WSO - Earnings call transcript Q2 2024

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Operator

Good day, and welcome to the Watsco Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Albert Nahmad, CEO and Chairman. Please go ahead.

Albert Nahmad

Good morning, everyone. quarter second the to earnings call. Welcome Al is Nahmad, Chairman CEO. and This me And A.J. with is and Logan Nahmad, Johnston, Paul President; Barry and Gomez. Rick time call, get can this people chime thoughts I asked that they any so these their wish of views the from In all with company. executives have in in you to multiple

of forward-looking that start, by provisions SEC defined I cautionary various are Before safe as pursuant these state we the statement. This results materially and regulations Ultimate statements our will conference made to statements. call may has the from laws. laws harbor differ forward-looking

Now business. another remains efficiency as of in strong to of most sales. record residential achieved on sheet evidenced during call. cash to in any enable size commercial a percentage flow and the as Watsco SG&A improved strong quarter. both lower generated strength balance reflecting delivered our pristine We the We our Operating investment to and markets. condition quarter sales, by grow

entrepreneurial adoption Watsco's well. Technology put, of the perform our users and platforms sales innovative active leaders continues we expand. business consumer-facing impact, growing have an Annualized large continue and of such local helps Watsco's to e-commerce nonusers. grow by a faster to are of Greater OnCall and billion industry's contractors that gains. Air, to culture, our growing grow growth market contractors and sales make with $X.X a local Simply to technologies. number to share continues number has produced and now continues and platform serve decisions exceed which use contractors do than empowers fortunate most to

of increase $XXX quotes contractors, contractors XXX,XXX to XXXX, increase households, over million an in and XX% for approximately year. XX% a far, our last presented generated sales Thus

regulatory updating coming federal our changes optimize the actively federal to in years. growth. with opportunity change, mandates technology presents increased the into important heat to providing last regulatory growth. went contributing heating of electrification influence another year, older new the for sales effect systems. systems systems. growth providing Other low-GWP-AXL trend high-efficiency platforms This fuel efficiency continue towards contractors upgrade We driven to the launch pumps fossil Energy The has of ability to of are

to fortunate great culture, access customer-focused our are be and in We and advantages to believe opportunities. a scale industry provide such technologies, unique proven capital and

if you always, as interest see please learning and more, Miami Finally, come in have us. to

We enjoy are transforming about telling an it. would we industry, and you

to let's that, Q&A. go With on

Operator

Markets The comes Instructions] Capital [Operator Hammond KeyBanc question first from Inc. from Jeff

Jeffrey Hammond

pieces basis price the know I looks talk we was year-on-year, been in moving timing. I it down the around of gross points you've people Can margin? just kind know and but about kind setting XXX level like XX% of

the the was be With going in supportive maybe quarter. price to increases it

Albert Nahmad

please or answer. Barry or both Paul

Barry S. Logan

little at look and a at want we Again, half quarter. -- little Jeff. the Sure, a I bit just to a in of look a year. things zoom the first out

said of obviously, If OEM this kind bogey. you the same the which for asked half pieces year, about our timing plus, price The than the are increase. has an been thing. moving of consistently X.X the years of look We've just or XX% more, now first level at been and

quarter and as obviously helped the kind second that the March, quarter in price into of that came only straddled quarter price as the material the fact, real increase In in, well. increase that's carrier came first the some

quarter, that, in change gross a so margin products, disparity X to for year-over-year don't of business about through. in the Having And non-equipment there's just margin. I big want didn't. a you discussions pretty is obsessive some enough the that short-term account too families But I the our term terrific equipment growth think, see grew said rate, can those to business and in long our when at, obviously, of in working get

variety far And multiple much, is margin. OEMs Also brands. in it what And price I terms with we discuss more again, multiple the quarter in than Watsco there that sell in those points. we conversation some mix a margins won't to margin. and comes It's, when mix rates that but working is margin. complex how brand We of OEM, a that pertain and sell of regard growth make has we're mix. an to of on that depending brands was affect can against year-over-year the brands basis There in

