- Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the Watsco Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Albert Nahmad, Chairman and CEO. ahead. go Please

Albert Nahmad

Barry Welcome is everyone. me third earnings Paul quarter A.J. Gomez. Good Nahmad, to Chairman This Johnston, company; the Al President with and and call. Rick Nahmad, morning, of our Logan CEO, is and

forward-looking cautionary our laws. materially laws forward-looking Harbor SEC this conference regulations provisions the Ultimate Safe that differ are statements. of Before statements usual call the defined various as results we may from statement, start to these by and has made pursuant

to record operating on record to XX% business. record will quarter We quarter. Sales another a believe Now we third a be the our delivered $X.XX performance record quarter. grew to what for builds $XXX This XX% income a million. and on billion increased year

increased XX% a and to nine $XXX So $XXX record increased to sales increasing far months nine Year-to-date a month improved to billion million. also XX% record profits operating million. flow $X.X cash XX%

the our the have earnings our gratifying dividend growth, given might in years periods in our per in XX% to the believe Now, announced January history. challenging expectations $X.XX annual most Thought we our last share the cash and today comment XXXX. among also I increase effective two at confidence business, been of and flow that in we most

to value our industry that stability Our and products we growth for speaks the the and sell provides fundamental the necessities and of businesses. homeowners

to the market also over we has focus, past years $XX things our Given infrastructure Watsco our billion share technology build invested and in two long-term do these in market. people, and

leadership really industry improve years. network. to expect does have international industry maintain the taking normalized, it We have operation manufacturer. chains more efficiencies place important Watsco that with the we the the working coming every the read manufacturer develop an relationships this Many to our initiatives. more why challenged with morning's understand We're growth are urge and company and future. OEM collaboration closely also time exciting all virtually fundamentals views we release. our given demand our partners forward-looking right investors changes in industry supply good with As do I and across believe productivity believe release domestic and to to our we of in is press is

an most have They market grow customers. help we're advantage immense advantage. share. technologies attrition technology grow reduce important We bring customers us help and and existing that they gain new customers investing and they our of These in to

OnCall into more platform user Our users. active growing. And to that's XX% XX,XXX year technology Air, that a community this than has reaches grown homes, keeps

increase to year the a in sales That serve contractors diversity XX% important and Watsco's households During any and an is contractors for households. competitive customers. last quotes a That allows economic quarter us has environment. generated to $XXX XX% in products increase. advantage brands XX,XXX contractor of presented is is million approximately our over in that

also HVAC greatest have Sun both the position necessity market of Belt is where a migration population is absolute. most in markets, and products We share leading the

you if Belt. the heating live You and got to in have cooling Sun

addition, In next out that for important years. there few play growth several catalysts will are in the

will existing potential now systems used lower-GWP that in mandates refrigerants new For are millions in millions But introduction of across our out XXXX States. with XXXX, we'll place in phase United standards Price warming will systems. HVAC federal refrigerants. equipment, mark benefit entire of higher-efficiency these in results. Federal to points will minimum and XXXX the the efficiency products associated HVAC and increase incorporate the high increase global should

which cycle. of and generally heating higher a heat long replacement in a through pumps, systems movement more use We a run, margins; the higher strong shorter also of see at towards come electrification the price;

nine XX% provides Inflation months credits effect Reduction first Our sales year, during overall growth in The quarter, also efficiency outpacing the of takes the and and next heat which tax sales new XX% incentives interesting Act, and the pumps electrification. rates. upgrades qualified grew for

basis that efficient homeowners and financial this will, scale, to is for these position and to opportunities. for be provides believe market and friendly. new of upgrade certainly more good climate capture time, systems change businesses over All more all We And the Watsco. and technology for good strength of this us environmentally our

position I'd almost of ourselves condition to grow balance like remains we that And of balance our With today's to business. that, fund are in in we with concern that Q&A. say always so go invest size to growth in sheet on any can coming in financial Finally, to years. our we pristine sheet strength. a let's opportunities investment

Operator

now We question-and-answer come our go Instructions] first from ahead. Inc. of will [Operator the Moll Tommy question And will begin Stephens Please session.

Tommy Moll

Good morning.

Albert Nahmad

Good morning.

Tommy Moll

questions. Good morning, taking Al. Thanks for my

Albert Nahmad

Of course.

