Watsco Inc. (NYSE:WSO.B) Q2 2016 Earnings Conference Call - Final Transcript

Jul 22, 2016 • 10:00 am ET


Watsco Inc. (NYSE:WSO.B) Q2 2016 Earnings Conference Call - Final Transcript


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Good morning and welcome to the Watsco, Inc. Second Quarter 2016 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Albert Nahmad. Please go ahead.

Albert H. Nahmad

Good morning, everyone, and welcome to our second quarter conference call. This is Albert Nahmad, CEO. And with me are A.J. Nahmad, President; Barry Logan, Senior Vice President; and Paul Johnston, Executive Vice President.

As usual, the cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements.

Watsco's performance over the last several quarters has been remarkably consistent. This quarter reflects a late start to the summer selling season. June's performance was strong with record sales, profits and margins, but it was not enough to offset softer conditions in the early part of the quarter. July's growth rate so far are in the double-digits and we intend to make hay as the third quarter progresses.

We have produced terrific cash flow over the last 12 months with operating cash flow of $337 million or 150% of net income. This comes out to over $10 per share in cash flow. We believe that some of this improvement in cash flow can be attributed to the recent implementation of supply chain technology. Given the exceptional cash flow, our continued confidence in our business and our low debt, we raised our dividend 24% to $4.20 per year effective with our dividend payment in October.

We continue to invest in technology to transform our business into the digital age. Our annual run rate for technology spending is now approximately $23 million. During the first half of this year, incremental technology spending had a $0.04 impact, $0.02 for the quarter. It is still early; the technology is having a positive impact on our business and customers.

For example, after about a three -- after three years of work, we now believe Watsco is the largest and best source in the industry of digitized HVAC product information. That effort continues as we add more and more data to maintain our position as the leader in providing customers a reservoir of useful information. With this digital capability, an increasing number of customers are adopting our app and using e-commerce to gain information, speed and efficiency.

Our employees are leveraging data analytics to gain greater information into operations using our business intelligent platform. More of our 563 locations are implementing technology that fulfills orders more efficiently and saves our customers' time. Now to have more conversations about Watsco technology, we invite you to our investor conference to be held on December 9th this year in Miami. Details will follow and we hope many of you will attend.

And now for the details for the quarter. Sales declined 1% to $1.21 billion and were flat on a same-store basis. Sales of HVAC equipment declined 1%