Watsco Reports Record Fourth Quarter Sales, Expanded Margins, and Record Cash Flow

Watsco, Inc. (NYSE: WSO), the leading distributor of air conditioning, heating, and refrigeration products in the Americas, has reported record-breaking results for the fourth quarter and full year 2023. The company's strong performance was driven by its entrepreneurial culture, transformational technologies, and a robust financial position. Watsco's sales, gross profit, operating profit, net income, and earnings per share reached their highest levels ever, reflecting the company's ability to navigate market conditions and capitalize on growth opportunities.



Fourth Quarter Results
Watsco's fourth quarter sales increased by 1% to a record $1.60 billion, with a gross profit of $414 million and a gross margin of 25.8%. The company's operating income was $108 million, representing an operating margin of 6.7%. Earnings per share (EPS) for the quarter were $2.06, compared to $3.55 in the same period last year. Operating cash flow for the quarter increased by 40% to a record $299 million, including a $208 million reduction in inventories.

Sales trends for the quarter showed a 2% decrease in sales, with flat sales for HVAC equipment (69% of sales), a 6% decline in other HVAC products (27% of sales), and a 3% decline in commercial refrigeration products (4% of sales). Despite the slight decrease in sales, Watsco's unit volume for unitary HVAC systems decreased by only 8% during the year, compared to a 15% decline in annual OEM shipments of unitary HVAC systems. This more balanced performance reflects Watsco's ability to capture market share even in challenging industry conditions.



Full-Year Results
For the full year 2023, Watsco's sales increased by 5% to a record $7.62 billion, with a 3% increase in gross profit to a record $2.04 billion. Gross margin was 26.8% compared to 27.4% last year. Operating income for the year was $782 million, representing an operating margin of 10.3%. Income before income taxes increased by 2% to $803 million, and net income (attributable to Watsco) was $536 million, flat with last year. EPS for the year were $13.30 versus $13.67 last year. Operating cash flow for the year increased by 38% to a record $773 million.

Sales trends for the full year showed a 5% increase in HVAC equipment (70% of sales), a 2% decline in other HVAC products (26% of sales), and a 1% increase in commercial refrigeration products (4% of sales). Watsco's strong performance in 2023 was driven by its ability to execute on its growth strategy, capture market share, and maintain a strong balance sheet.

Albert H. Nahmad, Watsco's Chairman and CEO, commented on the company's performance: "Watsco had a terrific fourth quarter, achieving record sales and earnings, improved operating efficiency, expanded margins, and record cash flow. Looking ahead, the transition to A2L products is well underway, providing incremental opportunities for growth and share gains as our technology platforms gain more adoption in the marketplace. Our teams continue to lead and innovate, and I am optimistic that our industry-leading scale, entrepreneurial culture, technology advantage, and financial strength position us to continue to capture growth and share."

Watsco's strong performance in 2023 reflects the company's ability to execute on its growth strategy, capture market share, and maintain a strong balance sheet. With a debt-free balance sheet and a 10% annual dividend increase to $10.80 per share, Watsco remains well-positioned to invest in most any-sized opportunity to build further scale in the highly-fragmented North American HVAC/R distribution market.