Watsco Inc Q4 2024 Earnings Call Summary

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

Question: David Manthey - Robert W. Baird & Co Inc - Analyst : First question is with double-digit unit growth in residential versus 16% reported, I guess that implies mid-single-digit price mix. Was A2L a driver of that uptick and just a general update, when do you expect to be fully transitioned to the new technology? And seems like channel feedback is 8% to 10% pricing. Is that consistent with how you're thinking about things?

Question: David Manthey - Robert W. Baird & Co Inc - Analyst : Yes. Barry. That's encouraging. And just one quick one kind of on a tangent. Could you talk about Watsco Ventures ownership position in HouseCall Pro. Could you scale that for us? And just give us an update there.

Question: Tommy Moll - Stephens Inc - Analyst : First question is, if you look at your inventory position today, what's the best guess on when you've run down that 410A currently on the balance sheet and should fully transition to the new product? I mean it will depend on the weather and other factors. But what's a reasonable outlook there?

Question: Tommy Moll - Stephens Inc - Analyst : Okay. Follow-up question. As you do start to run more of the A2L volumes through, it's really a two part question. What, if any, impact should we think about in terms of the gross margin percentage there, obviously, with the mix tailwind? And then as you execute this in the marketplace, how are you helping your customers in turn, articulate the benefits of the product to the end user here? I mean we're -- we, on the call, are all prepared for substantial price mix increases. But at the end of the day, this occurs at the kitchen table. So how are these conversations? Or how are you helping your customers with these conversations as we move forward.

Question: Jeffrey Hammond - KeyBanc Capital Markets Inc - Analyst : Just back to fourth quarter, I mean, very strong unit growth. I'm just wondering if you can unpack what's kind of easy comps? What's kind of this supplier issue, lapping the supplier issue? And then was there any evidence that contractors were taking 410A that would have impacted the fourth quarter? And then just last, any kind of change in optimism around just underlying demand?

Question: Jeffrey Hammond - KeyBanc Capital Markets Inc - Analyst : Okay. Great color. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 3:00PM, WSO.N - Q4 2024 Watsco Inc Earnings Call

Question: Jeffrey Hammond - KeyBanc Capital Markets Inc - Analyst : Okay. Balance sheet is in great shape. Just maybe talk about the M&A environment. It does seem like private equity has been more present in the space. Just what are you guys seeing in your pipeline, et cetera, and the ability to get stocked on?

Question: Damian Karas - UBS Investment Bank - Analyst : Nice work in the quarter. I guess the one area that's maybe just a little bit stagnant still is the non-equipment sales. Could you maybe give us a little bit color around what you're seeing in that area of the business?

Question: Damian Karas - UBS Investment Bank - Analyst : Great. That's really helpful. And my follow-up, I know you guys are absolutely delight in talking about gross margins. But I wanted to kind of just hear your confidence in the path to getting back to 27% or higher when that might be. And I'm just curious if any of these new customers that Barry talked about driving a lot of the growth. If you expect that to have any kind of meaningful impact on your profitability as you bring some of these new customers into the mix?

Question: Ryan Merkel - William Blair & Company - Analyst : Yes. I want to go back to the fourth quarter, the new customer growth being the big driver. Why in the sudden in the fourth quarter did you see this? And then who are these customers? Are these more tech-forward contractors that appreciate your technology? Or is there anything similar about these customers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 3:00PM, WSO.N - Q4 2024 Watsco Inc Earnings Call

Question: Ryan Merkel - William Blair & Company - Analyst : Okay. That's helpful. And then it sounds like the improved volume growth, at least is continuing into the first part of the year. And I guess my question is, in the press release, you mentioned A2L, there's an incremental growth opportunity and share gain opportunity. Can you unpack what you mean by that?

Question: Jeff Sprague - Vertical Research Partners - Analyst : Glad to hear you all. Just wonder what your final verdict, if there is one, is on the notion of prebuy. And the reason I ask it so simplicity, right, is in a -- so simplistically is your inventories do not look unusual in any historical light and you just made a pretty convincing case that the dealer channel is not up to their eyeballs. So when you look back at this and kind of all the ink that's been spilled on pre-buy and what it might be like do you have kind of a final view on what actually happened? What actually happened.

Question: Jeff Sprague - Vertical Research Partners - Analyst : Yes, interesting that those seem to be the takeaway. And then as it relates to your own inventories, as I indicated, they look pretty normal to me. But would they -- would they be mostly 410A in your reported inventories as we see it? Or there's now a balanced mix there as you prepare for the new year?

Question: Jeff Sprague - Vertical Research Partners - Analyst : And it sounds like you're getting kind of a market signal from the OEMs that have tariffs happen, obviously, they're going to want to push through price. Would you expect this to be sort of almost a mechanical immediate reaction sort of tariffs go into place, day one, prices move up in concert with that.

Question: Jeff Sprague - Vertical Research Partners - Analyst : I was referring more to maybe Mexico risk. Any thoughts on that?

Question: Brett Linzey - Mizuho Securities USA - Analyst : Yes, just one more on this price mix dynamic and specifically gross margins. So you talked about the high single-digit to double-digit price mix this year on new units, but also some of this additional tariff pricing. Is there any way to think about how that drops through mix versus incremental pricing on gross margin percent for Watsco?

Question: Brett Linzey - Mizuho Securities USA - Analyst : Okay. Got it. Yes. I appreciate that. And then just last one for me. So there's this ongoing debate on repair versus replace, doesn't look apparent that you've seen a big step down in replacement to repair. But anything in the parts or the component data that's ticked up at all that would maybe inform that or suggest that is the case, but it does look pretty resilient, but just any thoughts there.

Question: Steve Tusa - JPMorgan Chase & Co - Analyst : Love it when the CEO and Chairman reads the forward-looking statements, that is quite unique. So thank you for that. Just on the kind of how we're trending into this year, thanks for all the color on like prebuy, et cetera. Are you guys seeing anything on the refrigerant side any volatility in price there to speak of and how this may be trending differently than what happened with R22 to 410A.

Question: Steve Tusa - JPMorgan Chase & Co - Analyst : Right. And I guess, are you -- do you think the channel is it's my understanding that you need a little bit of aftermarket refrigerant to actually install to charge it in the field or top that off. Are you seeing any availability or price issues there?

Question: Steve Tusa - JPMorgan Chase & Co - Analyst : Got it. And then just on this -- on the kind of reestablishment of that supplier that had the issue last year. My understanding is that those volumes are up pretty dramatically this quarter. Can you just maybe clarify a little bit more how much that may have helped the volume number?

Question: Steve Tusa - JPMorgan Chase & Co - Analyst : Right. And then just one last one for you. You talked about how you can't just replace the outdoor unit. You've got to kind of do a full soup to nuts type of replacement here. What's the difference in the cost to the consumer for doing that relative to the -- just the outdoor unit?

Question: Steve Tusa - JPMorgan Chase & Co - Analyst : Right. And you don't think the contractor eats that. Do you?