Tommy Moll

where with still that operating industry I And in Wanted you pressured opportunities to more period show pressured, through to might can, a volumes you be it might share finding are of is If about, actually think to normal on how follow environment. you industry reconcile? Is that fundamentals? presume otherwise up should tension in the on can applies. you a able comment continue market efficiency extent natural we to intentioned there we that there after go go regarding your leverage a period business a But SG&A? more

Albert Nahmad

Logan A.J. an Paul and Barry that's to and going have I'm Nahmad. excellent think that I answer Johnston question, and

going You're get a to here. trifecta

Barry Logan

yet, do our and have they the response to supply add, OEMs and going told was stuff. do just we first, sense can but capacity, met bizarre, we to of brand brands to going and you almost what give with, grow, last can been you The conceptual general what wait. attest what you'll that difficulty. saying, go can and OEMs Really two have it's have say, grow and supply that chain to to we to have environment, with do honestly, to with And OEMs help constraints. grow, chain you be Tom, years to of and and are where in of I to go market incrementally we and kind some to how manufacturing how OEM to part product we

on So now brands go of think chain grow year. they do to and through ahead supply couple the doesn't important going how It beyond our better. big use use that's and years how do of transition much We our use our as But still next do. use to is how have We're everything with product to the opportunity do head more with a next a we are. presence, and have relationships we do discussion us play There's unique do to opportunity structure, where that that efficiency. offense. very into do we balance our we our sheet we how our has grow technology, to we in

think story kind aside as put to I tell. strategy. of I it's So a And a discrete very efficiency simple would on that the again side,

prosecute item inflation and the the that's lot to it serving going with it to took has environment. go really a of been customers. in And to years. have fire going serve a have customers both critical nothing drill were two in supply in We in were time serve going this the customary, on customers real execute environment. been as to the on, of but strength dealing this no at nothing a chain, wild has look we ordinary the strategy, by difficulties have do going you the been anything We There cost at market, you really to

the Al our environment. looking cost, at season at as So as looking leadership, back into anything? is efficiency, and the looking and into to challenging cost of clear get about we're to from in out more the productive them to we at very at shoulder here Paul, message technology looking season clear, business, that the has serve, message head be extremely fall, the stepping we made next

Paul Johnston

to dysfunction was productivity, the disruption – obviously indoor systems, basically being having one warehouse. unit a unit and outdoor our that up in caused another chain It's able around Yes. an an in supply in warehouse match and

make together be they put the so customer to that they stretch we that complete our that satisfy people were could able on. did it to to the pieces So were the able and job sure

And that all improve efficiency said, so our people. dysfunction, create the in our that tools to with I provided some as did the we ability to

and thing be the the second to beyond. And as hopefully reduce number the now SKUs. we hopefully, to long-term going go to product chain. simplify through we're that transition into through is, going of obviously going a we'll going benefit going It's that XXXX The it's to new from supply have the line,

Albert Nahmad

A.J.?

A.J. Nahmad

do coming of and give lots in coming Yes, XXX receive to and in hope to at of opportunity we so we ability them move millions customer given improve – our and expect like locations and more right policy, we'll million so or get X have receive start a place processes, locations the every process surge or of in of to humans a hope to challenges quantity, – customer demand, have to right XXX And out. in improve said, I'll to in, things as orders to move And like right supply or product touches we of on. year. product going them you accurately the of products lots chain of with smoothly and the heart little and and to lots product to filled bit we'll various around if receive not down, the the or time on touching also take or the not and our the now Barry to was fulfill times. efficiently. add with receive the products, chain, forklifts there's technologies, in, We our those receiving That's of And fill product scale. receiving all because necessarily some supply the have when vehicles calm less, we time that customer receiving you but care the the to we the some have them improve customers. orders, figures the products. of just roughly orders product lot then there's products our in Product sense around "normalize", and going continue and we'd our them, scrambling – policy Well, our will, quantities

productivity So and operation that chaos really as drive trying scale And some efficiency of system. through can you I'm and we some down, the of give the calms chaos the the just ensued. sense now to

Tommy Moll

remain helpful, you for of just to were that, helpful. to quotes we down clarify maybe a thank you. All and be view users just quarter-over-quarter. noise would there's that any that's were you'll coming could discuss. a discussion that of to you meaningfully points technology quarter. want KPIs I follow-up it OnCall those it give out And Any Is would could realize I us couple there investment? could as meaningfully contractor-assist quarters lot separate hit give here, those you extent data you guess, a every very on to investment. wanted the of on in I technology noted the trends, that up I safe But say, Air to forward-leaning, assume and as a well. helpful you be Thank I us quarter-over-quarter. the throw –

A.J. Nahmad

I don't that Barry? think is OnCall Right, accurate. Air specific last quotes?