It's not a a material big thing, mentioned. but component, I as it's

would be, the aspirations and quarter. I'll mix like means we're that, by well. less owned certainly you are, dial conversation. let see you the could as down also if more in been we've still in where insight, have consequential we and satisfied a that Rick this. That But period. impact inventory where point year-over-year down. conversations Paul long look little again, bit rebates things been higher purchases earned year-to-date, it And way. Rick, has I much And are of give back, And never we that have We the replenishment discounts, X term, big too. lot at basis like than have more this being said potential. of on we a a I, or There's as picture, We said, talk

Albert Nahmad

Rick?

Enrique Gomez

was other muted on end. I I guess the

to that. about helpful. I just be I that Jeff. are think it Barry it I'll explained well. And just Yes, tidbits X may -- Sorry to think add very

implications relates has have just strength First margin. as also some relative we that products gross is and commercial that year-to-date steady residential, family of to for seen, period, it mix again, to also

bit share margin about transition. be on not the term good is And we're leaning a of regulatory that of us, to long that the to act we are maturing a product think and what we on helpful we've for tools of look go some the got periods big forward margin end opportunities. opportunities now little and in if time coming is looking transition evaluate ahead I as at technology again, are can just, that backwards, year. Those to I'd thought usually Second

Jeffrey Hammond

couple That's for a jump put good OEMs segue like XXXA kind wanted product. seems calls of a have It I last of here because to out in.

maybe your with you updated your and exit readiness XXXA implications products? partners, pre-buy? just new of as OEM to the feeling AXL around you talk much any kind the how on want how thoughts then transition Just about in And for you to are

Paul Johnston

AX Yes, I is their think, pretty to with Jeff, ready much everybody go products.

In located seeing in one fact, Texas. we're manufacturer

AXL their out putting already it's product. So

senses transition really leakage much a and in a then So any concerned smells if there's and I'm it's and about in into unit, turn that switch it's not putting basically a will the the putting It's of here. compressor transition, a also different not that off a on and sensor system.

you pretty first get the the there's We a further going change think XXX orders much XXX, have into to the board. to quarter, we're that. product. go, in So final but enough are than much big forward? probably We carry no going product across our to to we now When how put the not in perhaps,

Operator

question comes from Tommy Moll Stephens next The from Inc.

Thomas Moll

I the wanted of to business. talk residential about trends the some for

us walk units progressed And You the you called to quarter? paced? an year-over-year. in give on update the selling through July us Can how through are how X% second out season able you growth ducted

Albert Nahmad

Barry?

Barry S. Logan

the up by and of just June, at it in look during and headwind second the to that But the the just a to stronger a the for at, terms quarter, progress is days give look in April. did had April the basis. $XX June our into way, item north days kind things been much in probably the average rate is and be you per in more less X if would I for during our progressed the mean, than bigger growth -- I was I sales the because in way, day of certainly, X in have It's per stronger high-single million speak Algebra weird sales in of on quarter, had digits first, average rates growth we algebra. overall a and some X again, of same-store I and trivia quarter of day, Well, actually reverse if certainly weird months, rather business a June quarter

kind probably some getting For July, in thing we closed If stores. largest the past in July rate as as only is the Texas the by look some market in that quarter. the our that, activity, big But for have the see of growth and it's you August and Coast July I influenced hurricane there's strange it's strange is, same July. and country, early,

is And as just to throughout get of or wasn't summer, as we'll through I August July. be -- so all big in don't trend, on cylinders terms of part and case the at get July, sad full we which want a this happy

Thomas Moll

some for half showed you about about been As come OpEx It's of grew the a up ask that's sales. think that OpEx now. wanted follow-up, same-store the you a I rate to quarter. And I theme this leverage time at

quarter. drivers about initiative some are up, time clearly, continue you there? now showed of And can that's you expense feeling So drive leveraging to line to this What in there leverage are been the for for the some how unpack us? place that that

Albert Nahmad

Barry?

