MIAMI--(BUSINESS WIRE)--Watsco, Inc. (NYSE: WSO) reported its results for the second quarter and six-month periods ended June 30, 2016.

Second Quarter Results

Sales trends:

• 1% sales decline to $1.21 billion (flat on a same-store basis)
• 1% decrease in HVAC equipment (67% of sales)
• 3% decrease in other HVAC products (28% of sales)
• 8% growth in commercial refrigeration products (5% of sales)

Key performance metrics:

• 2% decrease in earnings per share to $1.82
• 1% decrease in gross profit
• 6% decline in operating income to $118 million
• $57 million increase in operating cash flow

Albert H. Nahmad, Watsco’s Chairman and CEO, stated: “Our summer selling season started later than normal this year, and record sales and profits in June were insufficient to offset softer business conditions during the early part of the quarter. July sales trends have accelerated to double-digit growth and we believe profits will follow. Looking long-term, we remain very positive about our basic fundamentals – the execution of industry-leading technologies, continued acceptance by consumers of higher-efficiency replacement HVAC systems, a culture driven to gain market share, improved operating efficiency and the strategic use of our balance sheet to grow our business.”

Mr. Nahmad added: “Watsco has produced $337 million of operating cash flow over the last 12 months, or over $10.00 per share. Given this cash flow and our continued confidence in our business, we are pleased to increase Watsco’s annual dividend by 24% to $4.20 per share beginning with our October quarterly payment. As evidenced by our long-term track record, it is always our intention to share cash flow through increasing dividends while retaining the ability to invest in our network and evaluate additional opportunities that come our way.”

First Half 2016 Results

Sales trends:

• 2% sales growth to a record $2.07 billion
• 2% growth in HVAC equipment (66% of sales), including 3% growth in the U.S.
• Flat sales for other HVAC products (29% of sales)
• 7% growth in commercial refrigeration products (5% of sales)

Key performance metrics:

• 1% earnings per share growth to a record $2.54
• 1% increase in gross profit to a record $504 million
• 2% decline in operating income to $168 million
• 2% increase in net income to a record $90 million
• $116 million improvement in operating cash flow
• $166 million debt reduction versus a year ago (32% decrease in interest costs)

Results for the first half of 2016 and second quarter include a $2.3 million income tax benefit (6 cents per share) relating to the Company’s early adoption of Accounting Standards Update 2016-09, Improvements to Employee-Share-Based Payment Accounting, issued by the Financial Accounting Standards Board on March 30, 2016.

Technology Strategy

Watsco has established itself as the leader in the HVAC distribution industry and produced a 21% compounded annual total-shareholder-return over the last 25 years. A variety of scalable technologies were recently launched to transform Watsco into a modern, data-based company to outperform in the digital era.

Watsco’s goals are to further strengthen its leadership position, accelerate sales and profit growth through innovation, increase the speed, convenience and efficiency in serving customers and to extend Watsco’s reach into new geographies and sales channels. Watsco believes its scale and large number of locations for product fulfillment relative to its competitors offer an advantage as the digital marketplace progresses.

Since 2012, Watsco’s technology team has grown from approximately 60 employees to 170 employees while achieving record levels of operating performance. Financial performance during the first-half of 2016 reflects an increase of $2.5 million in technology-related costs (4 cents per share for the six-month period and 2 cents per share for the second quarter). The present annual run-rate for technology related costs is approximately $23 million.

Examples of innovations that Watsco has created and launched to enhance the buying experience for its 88,000 customers and the service capabilities of personnel at its 563 locations:

• Mobile apps and other on-line tools to enable e-commerce using the industry’s most data-rich catalog of product information.
• Business intelligence and data analytics to enable more insightful decision-making by more than 600+ P&L managers across the company.
• Supply chain optimization to improve fill-rates, increase inventory turns and reduce infrastructure costs over the long-term.
• Tools to improve operational efficiency for 7+ million annual customer transactions.

A.J. Nahmad, Watsco’s President, stated: “Although we are still in the early stages of our introduction and launch of these technologies, we are encouraged by the adoption of e-commerce by an increasing number of customers, the growth of unique users of our mobile apps, the expansion of our data-driven culture and the inventory reductions that are being achieved. We have much more to learn and to accomplish, but we are pleased with our progress thus far.”

About Watsco

Watsco improves indoor living and working environments with air conditioning and heating solutions that provide comfort regardless of the outdoor climate. There are approximately 89 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years. Older systems often operate below today’s government mandated energy efficiency and environmental standards. Watsco has an opportunity to accelerate the replacement of these systems at a scale greater than our competitors as the movement toward reducing energy consumption and its environmental impact continues. This is especially important since heating and cooling accounts for approximately half of the energy consumed in a typical U.S. home.

Watsco’s traditional sales channel is through one of its 563 locations in the United States, Canada, Mexico and Puerto Rico, and on an export basis to Latin America and the Caribbean. This network has been built over the last 25 years and serves 88,000 active customers. Watsco is developing and investing in technologies to enable sales via e-commerce, on-line marketplaces and through the retail sales channel. As the industry leader, we believe that significant growth potential remains given that the marketplace for HVAC/R products at the consumer level is estimated to be $80 billion annually. Additional information about Watsco may be found at http://www.watsco.com.