Watsco, Inc. WSO is slated to release third-quarter 2024 results on Oct. 23, before market open.

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In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 4.5%, but sales beat the same by 0.3%. On a year-over-year basis, earnings and sales increased 1.6% and 6.8%, respectively.

Watsco's earnings topped the consensus mark in one of the last four quarters and missed on other three occasions, the negative average being 6.5%.

The Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings decreased to $4.84 from $4.89 per share in the past seven days. The estimated figure indicates an 11.3% rise from the year-ago earnings of $4.35 per share.

Watsco, Inc. Price and EPS Surprise

Watsco, Inc. price-eps-surprise | Watsco, Inc. Quote

The consensus mark for revenues is pegged at $2.25 billion, indicating 5.7% year-over-year growth.

Factors to Note

The company's upcoming quarterly performance is anticipated to showcase strong results in the heating, ventilation, and air conditioning (HVAC) equipment segment. For the quarter to be reported, HVAC demand is likely to have remained strong, particularly in the commercial end market. Pricing is also expected to remain strong. WSO remains optimistic about the transition to A2L refrigerants.

However, the company’s top-line is likely to have impacted from Hurricane Helene due to its Southeast exposure. Also, the slower pace of new residential construction may partially offset these positive factors.

Nonetheless, Watsco’s ongoing investments in cutting-edge technologies, value-enhancing acquisitions, and a steadfast commitment to customer satisfaction is likely to have aided the results.

Our model predicts HVAC Equipment sales (which accounted for 71% of total sales in second-quarter 2024) to register 6.9% year-over-year growth to $1.59 billion in the quarter. HVAC Products (25.2%) is expected to grow 2.4% to $566 million in the quarter. Meanwhile, Commercial Refrigeration Products sales (4%) are expected to rise 4.4% to $88.8 million in the quarter.

From the margin perspective, better price/mix will positively impact gross margin in the quarter. We expect the gross margin to improve 30 basis points year over year to 27%. Also, SG&A expenses, as a percentage of net sales, are expected to decrease to 14.9% in the quarter from 15% a year ago.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for WSO for the quarter to be reported. The company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. This is not the case here.

Earnings ESP: The company has an Earnings ESP of -3.55%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Watsco currently carries a Zacks Rank #4 (Sell).

Stocks With the Favorable Combination

Here are some companies in the Zacks Construction sector that, according to our model, have the right combination of elements to post an earnings beat in the quarter to be reported.

United Rentals, Inc. URI has an Earnings ESP of +0.51% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

URI’s earnings topped the consensus mark in all the last four quarters, with the average being 4.8%. Earnings for the to-be-reported quarter are expected to grow 6.5% year over year.

UFP Industries, Inc. UFPI has an Earnings ESP of +6.24% and carries a Zacks Rank #3.

UFPI’s earnings beat the consensus mark in two of the last four quarters and missed on two occasions, the average surprise being 4.6%. Earnings for the to-be-reported quarter are expected to decline 13.3% year over year.

Howmet Aerospace Inc. HWM has an Earnings ESP of +1.48% and carries a Zacks Rank #2.

HWM’s earnings beat the consensus mark in the last four quarters, the average surprise being 10.9%. Earnings for the to-be-reported quarter are expected to grow 41.3% year over year.

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