Watsco (WSO) Reliance on International Sales: What Investors Need to Know

Zacks Equity Research

Mon, Aug 5, 2024, 6:15 AM 4 min read

Have you evaluated the performance of Watsco's (WSO) international operations during the quarter that concluded in June 2024? Considering the extensive worldwide presence of this heating and cooling company, analyzing the patterns in international revenues is crucial for understanding its financial resilience and potential for growth.

In the current global economy, which is more interconnected than ever, a company's success in penetrating international markets is crucial for its financial health and growth journey. Investors must understand a company's dependence on overseas markets, as this offers a window into the company's earnings stability, its ability to benefit from varied economic cycles and its potential for long-term growth.

Being present in foreign markets serves as protection against local economic declines and helps benefit from more rapidly expanding economies. Yet, such expansion also introduces challenges related to currency fluctuations, geopolitical uncertainties and varied market behaviors.

In our recent assessment of WSO's quarterly performance, we discovered notable trends in its overseas revenue sections, which are typically modeled and scrutinized by Wall Street analysts.

The recent quarter saw the company's total revenue reaching $2.14 billion, marking an improvement of 6.8% from the prior-year quarter. Next, we'll examine the breakdown of WSO's revenue from abroad to comprehend the significance of its international presence.

A Closer Look at WSO's Revenue Streams Abroad

Canada accounted for 4.5% of the company's total revenue during the quarter, translating to $95.7 million. Revenues from this region represented a surprise of -11.55%, with Wall Street analysts collectively expecting $108.19 million. When compared to the preceding quarter and the same quarter in the previous year, Canada contributed $79.8 million (5.1%) and $107.36 million (5.4%) to the total revenue, respectively.

During the quarter, Latin America and the Caribbean contributed $117.13 million in revenue, making up 5.5% of the total revenue. When compared to the consensus estimate of $111.2 million, this meant a surprise of +5.34%. Looking back, Latin America and the Caribbean contributed $86.51 million, or 5.5%, in the previous quarter, and $96.69 million, or 4.8%, in the same quarter of the previous year.

Prospective Revenues in International Markets

For the current fiscal quarter, it is anticipated by Wall Street analysts that Watsco will report a total revenue of $2.25 billion, which reflects an increase of 5.6% from the same quarter in the previous year. The revenue contributions are expected to be 5% from Canada ($113.28 million) and 5.4% from Latin America and the Caribbean ($120.23 million).

For the full year, the company is projected to achieve a total revenue of $7.61 billion, which signifies a rise of 4.5% from the last year. The share of this revenue from various regions is expected to be: Canada at 5.1% ($384.4 million) and Latin America and the Caribbean at 5.2% ($398.1 million).

Concluding Remarks

Watsco's leaning on foreign markets for its revenue stream presents a mix of chances and challenges. Therefore, a vigilant watch on its international revenue movements can greatly aid in projecting the company's future direction.

In an era of growing international ties and escalating geopolitical disputes, financial analysts on Wall Street pay keen attention to these developments to fine-tune their earnings estimations for businesses operating across borders. It's important to note, however, that a range of additional variables, like a company's local market status, also play a crucial role in shaping these forecasts.

Here at Zacks, we put a great deal of emphasis on a company's changing earnings outlook, as empirical research has shown that's a powerful force driving a stock's near-term price performance. Quite naturally, the correlation is positive here -- an upward revision in earnings estimates drives the stock price higher.

The Zacks Rank, our proprietary stock rating tool, comes with an externally validated impressive track record. It effectively utilizes shifts in earnings projections to act as a dependable barometer for forecasting short-term stock price trends.

At present, Watsco holds a Zacks Rank #3 (Hold). This ranking implies that its near-term performance might mirror the overall market movement. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

Watsco's Recent Stock Market Performance

Over the past month, the stock has seen a decline of 2.9% in its value, whereas the Zacks S&P 500 composite has posted a decrease of 2.9%. The Zacks Construction sector, Watsco's industry group, has ascended 10.4% over the identical span. In the past three months, there's been a decline of 2.5% in the company's stock price, against a rise of 5.9% in the S&P 500 index. The broader sector has increased by 4.6% during this interval.

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