted EPS for Common and Class B common stock was $13.67, compared to $15.41 in the prior year.
Dividend: The Board approved a 10% dividend increase to $10.80 per share, marking the 50th consecutive year of dividend payments.
Operating Cash Flow: Operating cash flow for 2023 was robust at $562 million, with a record $299 million in the fourth quarter.
Market Share: Despite a softer market, WSO achieved market share gains and a smaller decline in unit volume compared to the industry.
Acquisitions: WSO completed three acquisitions in 2023, continuing its growth strategy.
On February 13, 2024, Watsco Inc (NYSE:WSO) released its 8-K filing, detailing the company's financial performance for the fourth quarter and full year ended December 31, 2023. Watsco, the largest distributor of heating, ventilation, air-conditioning, and refrigeration (HVAC/R) products in North America, operates 692 locations and serves over 125,000 contractors. The company's entrepreneurial culture and adoption of transformational technologies have historically driven strong compounded annual growth rates (CAGRs) of sales and operating income.
The 2023 performance was juxtaposed against record-setting years in 2022 and 2021, with the latest results reflecting a softer market and more conventional levels of pricing actions. Despite a roughly 15% industry-wide decline in annual OEM shipments of unitary HVAC systems, Watsco's unit volume decreased by only 8% for the year, demonstrating resilience and market share gains in a challenging environment. The company also successfully navigated a significant product transition to higher-efficiency systems due to new regulatory requirements.
Watsco's Chairman and CEO, Albert H. Nahmad, commented on the company's performance:
"In many respects, we consider 2023 an exceptional year given the extraordinary performance during the two preceding years and considering the softer comparative market conditions that have followed. We achieved market share gains during a down market, scaled the adoption of Watscos industry-leading technology platforms, drove productivity gains, expanded our network, fortified the quality of our balance sheet and once again provided our shareholders a meaningful dividend increase."
Financial Highlights and Operational Efficiency
Watsco's financial achievements in 2023 included a 1% reduction in same-store SG&A, reflecting efforts to improve operating efficiency. The company actively managed its inventory levels, resulting in a $208 million reduction and a 40% increase in fourth-quarter operating cash flow to a record $299 million. These measures are crucial for an industrial distribution company like Watsco, as they directly impact profitability and cash flow, enabling further investments and dividend payments.
Watsco's President, A.J. Nahmad, emphasized the role of technology in the company's success:
"Watsco continues to transform every aspect of its business through technology. For over a decade, our contractor-based platforms have helped Watsco build market share, accelerate customer acquisition and drive margin expansion."
The company's balance sheet remains strong, with net cash as of December 31, 2023, and a well-positioned stance to invest in growth opportunities within the highly-fragmented North American HVAC/R distribution market, estimated at $60 billion.
Looking Ahead
Watsco's outlook is bolstered by various industry catalysts, including regulatory changes and the transition to more energy-efficient and environmentally friendly HVAC systems. The company's scale, culture, OEM relationships, and technological leadership are expected to optimize these opportunities. Watsco's acquisition strategy also remains active, with three completed acquisitions in 2023, adding to its distribution network.
The company's commitment to shareholder returns is evident in the 10% increase in its annual dividend rate to $10.80 per share, reflecting confidence in its financial position and future prospects. Watsco's full-year operating cash flow for 2023 was $562 million, and the company continues to prioritize sharing cash flow through higher dividends while maintaining a conservative financial position.
For detailed financial tables and further information, investors and interested parties are encouraged to review the full 8-K filing.
Watsco's performance in 2023, despite market headwinds, underscores the company's resilience and strategic positioning for continued growth and shareholder value creation.
Explore the complete 8-K earnings release (here) from Watsco Inc for further details.
This article first appeared on GuruFocus.
