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WATSCO INC (WSO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered record sales and earnings: revenue $1.75B (+9% YoY), gross margin 26.7% (+90 bps YoY), operating margin 7.8% (+110 bps YoY), and diluted EPS $2.37; operating cash flow a record $379M in the quarter .
  • Mix and unit momentum: residential equipment units rose ~16%, equipment sales +14% with consistent growth across geographies; commercial equipment +9%; non‑equipment flat; management cites new customer acquisition and recaptured OEM share as key drivers .
  • Dividend raised 11% to $12.00 per share annually, supported by $782M cash/short-term investments and a debt-free balance sheet; 51st consecutive year of dividends .
  • Strategic narrative: A2L refrigerant transition set to impact 50–60% of sales in 2025; e‑commerce sales grew 16% in Q4 and reached $2.6B (35% of FY sales), with 64k authenticated mobile users; OnCallAir GMV reached ~$1.5B in 2024 .
  • Estimates comparison: S&P Global consensus data was unavailable at time of retrieval due to system quota limits; unable to assess beat/miss vs Street for Q4 (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Record quarter with improved efficiency: “Watsco had a terrific fourth quarter, achieving record sales and earnings, improved operating efficiency, expanded margins and record cash flow.” — Albert H. Nahmad .
  • Strong unit momentum and share gains: Residential units up ~16% with price/mix tailwind; new customer acquisition cited as the “greatest component of growth” this quarter .
  • Technology scaling: e‑commerce +16% in Q4 (35% FY sales); 64k authenticated mobile users; OnCallAir GMV ~$1.5B; management highlights digital tools enabling faster specification, pricing optimization and SG&A leverage .

What Went Wrong

  • Non‑equipment softness: Other HVAC products were flat in Q4 and down in Q3; commodity-linked items (refrigerant, copper) remained slow, though parts saw double-digit growth .
  • Margin headwinds earlier in 2024: Co‑investment to recover share with a primary OEM diluted gross margin by ~30 bps for the nine months ended Sep 30; product mix (equipment outpacing non‑equipment) also weighed on margins .
  • A2L near-term margin mechanics: Management expects gross profit dollars to rise with A2L, but gross margin percentage may not expand initially; container availability for 454 refrigerants poses a near-term logistical constraint .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$2,139.3 $2,160.0 $1,754.0
YoY Revenue Growth (%)+7% +2% +9%
Gross Margin (%)27.1% 26.2% 26.7%
Operating Income ($USD Millions)$268.8 $250.2 $136.2
Operating Margin (%)12.6% 11.6% 7.8%
Net Income Attributable to Watsco ($USD Millions)$181.4 $171.0 $96.8
Diluted EPS ($)$4.49 $4.22 $2.37
Operating Cash Flow ($USD Millions)$58 (quarter) $394 (nine months) $379 (quarter)
Consensus Revenue (S&P Global)N/A (unavailable)N/A (unavailable)N/A (unavailable)
Consensus EPS (S&P Global)N/A (unavailable)N/A (unavailable)N/A (unavailable)

Segment/Product Mix

SegmentQ2 2024Q3 2024Q4 2024
HVAC Equipment (% of Sales; YoY)71%; +8% 71%; +1% 69%; +14%
Other HVAC Products (%; YoY)25%; −1% 25%; −2% 27%; flat
Commercial Refrigeration (%; YoY)4%; +1% 4%; −4% 4%; +4%

KPIs and Technology Metrics

KPIQ2 2024Q3 2024Q4 2024
E‑commerce Sales (% of total)36% (inclusive of acquired revenues) 35% 35% (FY 2024)
E‑commerce Growth+13% (quarter) +5% (9M) +16% (Q4)
HVAC Pro+ Authenticated Users~60k ~61k ~64k
OnCallAir GMV~$1.4B (TTM) ~$1.4B (TTM) ~$1.5B (FY 2024)
OnCallAir Households~160k (1H) ~258k (YTD to 9/30) ~313k (FY 2024)
Product Information Management (PIM) SKUs~1.5M ~900k ~930k

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Annual Dividend RateFY 2025 (effective April 2025)$10.80 per share (effective April 2024) $12.00 per share Raised 11%
Revenue/Margins/Tax/OpExN/AN/AN/ANo formal guidance provided in Q4 documents

