Watsco 1Q Same-Store Sales Fall 2% YoY

Miami-based Watsco — North America’s largest HVACR distributor — reported its 2024 first quarter financial results on April 24, showing a modest same-store sales decrease year-over-year amid what the company said were persistent soft market conditions.

Watco posted total 1Q sales of $1.56 billion that were up approximately 1% year-over-year, but down 2% on a same-store basis.

The company’s 1Q gross margin of 27.5% fell 140 basis points from a year earlier and 10 points from 4Q23. Operating profit of $127 million on margin of 8.1% trailed the $165 million and 10.6% of a year earlier, while net profit of $104 million likewise trailed the $130 million of a year earlier.

By Watsco product line during 1Q (excluding acquisitions):

• HVAC equipment (68% of sales) fell 1% year-over-year
• Other HVAC products (28% of sales) fell 6% year-over-year
• Commercial refrigeration products (4%) of sales increased 2% year-over-year

“While softer market conditions persisted during what is essentially the low-season for product sales, we are currently experiencing growth in end-market demand as we enter the summer selling season,” Watsco Chairman and CEO Albert Nahmad said in the company’s 1Q financial release. “We believe market share gains are continuing, and we are proud to have added three new companies to our family since the beginning of last year. Finally, and most gratifying, we further strengthened our balance sheet and generated record cash flow during a period that typically requires working capital investment ahead of the selling season.”

Watsco noted that its 1Q results reflected stabilizing end-market demand, ongoing realization of OEM pricing actions, progress in the company’s technology platforms and continued investments to drive long-term growth. Additionally, Watsco noted that 1Q24 and 4Q23 are highly seasonal as demand for replacement HVAC systems is typically highest in 2Q and 3Q — ultimately disproportionally affecting 1Q results.

Watsco was No. 1 on MDM’s 2023 Top HVACR Distributors List, and No. 4 for Industrial Distributors. With over 700 locations, Watsco posted 2023 total sales of $7.28 billion.

Technology Transformation

Alongside its financial results, Watsco’s April 24 news release detailed the company’s ongoing technology transformation that is comprised of an “ecosystem of technology tools and platforms” that make it easier for HVAC contractors to do business.

Updates to Watsco’s technology initiatives include:

• Product Information Management, Watsco’s repository of rich product information, is delivered seamlessly through its mobile apps and e-commerce platform. Watsco’s PIM database contains more than 1.5 million SKUs accessible to more than 375,000 contractors and technicians annually.
• HVAC Pro+ Mobile Apps provide customers with real-time access to critical information that improves speed and productivity. This includes real-time technical support, product details, inventory availability, warranty look-up and processing, certified system matchups, e-commerce, and more. The authenticated user community (users linked to an e-commerce account) over the 12-month period ended March 31, 2024 grew 6% to more than 57,000 users compared to the same period a year ago.
• eCommerce sales continue to outpace overall sales growth rates in the first quarter and accounted for 33% of total sales, inclusive of revenues from recently acquired businesses that are now adopting Watsco’s technology platforms.
• OnCallAir, Watsco’s digital sales platform, has increased penetration among HVAC contractors as digital engagement with homeowners expands. The annualized gross merchandise value (GMV) of products sold by customers through OnCallAir® was approximately $1.3 billion as of the end of the first quarter. During the first quarter of 2024, OnCallAir® presented quotes to approximately 61,000 households, a 15% increase, and generated $269 million GMV, a 22% increase over last year.

A.J. Nahmad, Watsco’s President, commented: “Our journey to drive technology adoption at scale has yielded terrific results, but we are even more excited at the opportunities that lay ahead,” Nahmad added. “Our tools and capabilities, which are unique in our industry, are designed to help HVAC contractors of any size grow faster and become more efficient. These investments have driven higher market share and higher growth rates with technology-enabled customers. We believe we are just scratching the surface on the internal technology deployed to enhance margins and operating efficiencies. We remain committed to doing more and transform how our industry operates.”

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