Barry Logan

third you versus at? or say quarter When you're quarter-over-quarter, looking what Is second sequentially? that you're about talking quarter,

Tommy Moll

Correct.

A.J. Nahmad

in Yes. look I ahead, because there seasonality Air Barry. it go mean, We – the OnCall yes, starting had with year-over-year business. to But at is

Barry Logan

there aspect that answer. say would I No. Yes. seasonality to a is

A.J. Nahmad

performance business is to Air sales of a higher more Right. non-users. which And rate units. leads the significantly us us, But is marketplace I times with ours thriving. and no, mean, their their with growth it, in is purchases than the more customers our winning that are They're that growing from number, OnCall using

parts we how happened to an really operate the processes, general, a our that impact we including ability fulfilled all that are customers. what higher. technology, much our and how experience company use the find cliché people's I'd And As products. answer company? we in to products we continue just it's are a yes. their that and lower like will as we using our lean to attrition modernizing that really we to umbrella maybe able need, for are of and be now it's do, us as HVAC and orders delivered and we technology skill and touches are customers is Their they are say as systems, it's rates customer-focused, with company, It customers are who And technology-driven and in to quickly accurately. growth get really, means The their The our term. become far or their appreciated. sell technology technologies and better sets, rates significantly technology all are

it's grow using continue those to continue we have from tools. that of who nearly – the ability do. believe our far we don't customer market our take in offering customers – technology And from So our depth an or as breadth share impact numbers competitors to made as we our the

Tommy Moll

Thank I turn both. you will it back.

Operator

of next from Research. Coe Nigel Wolfe comes The Please question ahead. go

Albert Nahmad

Good morning, Nigel.

Nigel Coe

it How the Thanks. is Hi, for going? thanks So, hi. question. yes,

SEER into just wondering your curious it the we about of wondering sounds inventories how XX year-end of go as as dynamic into a kind it we well. year-end. third versus in like Just inventories – should looked you're managing versus XQ inventory think how quarter, of levels seasonal course path more about XQ. But XX lower And back on we're and SEER

Albert Nahmad

qualify any will few in the the wouldn't would and have or be that are the conscious great South All mandate of hope Paul. two to I South. very Those very give but inventory generalize is that, let that not you me we be in given in-depth We're more units efficiency lower, questions. can

Paul Johnston

Yes. we Nigel, smooth become in have we basically South. units a those monitor sure the in at when the obsolete South year-end units landing that to straight-cool the make

late going on feel the products, new right receive in to trajectory to we there. the beginning early We're November. So hopefully, we're October,

guide we'll So products more heat will expensive product us product inventories up speaking, in the we pumps, at little now business be into on a the product through sufficient quarter fourth to bit new January to in existing areas. are restrained and Xst. set the have least right product be we certain on first quarter. than instance, generally other in for And But have. the The be areas

Nigel Coe

don’t around, you throw Great. want Thanks if Paul. this the price products mix really I is residential. in to And then just in quarter HVAC my follow-on impact know out

Albert Nahmad

did. we Yes,

Nigel Coe

like that you You do sometimes. do

Albert Nahmad

we that. did do Yes,

Nigel Coe

Sorry.

one. go I'm back that that. sorry. to Okay. I'll I missed

Albert Nahmad

in release press the It's Nigel.

Nigel Coe

think obviously it. what Got Okay, as opportunity And you what for in the about, is you concerned? the just but terrible. eyesight mentioned got My it. hurricane as if quarter? tragedy wondering But is saw you Florida, HVAC we rebuild do impact a from far see the

Paul Johnston

outside, wall, its did filling $XX an of there we somewhere was of QX is million in into the And very our would the of XX taking Myers, of were branches out pushed was that had It's Paul. XX one here. of open between right $XX them quarter? were and so hurricane is This or live branches job was the going hurricane our there I probably I and What to been I their feet I'm proud lose perhaps was business and the XX middle the trucks had lost. within missing hours visiting to in I've either tours say, say and branch orders. Fort doing that up we estimate, worth And our in and lined staff million – be zone to after passed. XXX we

However, in It's marketplace got size three state equivalent presence that a the we've counties We've got is the XX a very Louisiana. branches. to the about strong were impacted. which of market of share

in expect So, some as It's see are here help that normal business, the everybody marketplace. to obviously get work but this their we creates again. begins, lives to tragic upside we

Albert Nahmad

another quarter, locations say some had add was that I that, just an irritation watch that under during we there hurricane Yes, XXX color had XX sure about hurricane the I'm warning would to distraction. under

immediate insurance a conceive flowing markets this market out is systems. like to claim As a $XX and there we in collectively aggregate quarter What destruction some the where fix there like this. that short is of capital have billion into other into seen just plays in is fourth term, requirements

either or portion stuff $XX billion of that or remodeling, of is our building case. is some that And rebuilding, that part retrenching, new in

within it's there opportunity those destruction. just one our events markets again, longer tail but witnessing those than that's where for a the some So old an business. we is one are of to And quarter, extent

Nigel Coe

Right.

