Coconut Grove-based Watsco Inc. is one of the biggest local companies you’ve probably never heard of.
With about 4,600 employees, Watsco distributes new equipment and parts for air conditioning, refrigeration and heating systems at more than 570 locations in 38 states, Puerto Rico, Mexico and Canada.
The company, founded in 1956, sells brands such as Carrier, Rheem, Frigidaire, Tappan, Amana, Maytag and Manitowoc to thousands of contractors and dealers who then supply homeowners and small businesses. It doesn’t sell directly at the retail level.
Moreover, Watsco’s name doesn’t appear on the side of any big buildings or on in advertising campaigns. It works through four business units: Gemaire Group, East Coast Metal Distributors, Baker Distributing Co. and Carrier Enterprise LLC, a joint venture with Carrier Corp..
“We keep a low profile, but we are well known in the industry,” said Barry Logan, Watsco’s senior vice president and secretary.
The company is also very profitable and has been good to its shareholders, he added. In 2012 the company had record revenues of $3.43 billion, up more than 15 percent from 2011, and net profits of $157.6 million, a 14.4 percent increase over 2011. During the first half of 2013, Watsco posted net income of $93.7 million, for a 25.9 percent gain over the same period last year, on revenues of over $1.8 billion, up by nearly 11.5 percent.
A $100 investment in Watsco shares in Dec, 2007 would have been worth $264.45 in Dec. 2012, according to the company. In comparison, $100 invested at the same starting point in NYSE Composite index would have been worth $121.01 in Dec. 2012.
Last year Watsco increased its dividend for the 11th consecutive year, paying $2.48 per share in 2012 (plus a special dividend of $5 per share), up from $2.23 per share in 2011. “We never missed a dividend in 40 years,” Logan said.
How did Watsco achieve success in this highly fragmented market, competing with about 2,300 distribution companies?
In its early years, Watsco manufactured a variety of products, including tools, chemicals, pumps, hair spray systems, rollers for windows and doors, portable boat horns and other marine equipment.
Albert H. Nahmad, currently the chairman, CEO and president, took over as president and chairman of Watsco in 1973 and grew its revenues as a manufacturer.
But in 1989, Nahmad, formerly group vice president at W.F. Grace and Co., changed the company’s strategy. Watsco acquired a local distributor of air conditioning, refrigeration, heating and ventilation equipment, got out of manufacturing and focused on building the distribution business.
Under Nahmad’s “buy and build” strategy, the company acquired more distribution companies, expanded its reach beyond Florida and became a major player in the sector. “We concentrate on the Sunbelt,” Logan said. “Our three biggest markets are Florida, Texas and the Carolinas.”
Starting with 16 locations in Florida and Alabama in 1989, Watsco now has 573 warehouse outlets in the U.S., Mexico and Canada. It has acquired 59 distribution businesses since 1989.
In 2009, Watsco took a big step to expand its business. The company set up a joint venture with Carrier Corp., the manufacturer of heating, air-conditioning and refrigeration (HVACR) equipment. The joint venture, called Carrier Enterprise LLC, included 95 Carrier-owned locations in 13 Sunbelt states and Puerto Rico and 15 Watsco locations that sold Carrier products. This allowed Watsco to significantly broaden its distribution network and boost its revenues. For its part, Carrier found a powerful new partner with extensive distribution expertise that would expand sales of its product lines.