$WSO earnings report

Watsco delivered record third-quarter revenue of $2.22 billion, up 7%, with same-store revenue up 4%. The reported sales trend points to an improving residential market: residential equipment sales increased 7%, including 5% unit growth and a 2% increase in average selling price. However, commercial equipment remained weak, declining 5% in the quarter, while acquisitions supplied $78 million of third-quarter sales from Jackson Supply locations.

Profit growth did not match sales growth. Third-quarter gross profit increased 3% to $586 million, while gross profit margin declined to 26.4% from 27.5%. SG&A increased 8%, ahead of revenue growth, and operating income declined 4% to $225 million. Diluted EPS declined 5% to $3.77. Management attributed gross-margin pressure to customer and end-market mix, OEM pricing timing and magnitude, and the differing growth rates of equipment and non-equipment products.

The nine-month results similarly show revenue growth with lower profitability. Revenues increased 3% to $5.86 billion, but gross profit declined 1% to $1.59 billion and operating income declined 7% to $574 million. Nine-month gross margin declined to 27.2% from 28.3%, operating margin declined to 9.8% from 10.9%, and diluted EPS declined 7% to $9.72. The product mix remained bifurcated, with nine-month residential equipment growth of 4%, commercial equipment down 4%, and commercial refrigeration up 14%.

Cash generation strengthened substantially, with nine-month operating cash flow increasing 79% to $304 million. The Company paid $ 392,013 (in thousands) in common-stock dividends during the nine-month period and raised its annual dividend by 10% to $13.20 per share in April. Cash and cash equivalents were $ 498,698 (in thousands) at September 30, 2026, and the Company announced a five-year $750 million unsecured senior revolving credit facility in October.

Acquisitions and technology remain the principal strategic growth levers. Jackson Supply and The Granite Group are expected to add approximately 10% to annual revenue and have added 107 locations and $730 million in annualized revenue to the network. E-commerce sales increased 12% for the nine-month period and reached $2.75 billion for the 12-months ended September 30, 2026. The release provided no formal financial outlook, so the next key evidence point is whether improving fourth-quarter same-store demand and residential unit growth can support margin recovery amid continued mix and OEM-pricing effects.

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.