Watsco Inc. (NYSE:WSO.B) Q3 2016 Earnings Conference Call - Final Transcript

Oct 25, 2016 • 10:00 am ET

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Watsco Inc. (NYSE:WSO.B) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good morning and welcome to the Watsco third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Albert Nahmad. Please go ahead.

Executive
Albert Nahmad

Hello. Good morning and welcome to our third quarter conference call. This is Al Nahmad, Chairman and CEO. With me is AJ Nahmad, President; Paul Johnston, EVP and Barry Logan, SVP. (Forward-Looking Cautionary Statement)

Now, for the news. Watsco delivered solid third quarter performance. Growth trends improved after a slower-than-typical start to our selling season. We achieved record sales, profits, operating margins, and earnings per share, while continuing to make significant investments in technology. Over the last 12 months, we generated terrific cash flow, or $268 million, which is equivalent to $8.22 per share, far exceeding our net income. As a result, we have reduced debt over last year by $86 million, and recently increased our annual dividends by 24% to $4.20 per share.

As mentioned earlier, we've continued to invest in several innovative technologies to transform our business, and more importantly or as importantly, and that of our customers into the digital age. The annual run rate for tech spending remains at approximately $23 million. During the nine months, incremental tech spending had a $0.06 impact on our results, and $0.01 for the quarter.

We see early progress on technology as our customers in our organization adapt to our new technologies. Examples are, an increase in number of customers that are using our apps and using our e-commerce to gain speed and efficiency. We also continue to build the largest source of digitized HVAC product information, which now holds over 400,000 SKUs, mastered in our database.

Our supply chain initiatives have helped inventory terms as evidenced by our cash flow. More of our 568 locations implemented technology to fulfill orders more efficiently and save our customers time. Using our business intelligence platform, our employees are using data analytics to gain more insight into operations.

Now, we are excited about what is happening. The spirit of creativity and innovation at Watsco is at an all-time high. But I want to remind everyone about our second annual technology conference. It is a meeting for institutions and analysts in Miami, on December 9th of this year. AJ and his team will provide a technology overview and update. We hope you will join us in person or by webcasts. Let Barry Logan know if you would like to attend.

Now let's get on to our results. For the quarter, sales increased 5% to a record $1.24 billion, 6% on a same-store basis. HVAC equipment increased 7%, including the continued movement towards higher-efficiency systems. Other HVAC products increased 2%, and commercial refrigeration products increased 7%. Earnings per share for the quarter increased 9% to a record $1.78. Operating income grew 8% to a record $119 million. Our operating