Thanks. Okay.

Albert Nahmad

of add that employed none, quite of bit employees, hurricane. any we which the our care of happy lot, the injury were serious – areas I'm to to during a who no a

Paul Johnston

Thank much. man, very you Oh

Operator

comes The from next Hammond question ahead. go of Capital Please KeyBanc Markets. Jeff

Jeff Hammond

guys. morning good Hey,

Albert Nahmad

Hey, good morning.

Jeff Hammond

back So to your I on and from is Maybe quarter. said more building I'm and you times to you're much just Al that's of wanted wondering around just, so what's I if the Nigel’s of but know HVAC. we've what kind products be comment, come some lower OEMs a lead on going don't area, seasonal questions bring seeing inventory. want other kind and you parts destocking just of to inventory think, suppliers in fourth the And willingness levels the speak inventory lead see in seen just normal? as to not just kind aggressive And times,

Albert Nahmad

would in they on than would a not, speaking not manufacturers I to either Well more they send the deliver but could, the they the out or generally not say able indoor unit. but outdoor were cases unit, did order best time the complete

sell that we we had to products they we're catching something be going are weren't since up, especially the out And able the the getting systems, until thing. towards to the with fulfill of that inventory of end sort so complete that is part are to second the in of going order, they improving add inventory new coming the be and And in will to of the the the come but view going inventory. I what's better only not in because that? year. cash that's inventory, mix And investing down, to the why, everything will want to come Anybody the flow of point think, get of down

A.J. Nahmad

Yes.

number process able obviously of for inventory hope to us is be more of what efficient able they makes one And indicated come so reduction down, I manufacturers hope also that the need. inventory provide that higher that should SKUs a at it the the lower as to the fairly is number SKUs is to products have the that that to the our products our good the earlier; efficiency feature handle. for think have to and it about us we change manufacturing make this in same a the I large we right simpler time, be will we a

demand the We're still indicated So, we'll haywire years go sporadically we something and commercial problems. we in increasing the press as of over manufacturing pumps, will the products. ductless on demands still There shortage on several seen heat continuous seeing and demand last some we're something. release at that products a plants have have having experiencing we've increasing a we're on is increase

Albert Nahmad

can what strong from inventory? Well, reason another which why good about see October growth, numbers throw in the the I is feel

Jeff Hammond

great Okay, color.

been on has gross there lot Just of I margins that. questions on a know

think kind I calls improvements of Barry couple new some you structural the about gross XX% last of talked target kind of margins. a of and

are XXXX Thanks. to as of some quarter. for there you that's reasonable think kind if I'm just dip into of we or inflation that XQ the I below this if wondering and target a start maybe normalizes.

Albert Nahmad

Barry on? you are

Barry Logan

raised Yes, very gross speak component during the price quarter, quarter Jeff, the some margin. the I is let's business, the key points. in the was of just the first business basis during profit narrowly cost in our selling What call am. and quarter quarter, is to XX color we third give effectiveness about about that simply what

out reason will were we that that will year. aspect a the of seeing not this – raw is selling much play So margins of as products to think we kind that rest us higher change of still in there margin

the is is there vendors so profit we that's there away in extent a The there the profitability are flow we in of there pay pay that also that was quarter quarter. took part profit And incentives, paying rebates And that the vendors And gross are equation. when volatility of vendors. positive. some this to and that cash discounts, vendor negative are volatility gross how

quarter margin this So conversation. meaningfully one the that's is a term, good news price increased short cost quarter. selling term Longer the actually

Albert Nahmad

healthy you part of The business. our selling That's margins, again. the there go

Jeff Hammond

color. great guys. Okay, appreciate it I that's

Operator

ahead. question next Please go from The William comes of Merkel Blair. Ryan

Albert Nahmad

Ryan. Good morning,

Ryan Merkel

good Hey, Good morning. morning.

So I gross margin on questions. the wanted to up pick

but a rebates positive that saying So are points positive there being offset year-over-year lower? XX just what to of that clarify, by was basis price was you costs,

Albert Nahmad

Yes.

