Watsco Inc. (NYSE:WSO.B) Q4 2017 Earnings Conference Call - Final Transcript

Feb 08, 2018 • 10:00 am ET

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Watsco Inc. (NYSE:WSO.B) Q4 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning and welcome to the Watsco, Inc. Fourth Quarter 2017 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, Chairman and Chief Executive Officer. Please go ahead.

Executive
Albert H. Nahmad

Good morning, everybody. We're having a great day here in South Florida. Welcome to our fourth quarter and year-end earnings call. This is Al Nahmad, Chairman and CEO and with me today is A.J. Nahmad, who's the President of the company; Paul Johnston, Executive Vice President; and Barry Logan, Senior Vice President. As always, let me start with 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.

As I said, we're having a great day in South Florida, primarily because I'm pleased to report that Watsco delivered another record quarter and another record year. 2017 sales, income and earnings per share reached record levels and we generated cash flow that exceeded net income. We also raised $248 million from the sale of company shares under our ATM equity program and paid off almost all debt.

We now have the balance sheet to make virtually any size investment in our industry. And as all of you know, we believe our future is bigger than our past, so we're going to need that capital. Given our performance, healthy balance sheet, and continued confidence, Watsco's board approved a 16% increase to our annual dividend to $5.80 per share effective in April. Before I get into the specific results, let me also say that Watsco's 2017 total shareholder return was 19%. 19%, that's consistent with a 25-year compounded annual rate of growth.

Now, let's turn to the fourth quarter results. Revenues grew 6% driven by a 7% increase in HVAC equipment sales. Operating income increased 6%. Operating margins were consistent at 6.4% for the quarter. EPS increased 47% to $1.19 on net income of $43 million, including tax reform benefits. Excluding tax benefits, EPS increased 11% to $0.90 per share. Operating cash flow was $117 million. We reduced debt by $263 million during the quarter to $22 million at year end.

Now looking at the full year. Revenues grew 3%, including a 4% increase in HVAC equipment sales. Operating income increased 2%. Operating margins were consistent at 8.2%. Earnings per share increased 13% to $5.81 on net income of $208 million, including tax reform benefits. Excluding the tax benefits, EPS increased 8% to $5.54 on net income of $199 million. Operating cash flow was a record $302 million. These results include further investment in Watsco's industry-leading technology platform as well as 150 additional customer-facing employees to expand sales and customer service capabilities.

Now, to the technology. The central theme of our technology strategy