Watsco (NYSE: WSO) investors have endured a series of disappointing earnings announcements, with shares falling following each of the last three reports.
In the first quarter, the company failed to meet expectations once again, but the markets are encouraged by what management sees up ahead. Shares of Watsco were up 7% as of 2 p.m. ET in the wake of the industrial distributor's earnings release.
Things could heat up come summer
Watsco is a distributor of parts and products for the North American heating, air conditioning, and refrigeration (HVAC) market. In 2023, the company at times felt the impact of softening demand from customers due to economic uncertainty.
Those headwinds continued into 2024. Watsco earned $2.17 per share on revenue of $1.56 billion in the quarter, falling short of Wall Street's estimates for earnings of $2.28 per share on sales of $1.59 billion. Revenue was up 1% including the impact of acquisitions, but down 2% on a same-store basis.
But management sees conditions improving heading into the summer cooling season, giving investors a reason for optimism.
"While softer market conditions persisted during what is essentially the low-season for product sales, we are currently experiencing growth in end-market demand as we enter the summer selling season," CEO Albert H. Nahmad said in a statement. "We believe market share gains are continuing, and we are proud to have added three new companies to our family since the beginning of last year."
Is Watsco stock a buy following its earnings report?
Even when end markets are weak, Watsco can generate cash, allowing the company's board to boost the stock's annual dividend by 10% earlier in the year. Watsco has no debt and had $479 million in cash and short-term investments on its balance sheet as of the quarter's end.
At worst, Watsco is a good income-producing stock with the wherewithal to sustain and increase the dividend for the foreseeable future. And with potential growth drivers including the electrification of heating systems and new standards for air conditioners in response to climate change, there is potential for more than just income as well.
With Watsco, investors have a lot of ways to win from here.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Watsco. The Motley Fool has a disclosure policy.