Ryan Merkel

rebates one And seeing quarter? past. would the if so that case, that’s the lower why be in in recall I ever much don't

Albert Nahmad

where the kind year level of out because versus and of this been a that's later. have of And activity a purchasing of funkiness year inventory It's ago the play chunk year. have the volatile activity receipts and receipt that

So a points I benefit about was ago bit a to a of that say basis talking there pocket. We're XX year air to would in profit perspective. a relative in later timing of an put the inventory year gross of receipts

Ryan Merkel

it. Got

gross were flat Okay. positive margins year-over-year, the offset was And the so part then cost? other what price that

Barry Logan

freight an the was moving freight when where we're around we and talking for all we quarter Freight, products gross moved negative in inefficiency inter-branch the year-over-year. talk products that in profit reasons about around about that's

Ryan Merkel

I got it.

Okay.

next positive how about evolve then? situation do a the those bit. you about we price will be cost think couple How will trend I those then presume quarters? think other would So And pieces? the in the for of us that what with do

Barry Logan

probably have does and a as it of And third the which the inventory in far now as reduce be think, those same back we I improve extent one And to as inventory look year year ago, from to small purchasing patterns. did still better, go we what could an as a last to normal in of seasonally, rest but irritant. would volatility around, we I the back the And the saw a year; moving go actually is it's again, that year what is don't that. I versus at but quarter. to opportunities there think of amount inventory through margin. Yes,

Ryan Merkel

Okay.

Barry Logan

a baseline. as still our of would with I target So, stick XX%

those quarter year. out of or we this as next into talking And goes volatility flattens get we're away about some that

Ryan Merkel

Got it.

at. Okay. driving That's what I was

then last in want And price go impact mix just for change. question, to back that the thanks my to I So XXXX year from Barry. this

would out new actually increases there of base I hearing think mid-teens is X%, of year. OEMs a Are those price be over are mathematics we're think price right I numbers? up price there the units, And the I on some right? carry year what could is be that X%, So, XX. for sort next with Is mix lot X%, think and up from the this

Barry Logan

but, is this say announces XX% it on these and Everybody high. a you it’s somewhere price XX% would some going to I are what I around is probably, think, a range. of we're to my guess see little probably to going settle the increases part,

Ryan Merkel

I see.

it. Okay. Great, thanks that. for Appreciate

Operator

The next question Baird. Please Manthey go comes David from ahead. of

Albert Nahmad

Good morning, Dave.

David Manthey

Al. Hey, morning Good good everyone. morning

that pricing that you So question, subject this and tubing before, and of steel parts playing off could of that sort might I your like be apologize if of but the supplies deflation, thing? I that to me and percentage products ductwork more copper asked remind commodity

Albert Nahmad

Paul? Good question.

Paul Johnston

is largest it at, of production it another We the a us is then steel. steel. which generally is think, parts it's Yes, of I ductwork. throughout tubing, And is It's our which for to that the representing business area general Refrigerant portion used five lot four which, of next it. sell look price copper we compressors years. is is pressure in and upward the XXXA going have to mostly motors

side that from got the insulation everything couple products, SKUs into ductwork up the On probably a that duct hundred product. we've when gosh the grills, flex you get supply there, to registers, it's thousand goes

David Manthey

see does products components inflation, retrench? about represent that of tubing what and types copper what that Paul when are just that But the of are obviously might like inflation, commodity your some equipment percentage deflation that given at heavy sort you mix seeing and refrigerant of as prices commodity very thinking look steel,

Paul Johnston

number, It to have would I would but say, south hazard, exact would be, just it an X%. give be you I'd of

David Manthey

Okay, yes.

Albert Nahmad

which hazard with there, It have commodity the I'm even at to again, right commodity that. group, under sales. on, inflationary a numbers. has label that Yes, a we X% is reality but X%. as refrigerant going of is which had Refrigerant, with don't I around but still group nothing I looking agree it. is was is

David Manthey

Okay.

of a investment operating thank the Okay, but number. kind for at a $X I'm then about we in we And this, expense granular third been And shoulder high might watermark quarters, those periods, next off programs at to quarter? during $X.XX couple for of SG&A variable your implementing quarter get making of or the a and we I'm or looking couple quarter expect to too quarters going just level of as talk And this I'm hate actually rate quarter see understand investments next can look those could higher relative should OpEx come second, a revenue million what flatness to more the all the I trying as that and were costs the the to we get of here? trying timing you've you we forward? on are is to a billion this run understand, you the more just SG&A here. the that full the then some bit that.

