Watsco (WSO) Q3 2024 earnings summary

Executive summary

• Achieved record sales and net income for Q3 and nine months ended September 30, 2024, with strong cash flow, improved operating efficiency, and meaningful unit growth in October.

• Gained market share, supported by digital adoption, e-commerce growth exceeding $2.5 billion annualized, and a 14% expansion in the digital customer base to 61,000 users.

• Ongoing recovery of market share after prior supply chain disruptions, with co-investments diluting gross margin by 30 basis points for the nine-month period.

• Entrepreneurial culture, technology leadership, and a debt-free, robust balance sheet support long-term growth and value creation.

• Technology-driven transformation enhances customer experience, operational efficiency, and new profit streams.

Financial highlights

• Q3 2024 sales increased 2% to $2.16 billion; gross profit $566 million, gross margin 26.2% (down 50 bps YoY); net income flat at $171 million; EPS $4.22.

• Nine-month sales up 3% to $5.9 billion; gross profit $1.58 billion, gross margin 26.9%; operating cash flow up 50% to $394 million.

• Revenues grew from $64M in 1989 to $7.5B TTM 9/30/2024, a 15% CAGR; EBIT increased from $2M to $753M, an 18% CAGR.

• Annualized e-commerce revenue reached $2.4B in 2023, up 5%; OnCall Air platform GMV up 22% to $1.2 billion for Jan–Sep 2024.

• Cash and short-term investments at $550 million as of September 30, 2024; no borrowings under $600 million credit facility.

Outlook and guidance

• Q4 is off to a strong start, with expectations for continued growth as new A2L systems roll out in 2025, impacting 60% of sales.

• Anticipates gross margin improvement as product mix shifts toward higher-margin heat pumps and furnaces in colder months.

• Management remains focused on achieving and eventually exceeding a 27% gross margin, with a long-term ambition of 30%.

• Sufficient liquidity expected from cash, investments, credit facility, and ATM program to meet foreseeable needs.

• Regulatory changes and technology investments are expected to support future margin and sales growth.