Watsco, Inc. (NYSE:WSO) Q1 2024 Earnings Call Transcript April 24, 2024 10:00 AM ET

Company Participants

Al Nahmad - Chairman and CEO
Paul Johnston - EVP
Barry Logan - EVP
A.J. Nahmad - President
Rick Gomez - VP

Conference Call Participants

Jeff Hammond - KeyBanc Capital Markets
Tommy Moll - Stephens Inc.
Jeff Sprague - Vertical Research
Dave Manthey - Baird
Ryan Merkel - William Blair
Patrick Bauman - JPMorgan
Damian Karas - UBS
Nigel Coe - Wolfe Research
Steve Tusa - JPMorgan
Chris Dankert - Loop Capital
Stephen Volkman - Jefferies

Operator

Good morning, and welcome to the Watsco First Quarter 2024 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] I would now like to turn the conference over to Al Nahmad, Chairman and CEO. Please go ahead.

Al Nahmad

Thank you. Good morning, everyone. Welcome to our first quarter earnings call. And this is Al Nahmad, Chairman and CEO. And with me is A.J. Nahmad, President; Paul Johnston, Barry Logan and Rick Gomez.

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

Now on to the performance. Watsco delivered good results despite softer market conditions. As a reminder, the first quarter is traditionally the low season for sales in our industry. Although it is early, we are encouraged by the improved sales trends in April ahead of the summer selling season. We believe our technology, breadth of brands and products and the expansion of our network have generated market share gains.

Our balance sheet strengthened during the quarter through a combination of record cash flow and an equity raise using our ATM program. And once again, we boosted our annual dividends by 10% to $10.80 per share beginning April of 2024. This year marks Watsco's 50th consecutive year of paying dividends.

Now, commentary and highlights on the quarter. Although residential equipment unit demand remains low, our price realization, a richer sales mix of heat pumps as well as high-efficiency products and new locations contributed to record sales in the quarter. Commercial end markets experienced growth and our backlog of projects remained healthy. Sales of ductless systems, an increasingly important component of our business, grew and offset declines in the conventional ductless residential business. Gross margins performed well and are consistent with our near-term target of 27%, though we believe higher margins are achievable over time.