First Quarter Results:

The sales results were impacted by the economic environment, especially during the seasonally slower first quarter, and include a 22% decrease in the sale of air conditioning equipment (42% of sales), a 26% decrease in other HVAC products (45% of sales) and an 18% decrease in the sale of refrigeration products (13% of sales). Revenues were also impacted by pricing and gross margin pressure on certain commodity products (13% of sales) as well as notable weakness in the company’s western operations (10% of sales). Combined, these two factors represented 42% of the first quarter sales decline and affected earnings per share by about 23 cents. Sales results experienced an improving revenue mix of high-efficiency and environmentally-sensitive air conditioning and heating systems.

Gross profit was $74 million, a 24% decline versus last year, and gross profit margin was 25.5% versus 25.8% in 2008. Gross profit margin increased 30 basis-points to 26.3% versus 26.0% in 2008 excluding the impact of certain commodity-based products. Selling, general & administrative (SG&A) expenses were $76 million, an 11% decline as compared to first quarter 2008. Operating loss was $1.6 million. Interest expense declined 45% to $.3 million on 61% lower average daily borrowings.

These operating results include the benefit of profit-improvement activities implemented during 2008 that included programs to enhance gross profit margin, facility rationalization, cost reductions and other efficiency initiatives. In light of the unprecedented market environment, the company accelerated cost reduction activities during the first quarter of 2009 in addition to those implemented during 2008 and estimates another $25 to $30 million of cost reductions within the next 12 to 18 months.

Albert H. Nahmad, Watsco’s president and chief executive officer, said, “The economic environment continued to take its toll on the seasonally slower first quarter. We are pleased with the continued improvement in sales mix of more energy-efficient and environmentally friendly products in this current market environment. We anticipate this trend will continue as we move into the replacement season during the summer months. We will continue to execute additional profit enhancement activities as we navigate through this challenging time.

Cash Flow and Dividends:

During the first quarter, Watsco generated $13 million of operating cash flow versus $21 million in 2008. Over the last 12 months, operating cash flow was $105 million and free cash flow (operating cash flow less capital expenditures) was $101 million.

Dividends of $13 million were paid during the quarter. The current quarter dividend rate was raised 7% to 48 cents per share during April 2009. Watsco has paid dividends every quarter for over 30 years, and more recently has established a consistent track record of paying increasing dividends.

Nahmad added, “Once again we produced strong cash flow, allowing shareholders to participate directly through increasing dividends. Since 2000, our cumulative operating cash flow was about $625 million compared to net earnings of about $440 million, surpassing by far our stated goal of generating cash flow greater than net income.”