Watsco Earnings: Market Shrugs Off Lower Profit Margin; Sales Pick Up in April; Valuation Raised
Residential heating, ventilation, and air-conditioning unit shipments remain under pressure in the wake of very robust demand in 2021-22. Nevertheless, Watsco’s first-quarter revenue increased approximately 1% year over year, although same-store revenue was 2% lower than the prior-year period. Still, Watsco’s first-quarter revenue was 2% shy of the FactSet consensus estimate. While first-quarter gross margin of 27.5% was above management’s near-term target of 27%, it was 140 basis points lower year over year. And with selling, general, and administrative expenses about 8% higher year over year, Watsco’s operating margin contracted 250 basis points to 8.1%, and EPS of $2.17 was 5% below the consensus estimate.