WATSCO INC (WSO): Results of Operations and Financial Condition
WATSCO INC (WSO) filed an SEC Form 8-K — Results of Operations and Financial Condition. EXHIBIT 99.1 Watsco Second Quarter Results Reflect Further Industry Stabilization, Strong E-Commerce Sales Growth and Continued Operating Efficiency _____________________ Jackson Supply Acquisition Adds Density to Key Sunbelt Markets; Entrepreneurial Culture and Debt-Free Balance
How this was made
The 30-second read
Why it matters
The filing frames improving end-market stability but reports weaker profitability versus last year, attributing the gap to OEM pricing action timing and magnitude in 2025 versus 2026, plus residual A2L transition impacts. It also adds a newly closed acquisition (Jackson Supply) and provides early 2026 digital metrics (e-commerce growth, OnCallAir GMV).
Market read
Traders can reassess near-term earnings power and margin trajectory using the disclosed gross margin and operating margin declines, while monitoring whether digital growth and acquisition synergies offset profitability pressure.
What to watch
Cash flow improvement (cash used in operations down to $21M vs $185M prior year) could support valuation despite EPS decline; acquisition integration and inventory optimization could change forward margins.
Watsco Second Quarter Results Reflect Further Industry Stabilization, Strong E-Commerce Sales Growth and Continued Operating Efficiency
Second-quarter revenue increased 2% and same-store revenue increased 1%, but gross profit decreased 4%, operating income decreased 12%, and earnings per share decreased 12% as gross margin declined versus last year.
Key metrics
as reported| Metric | Value | q/q | y/y |
|---|---|---|---|
| Revenues, second quarterGAAP | $2.1 billion | – | increased 2% |
| Revenues, second quarter, same-store basisnon-GAAP | 1% | – | increased 1% |
| Gross profit, second quarterGAAP | $579 million | – | decreased 4% |
| Gross profit margin, second quarterGAAP | 27.5% | – | – |
| SG&A, second quarterGAAP | $349 million | – | increased 3% |
| SG&A as a percentage of sales, second quarterGAAP | 16.6% | – | – |
| Operating income, second quarterGAAP | $238 million | – | decreased 12% |
| Operating margin, second quarterGAAP | 11.3% | – | – |
| Earnings per share, second quarterGAAP | $4.00 | – | decreased 12% |
| Revenues, year to dateGAAP | $3.6 billion | – | increased 1% |
| Gross profit, year to dateGAAP | $1 billion | – | decreased 3% |
| Gross profit margin, year to dateGAAP | 27.7% | – | – |
| SG&A, year to dateGAAP | $672 million | – | increased 2% |
| SG&A as a percentage of sales, year to dateGAAP | 18.5% | – | – |
| Operating income, year to dateGAAP | $349 million | – | decreased 9% |
| Operating margin, year to dateGAAP | 9.6% | – | – |
| Earnings per share, year to dateGAAP | $5.92 | – | decreased 9% |
| Cash used in operations, six-month period ended June 30, 2026GAAP | $21 million | – | a $164 million improvement |
| E-commerce sales growth, first six months of 2026other | 13% | – | – |
| E-commerce sales, 12 months ended June 30, 2026other | $2.7 billion | – | – |
| E-commerce sales as a percentage of sales, 12 months ended June 30, 2026other | 37% of sales | – | – |
| OnCallAir® gross merchandise value, first six months of 2026other | $1 billion | – | a 14% increase over the same period last year |
| OnCallAir® gross merchandise value, twelve months ended June 30, 2026other | $1.9 billion | – | a 15% increase versus the prior comparable twelve-month period |
Segments
| Segment | Revenue | q/q | y/y |
|---|---|---|---|
| HVAC equipment sales, second quarter, excluding acquisitionsSecond quarter sales trends excluding acquisitions. | 68% of sales | – | 3% increase |
| Other HVAC products sales, second quarter, excluding acquisitionsSecond quarter sales trends excluding acquisitions. | 28% of sales | – | 1% decrease |
| Commercial refrigeration products, second quarter, excluding acquisitionsSecond quarter sales trends excluding acquisitions. | 4% of sales | – | 19% increase |
| HVAC equipment sales, year to date, excluding acquisitionsYear to date sales trends excluding acquisitions. | 67% of sales | – | 1% increase |
| Other HVAC products sales, year to date, excluding acquisitionsYear to date sales trends excluding acquisitions. | 29% of sales | – | 1% increase |
| Commercial refrigeration products, year to date, excluding acquisitionsYear to date sales trends excluding acquisitions. | 4% of sales | – | 16% increase |
Capital returns
- In April 2026, the Company increased its annual cash dividend by 10% to $13.20 per share.
