Watsco Reports Second Quarter Results

Equipment Sales Increase 22%

COCONUT GROVE, Fla.–(EMWNews)–Watsco, Inc. (NYSE:WSO) today reported its results for the second

quarter and for the six-months ended June 30, 2008.

Earnings per share for the second quarter grew 7% to 94 cents per

diluted share and net income improved 7% to $26.1 million. The results

include record revenues and gross profit as well as contributions from a

variety of profit enhancement activities implemented in early 2008.

Revenues for the quarter increased 8% to a record $510 million,

including $62 million from 58 locations acquired or opened during the

last 12 months. Same-store sales declined 5% reflecting a 4% decrease in

sales of HVAC equipment (47% of sales), an 8% decline in other HVAC

products (40% of sales) and a 1% increase in commercial refrigeration

products (13% of sales). From an end-market perspective, results include

sales growth in the residential replacement market and commercial

refrigeration market and a decrease in sales of new construction-related

products. The sales results also reflect an improving revenue mix of

high-efficiency air conditioning systems, which experienced 22% growth

during the quarter.

Gross profit for the second quarter improved 10% to $131 million, with

gross profit margins improving 30 basis-points to 25.7% (a 50

basis-point increase to 25.9% on a same-store basis). Selling, general

and administrative (SG&A) expenses for the quarter were $89 million and

declined 4% on a same-store basis. Second quarter operating income

increased 7% to $42.3 million with an operating margin of 8.3%. On a

same-store basis, operating margin improved 30 basis-points to 8.7%.

Albert H. Nahmad, President and Chief Executive Officer stated: “We

consider this quarter’s financial performance

to be exceptional and speaks well of certain long-term fundamentals of

the Company. First, the size, consistency and vitality of the

replacement market for HVAC and refrigeration products continues to be

strong and by far the most significant portion of our business and

profits. We believe this fundamental will only improve, given our

Sunbelt focus, our stated strategy to build the highest-density network

to serve contractors in the replacement market and consumers’

critical focus on energy efficiency. Second, our conservative mindset

toward balance sheet quality dictated by the recent market environment

has resulted in record cash flow and a very strong financial position.

Third, we have sharpened our focus on our cost structure and margins,

which will offer incremental profit opportunities that can be leveraged

against future sales growth.”

For the first half of 2008, earnings per share was $1.22 per diluted

share on net income of $33.7 million versus $1.27 per diluted share last

year on net income of $35.4 million. Revenues for the six-month period

increased 6% to $890 million, including $111 million from locations

acquired or opened during the last 12 months, with same-store sales

declining 7%. Gross profit for the period increased 7% to $229 million

and gross profit margin improved 20 basis-points to 25.7% (a 40

basis-point increase to 25.9% on a same-store basis). SG&A was $173.9

million and decreased 4% on a same-store basis. Operating income was

$55.2 million versus $57.5 million in 2007. Operating margin for the

first half of 2008 was 6.2% and was 6.6% on a same-store basis.

First-half 2008 operating results include the benefit of

profit-improvement activities, including programs to enhance gross

profit margin, facility rationalization, cost reductions and other

efficiency initiatives. The Company estimates these activities

contributed approximately $11 million to pre-tax income during the first

half of 2008 and expects a further $20 million to $25 million impact

over the next several quarters.

Watsco generated a record $49 million of operating cash flow during the

first half of 2008 versus $26 million during 2007, an increase of $23

million ($28 million generated during the second quarter). Over the last

12 months, operating cash flow was $129 million and free cash flow

(operating cash flow less capital expenditures) was $125 million.

Long-term debt under the Company’s five-year

$300 million revolving credit facility was $23 million, its lowest level

in 12 years and a debt-to-total capitalization ratio of 4%.

Watsco has paid cash dividends for over 30 years and has established a

consistent track record of paying increasing dividends. In April 2008,

the Company raised its quarterly dividend rate by 12.5% to 45 cents per

share from 40 cents per share.