Barry Logan

the we it's not years. of people, talk recently, last couple Yes, I about over it's when say David first XXX would

been giving a we're big today's not future to time, results, that the just picture realized heavily during results but we've a that that's investing, some So invested of view what's tumultuous just expecting.

– is a a it's variable you quarter. moderating at over it's of of There to lot this the time doing. of and costs a in still in pretty So, I would are looking say up, point see what commission what gross moderate Gross I income wouldn't wanted in year expect terms are margins this to, that XX% but XX% profit, top of wouldn't growth terms that I year. salesperson sustain going line I rate just to but it, which margins that mature their number would this of over not expect, like level that sells obviously. at level off up means I every are

expect going over in talking to business, I about. how simply But million And So season bringing that's we're decide we going kind freight talk that to and I help the the out shoulder on when in many need? the have moderates branch months, XXX number to for thinking should you we are also and lot cost many be the XX% moderate efficiency, that do that it's How pieces. reasons changing, challenge add? overtime spend? of of that the many How $XX on to, would much I day, regard. that something scale and should a culturally XX up How How the like people in I last all It's would trucks by data so moving managers a I do million, $XX equation it's that what's own? a temporary hours variable need? every of of much going the about terms XX%, the where business,

Albert Nahmad

perfect. That's

Barry Logan

lot pieces. of of simpler years. to manage manage It’s to not been a two last in over moving obviously of become moving which years of obviously the two manage and pieces next lot have A critical to terms the more and easy all urgency

David Manthey

Fair enough.

you. thank Barry, Okay,

Barry Logan

Robert of thinking those kind now. about is discussions right Baird

Operator

question Stephen go comes from ahead. of next Jeffries. Please Volkman The

Steven Volkman

sure if comment Good wondering flattish everybody. a but Thanks than bit we'd I there? little just were I'm of the sort maybe but through I we you're what something volume volume wasn't we and volume just volumes to the perspective, better think for what quarter, a you're Did the Al Hello. quarter was backing decelerate or kind morning made if started guess and into that on question. October, taking seeing kind of seeing quarter love the on that. can quarter from of this I a quick hear sort I'm focus you specific, of

Albert Nahmad

Yes.

which on a believe pricing. mix haven't I there also going don't elevates that the We is product mentioned,

the a occur things otherwise not of product they I significant significant more the that in mix that's one that's higher the now but talked plus, unit you at going that's price The see as I probably is think the you a think do only you marketplace. – occur, see as I on. and more changing is would, sales about Barry that, think sales

Barry Logan

just about What some your not volumes That's on it's so of else Well, still measure of substituting now probably it's reported that kind a we simply that's a units Right. Steve, achievement a quarter up probably it unit for in if probably everything that's opportunity SEER continues, of And the There for the It's was quarter been some have were to average a been that inflation use new We capturing prices. quarter years. XX% straight-cool on that's six to and is, that when we're of been the then the or for less And hurricane a six permanent now for would've question increased we been the activity. I answer July. bit XX% discuss about months. business? just heat and term it's really reported little for that market, what in up moderation the volumes, to we're in obviously extent July. XX%, months. the and for pump price and, and trend. of terms in to since of account it's mix up are growth flat selling going in try the Al speaking XX kind a pretty the up that's wanted way now been trend higher price; mix, mix. there's flattish in in but and during But – was when Also the

contractors confidence. have solutions recommendations, the homeowner bringing You to with making

mandate a automatic. triggering in in mix government and technology efficiency the quarter seeing and that's place have opportunity more professional way. growth we're that even makes much more energy strong that And next another year We of

you not of color, right accounts subtlety any talking when what discussion OEM Paul and sure discussion, quarter. this mix a about the pump that think and mix were actions use now, So efficiency can price energy pricing term this discussion in inflation. heat the I'm word in for lot – I a price just we we're mix add not synergy and there's the lot there of

Paul Johnston

the it expectation grow over continue for and three to does saw pump it there it residential material the really last on actions that really been grows, in QX, Barry affected as have quarter. commercial was sequentially didn't any the indicates that's of as pricing have and pricing we to And a accelerate quarters impact actions, outside we is products. No, heat growth residential happening some revenues something that

Steven Volkman

we checks And better hardest constrained. follow-on even the sort super I've of That's some and sort by on things are does chain anticipated or therefore channel issues mix normalize helpful. mix some get heard of end that my What's of actually, in high units because your view, complaining Al supply hit was you XXXX because were were stable?