Barry S. Logan

a going back get environment. in to our had back it incurred to everyone then in difficult serve products in businesses in served time. and to circus be go a time, I'll I which time; I SG&A serve what was does, Rick in think, first, COVID, is to to forward built do go act and get and customers

and back field expectations So do communicate how our set to act the evaluate look or it. that to X years on data later, you

this I peculiar to come. at fall, $X the everything actions in is and quarter, The So more call of And year-to-date. and there's how was outlier look before where, more a opportunities we is to campaign That's whole more for actions million results think, is said the I SG&A. care more actually. act right at example, and up only with beginning looked is would aggressive say, in first evidence only just the quarter the I of it occurred SG&A the I've thing list first More more last it. on health

plan improved we that's of plan, perspective. with stands bottom-line a And medical only things. to and list thing long out amongst some a the that employees, that our we But impact intention reality which our is there's improved benefit long-term our for

emotion so more of is the I think all or I And you'll And of the have to reacted numbers this think database. acted, reactionary. all in in the data. at field do. and teams None It's it's the and have have that, and see the looking results

Aaron Nahmad

really place, and processed orders where getting more it's is Watsco. really and a but talk continuous means, that a culture systems our about was the to going also it When cetera. looking what opportunities with et people at filled, processes and efficient to et and our be time means buzzword, I is and to cetera, is This it's at improvement we have This become Barry, A.J. technology, go intentional. same we

there's been So to do. everything to continue certainly we work improve

Operator

comes next from Ryan Blair. The Merkel William question from

Ryan Merkel

Can it we the products, out? that stands equipment? about HVAC Is was talk than a little other anything weaker Why and supplies? parts there bit

Albert Nahmad

Paul?

Paul Johnston

of Yes, I was in there's No. really or that there can it other. isn't think was but nothing very it If that bit, unusual down was anything a really down, was there odd about strange.

Barry S. Logan

Just of and the our business tubing, different hodgepodge past of something good we because to right? I there's X sheet be we a consider and right? stuff, copper business, with vendors, a about say about XXX was products talked question, of if then a in it's probably in commodities that's and have it or the XX% We XX we've really XXX think quarter, variety we $XXX talked metal helpful that product it's million And Ryan, have it's groups, only commodities, refrigerant. different a

much $XXX And more we one have and of variables it's to seen again, revenue A because bandwidth the volatile of quarter, are and pricing closer million, but million $XXX cost the in our margin. that much out later, seeing is less million were That's stability year there, price is in the the more a dollars less. of less $XXX of those year is component the ago. we volatility and

of point in revenue conditions but on not bit business still in and a general from headwind a So margin view. little materiality not of

Ryan Merkel

it. Got

as the relates mix, higher are to stuff SEER it base Okay. grow? people seeing And That's to systems? down helpful. seeing you trade are Or you then product

Paul Johnston

minimum impact as doesn't a we where basically, is Yes, got a at product much higher now, share point towards it's We've really which trending the product. used as have basic to. the efficiency

is the standard say, would what is, XX% level. at, seeing close at industry So to I the we're tracking efficiency

a seeing trend you're So definitely, down.

Barry S. Logan

our at I I'll than good one to good a in high-efficiency grown to would the to mean that consistent needless add growing say, pumps consistently and to -- also, relative rate faster pumps, heat pumps heat trend that's decent the at underlying. and furnace one And is a price underlying for industry for and trend certainly numbers, demand, is rates have the selling that's mix I the benefit say. heat business, are that,

it And company-wide. new new front and we kind nice of because training, inventory new us heat puts opportunities, pump, it, new to there out that. going in I bit it's conversation new position as think it's are to all new I XX% a that's all good of all said, opportunity to kind trends So in chance the -- a the some all you little that of sell, going Rick all products, basically basic carve refresh like probably equipment, in and a efficiencies, about do the would AXL changes but all what is replace think AXL it's those discussions, And there. we to if say

