Opinion- WATSCO Results show how WATSCO continues to focus on digital programs


WATSCO highlighted their continued commitment to digital enablement in their Q3 Results and recent investor conference presentations.

In the world of distribution many private or PE companies do not report results. As a public company Watsco, Inc. in October released their Q3 results and right before the holidays presented some once a year results on digital at an investor conference.

I eagerly await their investor conference updates every year as they provide a more detailed look at their digital Strategy.

In my opinion the storyline is – strong sales performance and continued investment and payoff for digital investments.

Third Quarter Results

  • 4% sales growth to a record $2.13 billion
  • 3% increase in gross profit to a record $567 million (gross margin of 26.7%)
  • 1% decrease in SG&A expenses (2% decrease on a same-store basis)
  • 80 basis-point decline in SG&A as a percentage of sales
  • 9% increase in operating income to a record $257 million (8% increase on a same-store basis)
  • 50 basis-point increase in operating margin to a record 12.1%
  • 8% increase in EPS to a record $4.35

Sales trends (excludes acquisitions)

  • 6% growth in HVAC equipment (70% of sales)
  • 3% decline in other HVAC products (26% of sales)
  • 9% growth in commercial refrigeration products (4% of sales)

Some WATSCO Digital highlights

Some key highlights – Watsco active technology users group is growing sales faster than non-user customers and experiences less attrition. Watsco states that they will benefit from continued customer adoption, higher share of wallet, new customer acquisition, reduced attrition and lower costs to serve.

Customer-related technology updates include:

  • Product Information Management (PIM), Watsco’s repository of rich product information, is delivered seamlessly through its mobile apps and e-commerce platform. Watsco’s PIM database contains more than 1.5 million SKUs digitally accessible to more than 350,000 contractors and technicians annually. (These results are relatively unchanged this quarter from Q1 and Q2)
  • HVAC Pro+ Mobile Apps provide customers with real-time access to critical information to enhance speed and productivity. Features include real-time technical support, product details, inventory availability, warranty look-up and processing, certified system matchups, e-commerce and more. The authenticated user community (users linked to an e-commerce account over the 12-month period ended September 30, 2023) grew 19% to approximately 54,000 users compared to the same period a year ago. (Continued Growth from prior year but similar numbers to Q2. Is WATSCO hitting a ceiling of Mobile App Users?)
  • E-commerce sales were approximately 33% of total sales for the 12-month period ended September 30, 2023 and grew 15% during the third quarter. Active e-commerce users continued to grow faster than overall growth rates. (Continued growth of ecommerce builds strong end customer connections)
  • OnCallAir®, Watsco’s digital sales platform, and CreditForComfort®, its companion consumer financing platform, increased penetration among HVAC contractors as digital engagement with homeowners expands. The annualized gross merchandise value (GMV) of products sold by customers through OnCallAir® now approximates $1.2 billion. During the nine-months of 2023, OnCallAir® presented quotes to approximately 220,000 households, a 20% increase over 2022, and generated $958 million GMV, a 31% increase over the same period last year. (continued improved performance from the previous releases).

In the Investor conference release Watsco shared a couple of other key digital items – (2022 Statistics)

  • 11% Higher ecommerce line items per order versus traditional orders (17% higher ecommerce lines per order in 2021 report)
  • ~63% Less attrition for ecommerce users versus traditional customers (~70% Less attrition in 2021 report) *Please note this investor conference release information is provided annually and contains a few key metrics not shown in the quarterly releases.

The storyline from the Q3 results and the Investor presentation continues to be simple to see. The more digitally engaged Watsco customers are the more their sales grow, and they also don’t lose ecommerce customers at the same rate as they do traditional customers.

I think anyone in B2B Distribution can see that the digital investment is resulting in building digital moats around the end customer for WATSCO.

If you are a manufacturer what does this mean to you –

Whether or not you are a Watsco supplier, you would be wise to partner with distributors that can deliver similar digital solutions (or have a plan to become more digital). If your channel partners are not as digitally enabled as you need, what can you develop that helps your channel close that gap?

If you are a competing distributor how can you continue to evaluate a digital strategy that you can execute. Also you need to understand which manufacturer partners are digitally advanced that can help you.

Your market position and resources require a solution that fits your business. This is not a you need to be WATSCO or else story, but it is a call to action to do something digitally. Just get started and see where it takes you.

As always, we would love to get your feedback, so please feel free to comment below or reach out to me directly at john.gunderson@dorngroup.com



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