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
A2L TransitionOEMs “last call” on 410A; expected ~8–10% price uplift; transition blending across 2025; residential ducted “flat” YTD; ductless up double digits A2L to influence 50–60% of sales; full engagement by early Q2 2025; gross profit dollars up; margin % initially flat; indoor unit/safety components drive full-system replacements Accelerating into Q2; pricing uplift with limited near-term margin expansion
Technology & E‑commerceE‑commerce 13% growth in Q2; 36% of sales; ~60k mobile users; pricing tech and SG&A leverage emphasized E‑commerce +16% in Q4; 35% FY; ~64k users; pricing platform helps margin/EBIT leverage Scaling across customer base; stronger adoption
Tariffs/MacroChina-related tariff impacts expected; Mexico risk uncertain; pricing actions near 8–10%; hurricanes seen as localized disruptions China tariffs passing through pricing; Mexico tariff risk unknown; container availability constraints for 454/32A Pricing tailwinds possible; supply chain watchpoints
Product/Segment MixEquipment outpaced non‑equipment; commodities stable but lower dollars; heat pumps outpacing furnaces; ductless strong Q4: equipment +14%, non‑equipment flat, commercial +9%; parts double‑digit growth alongside equipment Mix improving with parts uptick; equipment-led growth sustained
OEM Supply/Share RecaptureCo‑investment to recover 2023-affected OEM share; ~30 bps margin dilution YTD Continued recovery; one OEM <10% of sales; growth not solely driven by recovery Recovery ongoing; diminishing margin drag expected

Management Commentary

  • “Watsco had a terrific fourth quarter, achieving record sales and earnings, improved operating efficiency, expanded margins and record cash flow.” — Albert H. Nahmad .
  • On strategic priorities: “Transition to A2L products is well underway… providing incremental opportunities for growth and share gains as our technology platforms gain more adoption.” — Albert H. Nahmad .
  • On technology: “We have opened two pathways for AI-related initiatives… to bring technical know-how to our contractor community… and derive more productive content creation internally… already witnessing productivity gains.” — A.J. Nahmad .
  • On margin ambition: “Our aspiration is a 30% gross profit margin… we think it’s possible, and we have the tools and the means to get there.” — Albert H. Nahmad .

Q&A Highlights

  • A2L timing and margin mechanics: Transition from 410A to A2L largely complete by early Q2 2025; expect higher gross profit dollars but initial gross margin % stability; pricing uplift around 8–10% .
  • Pre-buy debate: Management sees little evidence of material contractor pre‑buy; inventory units flat vs two years ago; distributor (Watsco) remains the primary inventory holder .
  • Non‑equipment dynamics: Commodities slow, but parts posted double-digit growth; indicates both repair and replace occurring simultaneously .
  • Tariffs and pricing: China tariffs leading to price increases; Mexico risk uncertain; caution that OEM price increases don’t automatically expand distributor gross margin percentage .
  • Refrigerant logistics: Availability issues tied to special containers for 454/32A rather than refrigerant supply; monitoring field requirements .

Estimates Context

  • We attempted to retrieve S&P Global (Capital IQ) Wall Street consensus for Q4 2024 EPS and revenue, but data was unavailable due to a system daily limit (“Daily Request Limit of 250000 Exceeded”). As a result, we cannot definitively assess beat/miss versus Street for Q4 (values unavailable via S&P Global at time of request).

Key Takeaways for Investors

  • A2L transition should drive higher revenue dollars and unit activity through mandated full‑system replacements; near‑term gross margin % expansion may be muted, but SG&A leverage points to EBIT margin opportunity as volumes scale .
  • Technology adoption is a structural advantage (pricing optimization, mobile apps, e‑commerce, OnCallAir) enabling share gains, new customer acquisition, and improved efficiency; sustained e‑commerce penetration at ~35% of sales anchors this narrative .
  • Dividend policy remains a shareholder return catalyst with an 11% increase to $12.00/year, backed by $782M cash/short-term investments and no debt; provides resilience and optionality for M&A and organic investments .
  • Mix watch: equipment-led growth and parts strength are positives; non‑equipment commodity softness and prior OEM co‑investment dilution were headwinds earlier in 2024, but should fade into 2025 as recovery completes .
  • Ductless and heat pumps remain secular growth vectors; management continues to highlight ductless outperformance and electrification tailwinds relative to traditional furnace demand .
  • Macro/tariff watchpoints: China tariffs support pricing, while Mexico policy risk is uncertain; logistics constraints (containers for A2L refrigerants) bear watching in early 2025 .
  • Near-term seasonality: Q4 and Q1 are seasonally lighter; management emphasizes Q2/Q3 as strongest; use mix shifts and technology-enabled pricing to monitor margin trajectory through the A2L ramp .

All data points, quotes, and tables are sourced from the company’s Q4 2024 8‑K press release and earnings call transcript, and prior quarter documents, as cited above.