Operator

comes The next Mizuho. from question Linzey from Brett

Peter Costa

for Peter is on Brett Linzey. Costa, This

So ask around inventory XQ. in to wanted levels I just

historically, increase. inventory would you tends it took you're characterize is then the in more relative think the market? just down guys You of function there levels how sequentially. to of into Is seeing build in I there? what to that And anything QX? read And a it to Or

Albert Nahmad

brief on make I'll a statement that.

we've focused, science as amount quarter First we're to which asset, asset, is after largest of on very been it. inventory of quarter been and all, and we've considerable technology our a applying saying the

So efficient turns. up you you And on with that whatever can we're getting inventory more want. Barry, follow

Barry S. Logan

Yes.

challenges, and the the math knows, inventory the care in that's we high -- are doing take turns, any mentioned to today and we're looking rates. if evidenced you COVID heaven continuous today period, versus after turns. A.J. season, that, improvement obviously, growth the customers We, historical post even COVID do must it's improve inventory in again, remained of look at and think, I term

the say process instead inventory is Xx it's still back still closer inventory It's today, of I of matter also. closer in the continuous turns work to But in get would improvement a a really Xx. to to

process now, in us coming turns to think I from X I us. to transition occurring. now X% front AXL because But time huge talk than today, you years takes if the inventory at another be would to to there's closer X X%. from or of that transition years more of historical And closer expect

first the change. built science occurred in was read in there's into be the and in what's behind certainly -- growth, position or quarter to no order going of the no message was that the year. wouldn't I a into that, good to message it. inventory I and react there's wouldn't for on sequential If rest in the for which I will read

Peter Costa

erosion sort what then affordability consumer or side? And seeing you you more Are of pushback from you're worried walk just the through us can any about guys there? broadly

Paul Johnston

to Really on now price. the the consumer and the what years gone expected to pushing start have over move we look up. X at been up gosh, that prices seen prices continue it's we've We've last, back

seen not of yet. have that as We

actually sales consumer at offering. buying indication quarter, the there in the our units a strong is which they're that indicated is we and residential in price the the up out still were the As we're that release, product for

Those Secondly, continue we been high are strong. it's a to things motors, would of increases repair repair in that moderate unit seeing the side, -- type increase in the some with. single-digit you we've compressors, where remain seeing

the of where kind And both a we worlds So offer. the have are that is going going that like it's people we purchase repairing. consumer the have price at of it now same we to time, best at right

Barry S. Logan

that, Paul. And just to to add

all high solution this lot ducted it Unit the efficiency. The industry, -- represent of We rates doesn't it's cold side all more the is market. a I offering ductless, that don't are ductless much a they're and side. on product the we international pumps, They're heat quarter of domestic. exceeded. ductless too the offering that that's talk multiple and work and and actually comfortable ductless side climates the about think where about often. contractors They're OEMs what talk now for, both we'll growth year-to-date, in

in that product we're systems now. a discussion, does have time growth seeing certainly ductless is the that fits fit When repair, versus ductless ducted for at and in and that rates conversation of traditional in you look affordability. So somewhere that some somewhere

Operator

The Baumann question JPMorgan. next Patrick from comes from

Patrick Baumann

the is of your kind And Texas see on then for -- share impacts that First to would XXXA of any expect you their quicker made manufacturer if that product? have other the question steady that the has OEMs decision supply on than you AXL, maybe others. do so, to have move short-term impact business? what maintain supply, any or Are to seeing

Paul Johnston

see introducing share coming from their market in AXL that's a impact manufacturer big that Don't one products.

feel issue that design more their an early. to of XXXX. -- We've part product in be to it's available it. unique hence, think I product to to to way they've as lead decided able that in don't going to provide it out the is as on a marketplace share change got availability at step be AXL. They come for in And big least see opportunity But try they on far a to and market an got that the I them. as

