Exhibit 99.1
Watsco Reports Record Second Quarter
Sales, Earnings and Earnings Per Share
COCONUT GROVE, FLORIDA, July 21, 2005 – Watsco, Inc. (NYSE:WSO) today announced record operating results for the second quarter and six months ended June 30, 2005. The 2005 results for the quarter and for the six-months include the results of East Coast Metal Distributors, a Sunbelt-based HVAC distributor with 27 locations acquired in January 2005.
Earnings per share for the second quarter increased 12% per diluted share to a record 81 cents on net income of $22.4 million, compared to 72 cents per diluted share on net income of $19.4 million in 2004. Revenues grew $70 million, or 19%, to $443 million with HVAC revenues growing 3% on a same-store basis. Operating income advanced $4.9 million, or 15%, to a record $37.1 million with operating margins of 8.4%. On a same-store basis, operating margins were 8.7%, consistent with a year ago.
For the first six months of 2005, earnings per share increased 18% per diluted share to a record $1.14 on net income of $31.6 million, compared to 97 cents per diluted share on net income of $26.0 million in 2004. Revenues grew $138 million, or 21%, to $789 million with HVAC revenue growth of 5% on a same-store basis. Operating income increased $8.9 million, or 20%, to a record $52.9 million with operating margins of 6.7%. On a same-store basis, operating margins improved 10 basis-points to 6.9%.
Operating cash flow was $23.5 million during the quarter compared to $12.1 million a year ago. For the six month period, the Company used cash of $6.5 million to fund its working capital needs compared to $13.3 million in 2004. Cash flow is expected to grow substantially by the end of 2005 as the second half of the year is typically a strong seasonal period of cash flow. Outstanding debt at June 30, 2005 declined 17% to $50.1 million and the Company’s debt-to-total capitalization ratio improved to 10% from 13% last year.
“Our performance in the second quarter is even more satisfying as we reached record levels in sales, earnings and earnings per share in an industry-wide soft market,” commented Albert H. Nahmad, Watsco’s President and Chief Executive Officer. “2005 is off to a terrific start and we are optimistic that we will continue to operate at record levels this year. Longer term, we are also enthusiastically executing our strategy of building a national network that provides the finest service and product availability to HVAC contractors.”
Watsco will be holding its investor conference call today, July 21, 2005 at 11:00 a.m. Eastern Time. Shareholders interested in participating may call (877) 391-0532. Internet users can listen to a live webcast of the conference call on the Investor Relations section of Watsco’s website athttp://www.watsco.com.
Watsco is the nation’s largest distributor of air conditioning, heating and refrigeration equipment and related products in the distribution segment of the HVAC industry, currently operating 344 locations serving over 38,000 customers in 31 states. The Company’s goal is to build a national network of locations that provide the finest service and product availability for HVAC contractors, assisting and supporting them as they serve the country’s homeowners and businesses. Additional information about Watsco may be found on the Internet athttp://www.watsco.com.
This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive market, regulatory and other factors, including, without limitation, the effects of supplier concentration, competitive conditions within Watsco’s industry, seasonal nature of sales of Watsco’s products, insurance coverage risks and final GAAP adjustments. Forward-looking statements speak only as of the date the statement was made. Watsco assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Detailed information about these factors and additional important factors can be found in the documents that Watsco files from time to time with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.
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WATSCO, INC.
Consolidated Results of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended June 30, | Percentage Change | Six-Months Ended June 30, | Percentage Change | |||||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Revenues | $ | 443,030 | $ | 372,636 | 19 | % | $ | 788,982 | $ | 651,351 | 21 | % | ||||||||||
Cost of sales | 331,505 | 276,538 | 590,032 | 483,806 | ||||||||||||||||||
Gross profit | 111,525 | 96,098 | 16 | % | 198,950 | 167,545 | 19 | % | ||||||||||||||
Gross profit margin | 25.2 | % | 25.8 | % | 25.2 | % | 25.7 | % | ||||||||||||||
SG&A expenses | 74,410 | 63,841 | 17 | % | 146,026 | 123,499 | 18 | % | ||||||||||||||
Operating income | 37,115 | 32,257 | 15 | % | 52,924 | 44,046 | 20 | % | ||||||||||||||
Operating margin | 8.4 | % | 8.7 | % | 6.7 | % | 6.8 | % | ||||||||||||||
Interest expense, net | 978 | 1,159 | (16 | )% | 2,023 | 2,314 | (13 | )% | ||||||||||||||
Income before income taxes | 36,137 | 31,098 | 16 | % | 50,901 | 41,732 | 22 | % | ||||||||||||||
Income tax expense | 13,731 | 11,711 | 19,347 | 15,716 | ||||||||||||||||||
Net income | $ | 22,406 | $ | 19,387 | 16 | % | $ | 31,554 | $ | 26,016 | 21 | % | ||||||||||
Basic earnings per share | $ | 0.86 | $ | 0.76 | 13 | % | $ | 1.21 | $ | 1.02 | 19 | % | ||||||||||
Diluted earnings per share | $ | 0.81 | $ | 0.72 | 12 | % | $ | 1.14 | $ | 0.97 | 18 | % | ||||||||||
Weighted average shares and equivalent shares used to calculate: | ||||||||||||||||||||||
Basic earnings per share | 26,044 | 25,455 | 25,989 | 25,384 | ||||||||||||||||||
Diluted earnings per share | 27,771 | 26,920 | 27,663 | 26,821 |
(Note: Information in the attached press release referring to “same-store basis” excludes the effects of locations acquired or locations opened or closed during the prior twelve months.)
Condensed Consolidated Balance Sheets
(In thousands)
June 30, 2005 | December 31, 2004 | |||||
(Unaudited) | ||||||
Cash and cash equivalents | $ | 5,615 | $ | 85,144 | ||
Accounts receivable, net | 208,776 | 145,213 | ||||
Inventories | 254,482 | 218,704 | ||||
Other | 9,711 | 8,638 | ||||
Total current assets | 478,584 | 457,699 | ||||
Property and equipment, net | 16,280 | 15,093 | ||||
Other | 168,206 | 135,497 | ||||
Total assets | $ | 663,070 | $ | 608,289 | ||
Accounts payable and accrued liabilities | $ | 164,698 | $ | 137,103 | ||
Current portion of long-term obligations | 10,081 | 10,056 | ||||
Total current liabilities | 174,779 | 147,159 | ||||
Borrowings under revolving credit agreement | 30,000 | 30,000 | ||||
Long-term notes, net of current portion | 10,000 | 20,000 | ||||
Other long-term obligations | 10,424 | 8,392 | ||||
Total liabilities | 225,203 | 205,551 | ||||
Shareholders’ equity | 437,867 | 402,738 | ||||
Total liabilities and shareholders’ equity | $ | 663,070 | $ | 608,289 | ||
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