Albert Nahmad

it positive is were they're are we and products. in in furnaces These all pumps that think certainly keep when to they used. expect they and I short- factors out that the as very see and many wanting COX we contributing us. gets pointing efficient gas when efficiency term. better Paul less they the-long because operate higher trend they're them anticipate replaced to be trends consumers that are heat Every own where emit by more to for north And a

We in that right To of that investment as it we're capabilities I has, they continue yet, edge committed a our what's are. like will right place technology just growing. staying else continue the not if Or time. occurred share. afford just can one they're million leader the some better we than – who coming the and in meet in $XX are afford at year no terms if have we And what fabulous everything can't gaining has to doing. in

at I warn to would Can Barry, I think that we anything early positive. guys the moment in of A.J., see Everything you that So future. that I see Paul? add negative can't the something you is

A.J. Nahmad

unit trend where that to and straight-cool what mid-south Yes. We're dual trend to call operate and that And a the is starting unit. seeing we where recognizes the occur another heat to units are is will fuel, by as the term to a opposed north below to straight-cool switch seen pumps replaced that the that's not that a starting in just starting non accelerate. replacing to replacing down over then as drops it's fossil outdoor now the heat provide gas to the it'll pump point, furnace, that temperature, fuel unit we've And when gas growing certain be a the and heating. and temperature furnace

as to what have going the the year going a Act. efficiency made opportunity's be has about still have clearer to credit talked far Inflation be what beyond. with tax to to be as qualify and efficiency – we impact There's some high the for that adjustments on it. the – Once into of Recovery next that's clear, with haven't have and will product not I what the idea the We think we'll

Steven Volkman

you All it. Appreciate guys. Thank right.

Operator

from comes question Jeffrey of Sprague VRP. Please next go The ahead.

Jeffrey Sprague

of Thank everyone. remind what XXXX percent the just mix Could now really is in of regulatory level? sales kind following mandatory XXXX? to you. on And of would've of you your subject morning SEER Good discussion, kind the list therefore minimum from been prevailing us the in kind just at the

Albert Nahmad

equipment go sales. Paul, the on ahead,

Paul Johnston

outdoor in on was minimum quarter efficiency half Its Yes. the units. just approximately the

Jeffrey Sprague

be that'd good And number the pretty suppose. I for a year also,

Paul Johnston

speaking chain, Yes. little that up of It – that because bit generally of the much. hasn't supply changed mix that's good a really There's a pretty number. but been in it

Jeffrey Sprague

IRA the average many strong air just know think air unit into a from the proactive the numbers you would back I very to respects, there that even driving... going pumps, consumer doesn't handler, is a pump right? before are So mean, heat pumps unit effort heat heat play. around straight a really from proactively selling like And particularly come I seem do educating, in on

Albert Nahmad

as they're among that the proactive got assist them our to presentation I their a think as ones the making contractors. there it's far consumer. which is the We've on-call Obviously in home. responsibility,

contractors been has there's by – gas state pump Minnesota. to they're heat a plus year temperature parts a can low state book There's led out. to that's New Bill a won't the of wrote California it. Canada they on that are able also contest XXXX, lot fuel motions and think also of discussion. up also have furnace I buy to be the passed has fossil it. you install has of Department of awful what Watsco come starting law, The have. Energy the an with in a But York phase that states been call been going So a, which Watsco's and you by now Gates to be this a heating and that's that

It's to word to consumer. the for it's are to have the Heat comfort So consumers. pumps these things not able pumps on think technology for while situation the a taken really be heating I new, since is catch mid-XXXXs. been a getting the for around to that since the out heat provide just

seeing we're we're what end pump. so you sell used you is of that if where seeing up the heat frost be seeing extending could line to now we're And will a And the the things of into that doing Massachusetts. New to. the heat these and ones is used improving. temperatures Jersey They're dealing with old pumps Pennsylvania, than extreme And science more even more

Paul Johnston

residential that also, ago of someone the ductless ductless it's systems, market much like was fraction XX if probably years XX so of fraction, heat are And pumps. say pumps, smaller most it or or I it's was ductless every now. heat a is SEER those selling a than going Mitsubishi unit that XX% to

Jeffrey Sprague

Thank Great, Paul. you,

Operator

Morgan. our And Please of question Instructions] from next will [Operator ahead. Tusa go come Steve J.P.

Albert Nahmad

morning, Good Steve.

Steve Tusa

you guys, how Hey doing?

Albert Nahmad

Great.

