Miami, FL - Watsco, Inc. reported record revenues, net income and earnings per share for its fourth quarter and full year ended December 31, 2013.
Fourth Quarter Results
Earnings per share increased 22% to a record 50 cents compared to 41 cents in 2012 (on an adjusted basis). Operating income increased 20% to a record $40 million with a 50 basis-point improvement in operating margin. Net income increased 17% to a record $17 million.
Revenues increased 8% to a record $827 million, reflecting a 10% increase in sales of HVAC equipment (63% of sales), a 5% increase in sales of other HVAC products (32% of sales) and a 2% decrease in sales of commercial refrigeration products (5% of sales).
Gross profit increased 9% to a record $199 million with gross profit margin improving 10 basis-points. Selling, general and administrative (SG&A) expenses increased 6% to $158 million and as a percentage of sales declined 40 basis-points to a record low of 19.1%.
Albert Nahmad, Watsco's President & CEO stated: "Watsco delivered another solid quarter of earnings growth from higher sales, improved selling margins and the continued effort of our business units to manage operating costs. We saw strength in sales of residential HVAC systems in the United States, which grew 17%, from a combination of strong unit demand and a better sales mix of higher-efficiency systems. Overall, our results represent a great finish to another excellent year."
It is important to note that the fourth quarter of each calendar year is highly seasonal due to the nature and timing of the replacement market for air conditioning, heating and refrigeration systems, which is strongest in the second and third quarters. Accordingly, the company's fourth quarter financial results are disproportionately affected by this seasonality.
Full Year Results
Earnings per share increased 21% to a record $3.68 compared to $3.03 in 2012 (on an adjusted basis). Operating income increased 21% to a record $271 million with operating margins improving 70 basis-points to 7.2%. Same-store operating profit increased 19% with operating margins improving 70 basis-points. Net income increased 24% to a record $128 million.
Revenues increased 9% to a record $3.74 billion. Same-store sales increased 7% reflecting a 9% increase in HVAC equipment (63% of sales), a 3% increase in other HVAC products (32% of sales) and a 3% increase in commercial refrigeration products (5% of sales).
Gross profit increased 10% to a record $899 million with gross margin increasing 30 basis-points. Same-store gross profit increased 8% and gross margin increased 30 basis-points. SG&A expenses increased 7% to $628 million and as a percentage of sales declined 40 basis-points to a record low of 16.8%. SG&A excluding new locations increased 3% to $607 million and, as a percentage of sales, declined 60 basis-points.
Mr. Nahmad added, "2013 was another great year, which we believe highlights the stability and consistency of our company. Our team did a super job of managing the business and took advantage of opportunities in the markets to drive the business and optimize performance. Watsco's scale, access to capital, commitment to innovation and long-standing vendor relationships are all at the disposal of our most important asset - the local branches that serve our contractor customers."
2013 results include 35 new locations from a joint venture formed in April 2012 with Carrier Corporation in Canada, of which Watsco owns 60% and Carrier owns 40%. 2013 results also reflect a 10% greater ownership interest effective July 2, 2012 in Carrier Enterprise LLC, a U.S. joint venture formed with Carrier in 2009.
Operating cash flow for the full year 2013 was $150 million (approximately $4.66 per diluted share) and was $99 million for the fourth quarter. Since 2000, Watsco's operating cash flow was approximately $1.2 billion compared to net income of approximately $1.1 billion, surpassing the Company's stated goal of generating cash flow greater than net income.
Mr. Nahmad added, "2013 was another strong year for cash flow, which we expect to continue in 2014. Our philosophy of sharing increased cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build our network remain cornerstones of our company."
2012 Earnings Per Share on an Adjusted-Basis vs. GAAP Basis
Results for the full year and fourth quarter of 2012 on a GAAP basis include a reduction of diluted earnings per share of 33 cents and 37 cents, respectively, relating to a $5.00 per share special dividend paid in October 2012. Diluted earnings per share on a GAAP basis were $2.70 and 4 cents for the full year and fourth quarter of 2012, respectively. Reconciliation to GAAP measures is attached.