Watsco, Inc. (NYSE:WSO) Q3 2023 Earnings Call Transcript

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Al Nahmad: My goodness.

Steve Volkmann: Since we are at the end of the call, Barry, I appreciate you jumping into the short-term box with us against your will, but you didn’t provide any thought about 4Q, anything to call out in the fourth quarter that we should be aware of?

Barry Logan: Yes. I had – my brain goes back to last year, is there anything peculiar or interesting about last year in comparative, and I don’t know the answer. My instinct is a measure of consistency as we play out the year with what you are seeing because I think – I don’t think there are any big pricing actions going on in the market at this point. Paul, do you have any insight beyond that?

Paul Johnston: No, not really. I have got a little bit on the commodity side. I think we are going to start seeing some upticks in some of the commodities, but whether they will kick in, in the fourth quarter, I can’t definitively say.

Steve Volkmann: Okay. Great. And then – sorry, my real question is I wanted to ask about this refrigerant transition but from a different angle because it feels like – I think, Al, you mentioned at the outset here that 60% is now new products. My guess is 12 months to 18 months from now it could be even more new products just as we go through all these transitions. And I am curious sort of how you guys feel like you are going to be able to manage that from two perspectives. One, SG&A, because I imagine there is going to be a lot of training on the new products and how to replace old products and all that kind of stuff. And I am curious how that impacts SG&A. And then also on the inventory side, my guess is that you may have to layer in a little extra inventory in ‘24 as this transition kind of goes through. So, just any early thoughts on how those two things might trend?

Al Nahmad: Whatever those opportunities are in the future, we will deal with them as we have in the prior changes that come to the industry. We are very good at it. We have never been better at it. And so far as specific goals, anybody from the Watsco team want to deal with them?

Paul Johnston: Yes, I think we have got some ideas on how we can handle it without having to really overlay inventory, different ways of handling our logistics, our order plans and how we utilize some of our DC attributes to accommodate the replacement of the 410A units, early innings on that.

A.J. Nahmad: I will say this. I am glad that we have the scale and the strength that we have because we can do exactly what was just said is deal with anything that comes with us, in an efficient way and effective way. And we can use our resources as needed. It’s going to be presumably more difficult for smaller competitors of ours. They will have a tougher time with the challenges I would imagine.

Steve Volkmann: Great. I appreciate the color. Thanks.

Operator: The next question comes from Steve Tusa with JPMorgan. Please go ahead.

Steve Tusa: Hi guys. Good morning.

Al Nahmad: Hey. Good morning. Thank you.

Steve Tusa: Can you just clarify again what you said about October, you said it was like a different comment or something, I didn’t quite understand what the October comment was.

Barry Logan: A bit lower growth rate. But again, if I look at a year ago, it was very strong this time of the year. So, I am not going to get too much of an inference out of it. If we look out the rest of the quarter, we are seeing – expected to drive growth.

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