Mr. Nahmad added, “We are pleased with the

unprecedented record level of cash flow and that our shareholders can

participate directly through increasing dividends. Since 2001, our

cumulative operating cash flow was approximately $500 million compared

to net earnings of approximately $400 million, surpassing by far our

stated goal of generating cash flow greater than net income. We will

continue to evaluate future dividend increases in light of the Company’s

performance. Our financial position also remains strong allowing us to

evaluate various opportunities to continue building our network.”

Conference Call

Watsco is hosting a conference call to discuss its earnings results for

the second quarter and six months ended June 30, 2008 today at 10:00

a.m. (EDT). The conference call will be web-cast by CCBN’s StreetEvents

at http://www.watsco.com. A replay

of the conference call will be available on the Company’s website. For

those unable to connect to the web-cast, you may listen via telephone.

The dial-in number is 877-391-0532. Please call five to ten minutes

prior to the scheduled start time as the number of telephone connections

is limited.

ACDoctor.com

Watsco also recently announced the re-launch of ACDoctor.com, a new

consumer-friendly website that offers educational tools to help

homeowners identify energy efficient cooling systems to help save money

and reduce negative impacts of global warming.

Cooling and heating costs account for nearly 56 percent of residential

home energy use in the United States totaling $66.5 billion per year.

Upgrading HVAC systems may be the most effective way to reduce

residential energy consumption over the long term, while decreasing

electricity bills and potentially improving indoor air quality along the

way.

According to the US Energy Information Administration, more than 57

million homes in the United States have central air conditioning

systems, with 32.1 million units in the Southern region alone. Upgrading

a standard 13 SEER (Seasonal Energy Efficiency Ratio) air conditioning

unit to a 16 SEER system with a programmable thermostat can reduce

cooling costs by 25 percent and up to 40 percent if a 21 SEER system is

installed.

To help educate and inform consumers, ACDoctor.com features energy

saving calculators and tips on keeping energy bills low, energy

efficiency high and improving the quality of indoor air. Homeowners can

compare HVAC systems’ features and benefits,

connect with high quality contractors and locate financial incentives to

make purchases easy and affordable. The website address is http://www.ACDoctor.com.

Watsco is the largest independent distributor of air conditioning,

heating and refrigeration equipment and related parts and supplies in

the HVAC industry, currently operating 422 locations serving over 40,000

customers in 34 states. Watsco’s strategy provides the products, support

and convenience that contractors require to satisfy the needs of

homeowners and businesses that depend on the comfort and

energy-efficiency provided by HVAC systems. The Company’s goal is to

build a national network of locations that provide the finest service

and product availability for HVAC contractors, assisting and supporting

them as they serve the country’s homeowners and businesses. Additional

information about Watsco may be found on its website at http://www.watsco.com.

This document includes certain “forward-looking statements” within the

meaning of the Private Securities Litigation Reform Act of 1995. These

statements are based on management’s current expectations and are

subject to uncertainty and changes in circumstances. Actual results may

differ materially from these expectations due to changes in economic,

business, competitive market, regulatory and other factors, including,

without limitation, the effects of supplier concentration, competitive

conditions within Watsco’s industry, seasonal nature of sales of

Watsco’s products, insurance coverage risks and final GAAP adjustments.

Forward-looking statements speak only as of the date the statement was

made. Watsco assumes no obligation to update forward-looking information

to reflect actual results, changes in assumptions or changes in other

factors affecting forward-looking information. Detailed information

about these factors and additional important factors can be found in the

documents that Watsco files from time to time with the Securities and

Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.

Notes: (1) Information in the attached press release referring to “same-store

basis” excludes the effects of locations

acquired, locations opened in new markets and locations closed during

the prior 12 months.

(2) Earnings per share, net income and operating cash flow amounts in

the attached press release represent the financial results of continuing

operations and exclude discontinued operations.