Aaron Nahmad

not and I'm to transition have to or a I'll have will and we're we're to as this I a new sell X year that make -- functional, have -- will question just do it's we will have well. seamless to again old to new sure And play through and brand, we'll about products stuff make out special or note, prebuys, we What sorry, trying the is brands. want harmonious as the trying new that we got how other A.J. is and earlier the not add a speculating bet. transition prebuys clear,

expect pretty it smooth. to be we So

Patrick Baumann

current you initial technology the the XXXA or new seeing the what generation pricing And sorry? are for versus type of

Paul Johnston

increases the We're every seeing were think, by, XX% in a OEM, times last here year. that I probably indicated dozen

Patrick Baumann

Yes.

Okay. I check just that. wanted to

XX% way take Maybe don't the question, I year Barry a to think for about your from that's this selling impact is we so next xXX% product. so new know. -- And basically mix

Barry S. Logan

right, Yes, XXX% new year a out only old. Patrick. play to not it's too. into next going reality, The product, X% that's There's blend

next next not It's all So blend into it's a of year. year.

Paul Johnston

a that a Plus what by Department not still you for current The wait has write-up and of can the been to debate government sell pronounced a we system. or unit. It industry repairing going we've whether provided the lot of in that XXX represents replacement now indicates a will component, there's a forward Energy that it's would have XXXX. hold into a unit not unit be true if right -- about the really

really to what's which soon. to we find happen So DOE out will decides, need wait the hopefully

Patrick Baumann

hear waiting that as No, Yes. we're to well.

of Okay. margin, the on seasonality year. normal maybe of should we versus think the year? unusual if one the for for for about want could, however Barry, margin seasonality anything that there is one gross then -- rest it to or quick Is talk I gross the you rest through to normal And

Barry S. Logan

No.

I tell third seasonality And the is the for will level. stick the the think the the us to third -- the keep quarter. I year. The is goal quarter what picture at I on fourth it the XX% notion think over and for XX% big of we're we keeping to year progress, would and

You the assumptions. make of look own historical can that at your trend and

Operator

from Manthey comes David The Baird. next question from

David Manthey

maybe could in selling as impact you mentioned off, units' out both residential First price was I equipment was that products zoom HVAC mix hoping you talk price ducted on about well general. and the release, other the about up as in average X%. overall Barry

Barry S. Logan

on there's -- I we I very sold What has XX sure not insight. many what commodities know count we first on I versus said, part commodity second other tape. sure duct And don't HVAC I did the honestly, don't product in comment volatile stable. been I'm of that become the I'm the as products, is in we understand on -- probably pricing lines stability Well, that, Sure. have have roles there's on had unit insight. and side price tape duct how

pricing HVAC I so can I there's units tell from nonequipment, And equation. the don't from think in anything that perspective, on remarkable that in what

use again, starts price, mix, mix, price that's side, equipment when composite brand vendor mix selling average snowflake. customer the mix, into On can mix. geographic be actual to mix, It of we product broaden a and word out the mix

So don't give actions OEM that. pricing you us. margin much I for and year-to-date all can couldn't variation you the flowed of in the components I you through see tell equipment that

far, so Year-to-date, look And at pricing if I good so the X with the full months. you would actions. say

suggested, that multiple market important think brands, still as think Paul within is in systems. think conservatism at concept means it's -- there there. price is that It single brands within all markets, I I a Watsco mix important within look I we the extremely of an if we're replacing XXX multiple And location, points. products, have products, every

the And sell than sell OEM if very than OEM, have market include sustain brands we is another, fact, and that brands. the all Not one networks sell one the that brand. to market. replacement sustain And few tighter competitors single margins, competitors, more in would

like diversity. in us in a margin. helpful helpful so helpful it going It's react what's on to and lets good It's And market way. very, competitively, to we It's the very markets individual to share.

