Watsco Inc. (WSO) has entered into a definitive agreement to form a 60:40 joint venture with Carrier Corporation’s northeastern distribution network.
Carrier is a leader in high technology heating, air-conditioning and refrigeration solutions. It is a unit of United Technologies Corp. (UTX), a leading global provider to aerospace and building systems.
The joint venture will give Watsco access to Carrier’s distribution network of 28 locations encompassing 11 states. Watsco will contribute its northeastern locations that serve customers in New York, New Jersey and all of New England. These Watsco locations garnered 2010 revenues of approximately $60 million.
In July 2009, Watsco had formed another 60:40 joint venture with Carrier to distribute Carrier, Bryant and Payne products throughout the U.S. Sunbelt, Latin America and the Caribbean. Carrier had contributed 95 locations in the U.S. Sunbelt and Puerto Rico and the export division located in Miami, Florida while Watsco contributed 15 locations. Watsco has options to purchase up to an additional 20% interest from Carrier (10% beginning in July 2012 and an additional 10% in July 2014).
The company continues to increase its market share through strategic acquisitions and expansion of its product offering. The company’s earlier joint-venture with Carrier not only added new products to its sales mix, but also marked Watsco’s entry into international markets with the addition of the Latin American and Caribbean sales operations.
The new joint venture will significantly expand Watsco’s presence in the northeast U.S. — comprising one of the most populated markets in the country — with a broad offering of residential and commercial products that are energy efficient and environment-friendly.
The company continues to benefit from the transition to higher-efficiency air-conditioning equipment that meets government mandated standards for energy efficiency and environmental compliance.
However, a decline in housing starts, reduction of the tax credit for homeowners for purchasing a high efficiency HVAC unit and higher costs of replacing with R410A refrigerant, remain concerns. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Watsco is the largest distributor of air conditioning, heating and refrigeration equipment as well as related parts and supplies in the United States. The company operates 508 locations serving over 50,000 customers in 36 states, Puerto Rico, Latin America and the Caribbean. Its top competitors include Johnson Controls Inc. (JCI), Gensco Inc. and Gustave A. Larson Company among others.
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