Watsco Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Manthey - Baird - Analyst : Hey. Good morning everyone. First question I have to ask is about the hurricanes, particularly Helene, which hit us pretty hard here in Tampa. Could you talk about the negatives and potential unwinding positives you might see from Helene and or Milton?

Question: David Manthey - Baird - Analyst : Okay, so. But even though Florida is clearly your biggest market and Helene in particular ripped up the whole coast, you're saying it's fairly immaterial and we shouldn't view the mid-single digit growing up growth in October as just a temporary snapback from storm activity is what you're saying?

Question: David Manthey - Baird - Analyst : Got it. Okay, thanks. Great. Yeah, thanks for that. And then on the gross margin came in a little bit light. I know you had a reason for that here that you discussed with one of your major OEMs, but just medium term you still feel good about 27%.

Question: Tommy Moll - Stevens - Analyst : Good morning. Yes, sir. And thank you for taking my questions. I wanted to start on some of the co-investment you described in the press release this morning alongside one of your OEM partners. And it's a two part question here. First part is where you did call it out this morning with substantial detail. Did something change since last quarter that prompted the enhanced discussion on this item? And then as you look forward, is there anything you can do to calibrate our expectations about how this ought to progress and ultimately fade? Thank you.

Question: Tommy Moll - Stevens - Analyst : Anyone else before we move on here? All right. I also wanted to ask about inventory and any pre buy dynamics we may be seeing. Al, you talked about hoping to improve inventory turns and I did note that inventory dollars were up versus the second quarter, which is atypical. But is some of that just the 410A pre buy that we're seeing. And what's the view there at this point?

Question: Tommy Moll - Stevens - Analyst : Makes sense and I appreciate the insight. Thanks all. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:00PM, WSO.N - Q3 2024 Watsco Inc Earnings Call

Question: Ryan Merkel - William Blair - Analyst : Hey everyone. Good morning. Just wanted to ask, on October to start, you said meaningful unit growth improvement and then mid-single digit growth. Can you just clarify, what pricing is? Because my assumption was pricing is still kind of running up maybe three, four. So how do we bridge the mid-single digits if volumes are popping back positive?

Question: Ryan Merkel - William Blair - Analyst : We know that's going to evolve from here. And I welcome anybody else's color. Okay, well, yeah, that's helpful. That explains it then. And then just back to gross margins. Can we bridge 3Q back to 27%? It sounds like parts and supplies were down, so there's a mix element that's occurring. And then you also, you didn't quantify for the quarter, but this co investment. So just can we get back to 27% or what are the pieces?

Question: Jeff Hammond - KeyBanc Capital Market - Analyst : Hey, good morning, everyone. Just on the A2L, new product introductions, just what kind of pricing are you seeing relative to kind of this, 10% to 15%. And as you talk with your major OEM partners, just address kind of their readiness, so there's no kind of hiccups as you transition.

Question: Jeff Hammond - KeyBanc Capital Market - Analyst : Okay, and then just a quick follow on that. Can you just remind us that the multiplier effect, as you do the matched versus the standard, and then just maybe just touch on M&A environment. It seems like, the PE has gotten more crowded in this space. And just what you're seeing in general

Question: Patrick Baumann - JPMorgan - Analyst : Good morning, Al. Yeah, it's actually warmer up here than it is usually for this time of year. Just wanted to maybe quickly go back to something Barry said on units. I think he said year to date up 5%. Was that a total unit comment or was that. I assume duct did is not up that much, right. Just maybe clarify that if you could?

Question: Patrick Baumann - JPMorgan - Analyst : That's helpful.

Question: Patrick Baumann - JPMorgan - Analyst : Okay, helpful. And then are you -- have you guys been. I think we talked about inventory earlier. You expect it to be stable through the end of the year, is your view. That is the channel restocking currently in terms of inventory?

Question: Patrick Baumann - JPMorgan - Analyst : Helpful. And then one for you on margin, on the gross margin side, normally there's like a lift, I think from seasonality in the fourth quarter because the mix, which I guess hurt you in the third quarter typically improves somewhat. Is that reasonable to assume this year or are there factors like that, OEM investment collaboration that holds that back in the year end? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:00PM, WSO.N - Q3 2024 Watsco Inc Earnings Call

Question: Nigel Coe - Wolfe Research - Analyst : Good morning, guys. Thanks for the time. I think this is meant to be a cold winter according to the pharmaceutical. So if that's true, then it should be a little bit of help for you guys. I know you cut a lot of ground. I don't want to retread ground we've already taken. Just on the gross margin, seems like there was a bit of lapping of price from earlier this year and you talked about mix and, and some OEM support. Is there more discounting going on, especially at the higher tier levels? Is that a factor at all in some of the gross margin pension?

Question: Nigel Coe - Wolfe Research - Analyst : Okay, that's helpful. Thanks guys. And then just a couple of quick ones here. Just on the A2L transition, obviously you've been through many of these transitions before. When you compare this to the 10 seer, 13 seer, 22 to 14, do you think the contractors, the end customers, are ready for this transition? And obviously you're very close to those guys. You provide a lot of training, support, etc. Are they ready for this? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:00PM, WSO.N - Q3 2024 Watsco Inc Earnings Call

Question: Nigel Coe - Wolfe Research - Analyst : Okay. It sounds like it's not going to be a big deal?

Question: Nigel Coe - Wolfe Research - Analyst : And I think there's a big reason why customers or contractors choose to do business with a lot of companies. Okay. Okay. And then just a quick one, as I may. Obviously great news about October up mid-singles, and I know you said no more details on that, but I've got to say I'm a little bit surprised with the hurricane's impact in Florida and the southeast. I know you've got some extra days selling in October, so is there some benefit from selling days in October offset and some of the hurricane impact, or am I off base there?

Question: Steve Tusa - JPMorgan - Analyst : Hey, good morning. Sorry, just to follow up to Pat's question, got a little bit late on the call here. Do you have complete visibility into, all the OEMs pricing for a 2L product at this stage? Is there anybody that's, playing a little more close to the vest than others? Not just your suppliers, but kind of across the industry?

Question: Steve Tusa - JPMorgan - Analyst : Do you think customers are looking at it as a bit of similar to a list price increase? I think Most of the OEMs are pitching it as cost push, which is just inevitable versus hey, here's the new price, and then let the negotiations begin. Or how are most of them looking at it?

Question: Steve Tusa - JPMorgan - Analyst : Yeah. So the 8% to 10% is kind of a bit of a discount to what they had previously said.

Question: Steve Tusa - JPMorgan - Analyst : Right. And I guess your point is that, like, to take 10% or whatever and like, stick it into a model and a spreadsheet, like, it's a lot more complicated than that.

Question: Steve Tusa - JPMorgan - Analyst : Got it. One last one for you. Just on the light commercial side, everybody's had a pretty good 3Q. One of your peers said it's a little bit slower in the fourth quarter. Any signs of weakening there on the back of fundamentals in the next year for, like, commercial?