David Manthey

when you month you referring stable be to ago? stable, a it And the a say clarify talking it just it to should today Or on are commodity that, is was statement to sort year-over-year, flatness today? Okay. or you relative product, we of thinking X about it's your are what that's

Barry S. Logan

I and would last margins in acceptable stable this very down quarter. and say, first this it and it's a narrow second much is up I say, sound was if XXXX, and range year, those quality for highly to It really would and products at look volatile. would go and Yes. And quarter more year. of the where XXXX year, gross of quarter of the quarter margin I the price profit

David Manthey

acquisitions about XXXX, sound up given there I Okay. Does And $XX the the of quarter, in million the in from coming more acquisitions. Is any timing All right that one revenues. effect right. on And update to you? with then acquisition? September on I'm think third that, rollover then Gateway the

Enrique Gomez

little speak Rick, It's a I can it to bit.

more It's delighted a terrific how team. with Gateway It's a we than First, market. terrific are is doing.

We there, to And they what this that invested relative exceeding up have the numbers we expectations soon made they and well year were with are would those actually, what that will when doing I we be when at pretty how a investment. to point to folks. say last we look

very So with is pleased unfolding. that how

are the September You in relates I ballpark anniversary contribution. is it as third-quarter X to that. the of And think

So we will third it'll quarter. -- lap that here starting in the

Operator

The next comes Coe Nigel question from Wolfe from Research.

Nigel Coe

is curious huge the out in on I XXXB seeing sticking? was distributors acceptance just you're know factor. of XXXB on not kind price customer there's kind of accepting customers XX% seeing But a that out whether sort of mention of XX%, a that of some and terms what products. think you you I I did is handful Are there, there uplift mix?

Paul Johnston

our delivery customers It's early it. how on the I of XXX are just a able customer. sort first -- just to think give particular to accepting be We of had prediction any to you way we units

obviously we'll they more what going gauge and that have price to to out product. it, make what that to have install understands has reaction mind of to have that But to too the the going acceptance training have that doubt the amount done they're and of to we'll We how tremendous the to -- really it's in my find early and that the add sure to will are So a been. be quickly it tools way continue add customer are some occur. no variances be to what there training, accepted. I able and

Nigel Coe

Yes. It's expected. actually what I

curious bit question. share maybe view you that. then a the the And same-store quarter mentioned the how for your -- versus second I'm X% gains. of market just thought I in sorry And So on how the sales.

amount color inventory, XQ. built any I there. a in then fair And know of inventory you just So

is worked when inventory higher it the year not that quarter. XQ. down work is a lower. really is this question in the second Normally, moving feels You you'd The of spirit inventory in like up that

curious, So of over inventory the year. the just back your on perspective half

Albert Nahmad

that part. will have, Paul, less tools I've we're we let and inventory with turn first our demand. certainly that are certainly, the deal inventory carry we to will on increase me enough focused using stated and inventory the And turns improve hopefully, and earlier succeeding demand. to meet very

Paul Johnston

I see downwards in as XXX, does to see move two, will inventory to perhaps which go we'll trailing the the I new seasonality; refrigerants. overlap through and normal to going the and probably of would transition the going quarter, to the it bump because would in say year, one of of see a just because on our an probably AXL, cause inventory, we're as we And first where continuing we'll the which inventory, and AXL actually, down season. have we're be anyway based then

product information now we to to A lot product. the go and So it's that it going think, the be I right it on knock does. have the an unusual through transition this indicates should of that ride, smoothly as that we new wood go

Nigel Coe

fourth material or quarter. So here no is no what loud you're saying prebuy the prebuy, clear and in

Paul Johnston

No material prebuy, no.

Operator

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

Albert Nahmad

As to it, in especially very in asking interest company. always, We the you field. you to we're come in we and our learn technology for if do, visit much appreciate what your sincere thank more you very about want

end, now. in All the that Bye-bye, support. call. and You're takes we to And next with is phone to up look for interest us a you Thanks forward always your for your quarter. that welcome. catching

Operator

for presentation. now The attending you today's Thank conference concluded. has

disconnect. You may now

Watsco (WSO) 30 Jul 242024 Q2 Earnings call transcript