- Watsco has paid dividends to shareholders for 52 consecutive years.
What drove it
- Domestic residential HVAC equipment sales increased 5% during the quarter, including 2% growth in unit volume and a 2% increase in average selling prices.
- Second quarter sales reflected stabilizing end-market demand following last year’s transition to next generation HVAC systems containing A2L refrigerants.
- The Company acquired Jackson Supply in June 2026. Jackson Supply has annualized sales of approximately $230 million across 25 Sunbelt locations.
- E-commerce sales grew 13% during the first six months of 2026 and reached $2.7 billion for the 12 months ended June 30, 2026.
- OnCallAir® GMV reached $1 billion for the first six months of 2026 and contractors presented quotes to approximately 342,000 households for the twelve months ended June 30, 2026.
- Watsco invested more than $250 million in its digital platforms over the last five years, at a current annual run rate of approximately $68 million.
Concerns
- Gross profit margin was 27.5% in the second quarter versus 29.3% last year.
- Operating margin was 11.3% in the second quarter versus 13.2% last year.
- The Company said the comparative benefit to 2025’s gross margin, along with other A2L transition-related impacts, was approximately 130 basis-points.
- Second-quarter operating income decreased 12% and earnings per share decreased 12%.
- Cash used in operations reflected the customary seasonal buildup of working capital.
What to watch
- Whether stabilizing end-market demand following the A2L transition supports growth with existing customers and acquisition of new customers.
- The extent to which normalized 2026 OEM pricing actions affect gross margin relative to the prior-year comparison.
- Inventory turns and returns on invested capital as the Company expects more conventional supply-chain trends for the remainder of 2026.
- Integration and growth of Jackson Supply across its 25 locations.
- Scaling of SupplySync, e-commerce, OnCallAir® and AI-driven initiatives.
Balance sheet and cash flow
- $464 million in cash and cash investments and no debt.
- Operating cash flow was a cash-use of $21 million for the six-month period ended June 30, 2026, compared to a cash-use of $185 million for the same period in 2025, a $164 million improvement.
- The Company expects more conventional supply-chain trends for the remainder of 2026, providing the opportunity for better inventory turns and enhanced returns on invested capital.
- The Company’s stated goal is to generate annual operating cash flow in excess of net income.
Analysis
Watsco reported modest top-line improvement in the second quarter, with revenues increasing 2% to $2.1 billion and same-store revenue increasing 1%. The sales backdrop improved as the A2L refrigerant transition became largely complete. Domestic residential HVAC equipment sales increased 5%, supported by 2% growth in unit volume and a 2% increase in average selling prices. Excluding acquisitions, HVAC equipment sales increased 3% and commercial refrigeration products increased 19%, while other HVAC products declined 1%.
Profitability weakened against a difficult prior-year comparison. Gross profit decreased 4% to $579 million, and gross profit margin was 27.5% versus 29.3% last year. The Company attributed the comparison to the timing and magnitude of OEM pricing actions, saying that 2025 pricing captured substantial inflation and tariffs while 2026 pricing actions normalized. It identified the comparative benefit to 2025 gross margin and other A2L transition-related effects as approximately 130 basis-points. SG&A increased 3% to $349 million and reached 16.6% of sales versus 16.4% last year, resulting in operating income declining 12% to $238 million and operating margin falling to 11.3% from 13.2%.