Steve Tusa

How good the and be guys guess the quarter is I would we So an be the said about here; what, forward EPS quarter of from thinking just I sell fourth in kind a, for through, trend? and just how mean, October. it's on the, up I basis? you it guess should you that in sales just fourth October like Just you expect do normal on seasonality look to be

Albert Nahmad

I'll give you a general comment.

is I going quarter be very detailed? to think strong. fourth Barry

Barry Logan

double-digit Yeah, quarters the over the double-digit double-digit. seen I no Steve, two that. it the and same growth leave mean and kind you've interruption October, kind there's at in Yes. trend I mean of last

a sense oriented more through commercial think is so I be as also but bit it season we the get we and off flowing seeing volumes it can the of shoulder very that, business. season into strong a in the are consumer

that the looks a months. now lot of trends like recent yes, So

Steve Tusa

destocking I XQ? around is coming focus some, inventory season. all lot There's currents your a trend and with in a into guess the of the just cross moving like demand, the it because shoulder guess regulatory on parts what's I changes here up

next preparation of going be just is year, a on to mean I in that inventory? the like just maybe of up, So color quarter-to-quarter kind little

Albert Nahmad

fill be don't lower. question. to are they blanks in a But be I to going good that's are Well, higher; going the think anybody on that. they

A.J. Nahmad

a the with construction the Yes, currently restock the They of that of to a We're side, as also once system the home, old under of these lot how as is on goal Obviously, have lot MX operating than have strong in home end higher lower. it's far – new to a again, the the can quickly have majority our the we is operating they're of standard. product end. new up in that your the before building the what to A seeing builders on have. lot supply price have we product, the of as QX? depend chain or to going demand course, fall to system that's going new

to So management be – I we're think to sort of going I we're from And complete to rush working have visibility standpoint. going allows it's got to seeing that a And we've our it. system down. down, is be plan of – a of we're think be bit little inventory that us

So we're are. our not at the where inventories by the surprised quarter of end

Barry Logan

Let's careful is business. going We just our inventory words. be to down, think those of not our be

Steve Tusa

Yes.

A.J. Nahmad

I said. Yes. what That's

Steve Tusa

Yes.

absolute mentioned bit. just then is margin I or QX? But gross was inventory that of expectation QX? color rebates you down for in perspective. call And then you the on any from these Barry, an What's sales guess, in little So, promotions just a the a them. And I wondering percentage these

Barry Logan

the selling trend margin which I cost that is better price simply continuing selling the is products of mentioned we're October. seeing equation that Again, to in

I again, real that way. don't the in respect. think in quarter should that it any And disruption fourth there be say Let's

not them, them, think algebra other be we we The products, down measure order saw when small what the product inventory irritation knowing quarter. the stuff on we to a could when extent coming we third the when line. for as receive it's is on there but pay I depending again, just which same And in of

nothing think, profit gross of the So trend fourth quarter. terms disruptive in of in net-net, I

Steve Tusa

the year? units? for What's your of guess one You date? next What's time last didn't outlook. for your have resi to for market the release on on up you. one Sorry, around your call kind market in most year the anything market next What's this

Barry Logan

I don't think…

Albert Nahmad

overall on the Resi market?

Steve Tusa

Yes, sideways. overall resi down, unit market up,

Albert Nahmad

that have Paul, do the by maybe you associations, forecast I think you? don't industry we, unless

Paul Johnston

to have look it a talk would to who basis. you at think OEMs I national the No,

for is system do forecast which is our business. which we Our that proprietary do we only the internally states in

the So, look for industry to that. I would

Steve Tusa

Okay, great.

Albert Nahmad

our another Nevertheless, for planning record is year.

Steve Tusa

growth. Yes,

matter no grow to planning what. are guys You

Albert Nahmad

Oh, yes.

Steve Tusa

right. All Okay. Yes,

Albert Nahmad

got continue are that We've And to invest our in more advantages. to we're advantages to extend share and many going expand in this business. going too those

Steve Tusa

Yes, that's guys. clear. Thanks

Albert Nahmad

All right.

Operator

to to session. question-and-answer conference turn like I Nahmad closing our over for would the any back Albert remarks. concludes This

Albert Nahmad

just detailed interest Well, is the And appreciate takes And Miami We nice come Bye-bye. have company. do to much. a technology, again, which future. once Zoom see And day. hear learn whatever And to to more or to our for that We're of your or our thanks of our for a more. we explanation an it do in you visitors happy part the very you. welcome next quarter. obviously important

Operator

Thank now concluded. for The presentation disconnect. conference is you today's attending you and may now

Watsco (WSO) 20 Oct 222022 Q3 Earnings call transcript