• Equipment Sales Growth: 14% increase.
• Residential Products Growth: 16% increase.
• Dividend Increase: 11% increase to $12 per share.
• E-commerce Sales: 16% increase, representing 35% of annual sales ($2.6 billion).
• OnCall Air Proposals: 313,000 proposals generating $1.5 million in gross merchandise value, a 25% increase.
• Mobile App Users: Expanded to over 64,000 active users.
• Acquisitions: Completed 70th acquisition since 1989.

• Warning! GuruFocus has detected 3 Warning Sign with WSO.

Release Date: February 18, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Watsco Inc (NYSE:WSO) achieved record sales, expanded margins, and improved operating efficiency in the fourth quarter of 2024.
• The company reported a 14% growth in equipment sales and a 16% growth in residential products, indicating strong market demand.
• Watsco Inc (NYSE:WSO) announced an 11% dividend increase to $12 per share, reflecting confidence in its financial position.
• The transition to next-generation A2L products is well underway, offering opportunities for upgrading existing systems to more efficient and environmentally friendly options.
• E-commerce sales increased by 16% during the quarter, now representing 35% of annual sales, highlighting the success of their digital platforms.

Negative Points

• The transition to A2L products has not yet significantly impacted sales, with over 90% of sales still being 410A products.
• There is uncertainty regarding the impact of tariffs and potential pricing actions from manufacturers, which could affect future pricing strategies.
• Non-equipment sales remain stagnant, with some areas driven by commodities like copper and refrigerant showing slow growth.
• The gross profit percentage may not see immediate improvement with the introduction of A2L products due to their higher cost.
• There are concerns about the availability of special containers needed for handling new refrigerants, which could impact supply chain efficiency.

Q & A Highlights

Q: With double-digit unit growth in residential versus 16% reported, was A2L a driver of that uptick, and when do you expect to be fully transitioned to the new technology? A: Paul Johnston, Executive Vice President, explained that in the fourth quarter, A2L had minimal impact as they were over 90% on the 410A. Pricing actions were around 8%, and more pricing actions are expected soon. Barry Logan, Executive Vice President, added that unit growth was 16% for the quarter, with price contributing an additional 3%. The transition to A2L will have a greater influence in 2025.

Q: Could you talk about Watsco Ventures' ownership position in HouseCall Pro? A: Aaron Nahmad, President, clarified that Watsco does not have ownership in HouseCall Pro but maintains a commercial relationship. The flagship in Watsco Ventures' portfolio is OnCall Air, which helps contractors sell at home and has generated $1.5 billion in customer sales.

Q: What's the outlook for transitioning from 410A to A2L in your inventory? A: Paul Johnston stated that they aim to run down 410A inventory by the beginning of the second quarter and be fully engaged with A2L. Aaron Nahmad added that they plan to be through selling 410A inventory by the end of 2025, leveraging Watsco's scale and data capabilities.

Q: How are you helping customers articulate the benefits of A2L products to end users? A: Paul Johnston mentioned extensive training for customers to handle the new refrigerant, which has slight flammability. Gross profit dollars are expected to increase, but the gross profit percentage may not rise significantly initially. Barry Logan highlighted the digital platform's role in smoothing the transition and enhancing customer experience.

Q: Can you discuss the M&A environment and Watsco's ability to pursue acquisitions? A: Barry Logan noted that there are still many family-owned businesses in the industry, and Watsco maintains strong relationships with them. The stability of recent years has clarified valuations, and while private equity remains interested, Watsco is well-positioned to invest when opportunities arise.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.