The six-month results showed the same pattern: revenues increased 1% to $3.6 billion, while gross profit decreased 3% to $1 billion and operating income decreased 9% to $349 million. Year-to-date earnings per share decreased 9% to $5.92. Cash used in operations improved to $21 million from a cash-use of $185 million in the prior-year period, reflecting the seasonal buildup of working capital. The Company expects more conventional supply-chain trends for the remainder of 2026, which it said could support better inventory turns and enhanced returns on invested capital.
Digital engagement remains a strategic source of growth and operating leverage. E-commerce sales grew 13% during the first six months of 2026 and reached $2.7 billion for the 12 months ended June 30, 2026, representing 37% of sales. OnCallAir® GMV reached $1 billion in the first six months and $1.9 billion for the twelve months ended June 30, 2026. Watsco also acquired Jackson Supply in June 2026, adding a distributor with annualized sales of approximately $230 million across 25 Sunbelt locations.
Capital allocation remains dividend-led while preserving acquisition capacity. The Company increased its annual cash dividend by 10% to $13.20 per share in April 2026, held $464 million in cash and cash investments, and reported no debt. No quantitative financial outlook was provided. The principal reported watchpoints are whether end-market stabilization converts to stronger sales, whether gross margin remains at levels the Company views as more representative of underlying market conditions, and progress in inventory, acquisition integration and technology initiatives.
Management, verbatim
Our performance during the second quarter is indicative of improving end-market stability after a busy period of regulatory transitions. We are now operating in a more conventional environment in which Watsco’s scale, OEM relationships, and technology investments can add even more value.
Albert H. Nahmad, Chairman and CEO
We are excited that Jackson Supply is now officially a member of the Watsco family. It is a legendary company that diversifies and expands our presence in key Sunbelt markets. We look forward to supporting their growth.
Albert H. Nahmad, Chairman and CEO
Our technology platforms have continued to scale and deepen their impact for our customers. We believe that the growth in e-commerce, OnCallAir® and overall digital engagement across our network reflects the value these tools deliver to our customers every day.
A.J. Nahmad, Watsco’s President
Not in the filing
stated, not guessed- Net income for the second quarter and six-month period was not provided.
- Prior-year dollar revenue, gross profit, SG&A, operating income and EPS values were not provided for the respective reported line items.
- Prior-quarter comparisons were not provided for reported financial metrics.
- Free cash flow was not provided.
- Quarterly operating cash flow was not provided.
- Share repurchases were not provided.
- Detailed debt balances or maturities were not provided beyond no debt.
- Tax rate was not provided.
- Quantitative forward revenue, gross-margin, operating-expense, tax-rate or EPS guidance was not provided.
- Prior outlook was not provided, so comparison with prior guidance is unavailable.
- Absolute revenue by product category was not provided; only sales mix and growth rates were provided.
AlphaAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.
Background
Watsco is a major North American HVAC distributor and is in the midst of integrating acquisitions and scaling digital platforms amid the industry’s A2L refrigerant transition.
Ticker impact
Watsco reports Q2 and six-month results, including revenue up 2% but operating income down 12% and EPS down 12%.
Near-term bias likely neutral to slightly negative due to operating income and EPS declines, partially offset by acquisition density and e-commerce growth.
The filing provides concrete P&L datapoints (revenue, gross margin, operating margin, EPS) and explains drivers (2025 vs 2026 pricing actions, A2L transition largely complete) plus a specific acquisition close (Jackson Supply).
Market effects
Signals HVAC distribution demand stabilization post A2L transition and highlights margin sensitivity to OEM pricing actions.
Jackson Supply adds Sunbelt market density, potentially improving regional share and logistics efficiency.
Limited direct global impact; primarily North American HVAC distribution dynamics.
Counterpoint
Margin compression may be temporary as 2026 pricing normalizes and A2L transition effects fade, while e-commerce and OnCallAir GMV growth suggest demand resilience.
Key entities
- companyWatsco, Inc.
Reports Q2 and year-to-date operating results, margin drivers, and the Jackson Supply acquisition close.
