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Watsco (WSO) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Watsco, Inc. WSO is scheduled to report second-quarter 2019 results on Jul 18, before the opening bell. In the last reported quarter, the company’s earnings of 88 cents per share met the Zacks Consensus Estimate but revenues lagged the same by 1.4%.

The company’s top line grew 1% but bottom line declined 1.1% due to unfavorable weather in certain markets served. Remarkably, the first quarter, which had one less selling day than the corresponding period of 2018, is the weakest period of the year on a seasonal basis.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported is pegged at $2.54, remaining stable over the past 60 days. This indicates an increase of 5.8% from the year-ago earnings of $2.40 per share. Revenues are expected to be $1.39 billion, up 4.2% year over year.

 

Watsco, Inc. Price and EPS Surprise

 

Watsco, Inc. Price and EPS Surprise

Watsco, Inc. price-eps-surprise | Watsco, Inc. Quote

Let’s See How Things are Shaping Up for This Announcement

Watsco has been posting improved results over the last few quarters, backed by continued investment in technology and robust unit demand. Also, higher equipment pricing and better sales mix underscore its strength. The trend is likely to continue in the to-be-reported quarter as well.

Watsco has a keen interest in technology enhancement in order to satisfy customers’ expectation regarding speed, productivity and efficiency. In this regard, during the first quarter of 2019, the company acquired Whippany, NJ-based DASCO Supply, a distributor of air conditioning and heating products. DASCO is expected to aid Watsco in accomplishing growth plans via its various resources and technology.

Also, the company has a huge growth potential in the replacement and heating equipment market. Demand for its HVAC equipment (heating, ventilating and air conditioning) is likely to drive growth in the to-be-reported quarter.

Although digitization of business is helping the company to drive top-line growth, the same has been pressurizing margins and profits over the past few years. Incremental annual costs are anticipated to impact its profitability in the quarter to be reported.

What the Zacks Model Unveils

Our proven model shows that Watsco is likely to beat estimates this earnings season. This is because it has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: Watsco has an Earnings ESP of +0.20%. This is because the Most Accurate Estimate of $2.55 per share is pegged higher than the Zacks Consensus Estimate of $2.54. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Watsco currently carries a Zacks Rank #3, which further increases the predictive power of ESP. The positive ESP and its favorable rank make us reasonably confident about an earnings beat this reporting cycle.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks Worth a Look

Here are a few other construction stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming release:
 
Arcosa, Inc. ACA has an Earnings ESP of +15.22% and holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Martin Marietta Materials, Inc. MLM has an Earnings ESP of +2.06% and sports a Zacks Rank #1.

United Rentals, Inc. URI has an Earnings ESP of +0.34% and carries a Zacks Rank #3.

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