WATSCO (WSO) Company Report

Watsco Inc. reported a 4% total sales decline and 3% U.S. sales decline in Q3 2025, despite achieving double-digit pricing gains on new products.
Gross margins expanded 130 basis points to 27.5% in Q3 2025, driven by growth in higher-margin non-equipment products, carryover OEM pricing, and pricing optimization tools.
The company generated record third quarter cash flow of $355 million and maintains a strong balance sheet with no debt and $600 million in cash.
Watsco is making significant progress in inventory reduction, targeting $500 million by year-end, with $350 million achieved in Q3 2025.
E-commerce penetration reached 34% of sales, and the OnCall Air digital selling platform saw its annual run rate of sales increase by 19% to $1.7 billion over the last 12 months.

Oct 29, 2025, 2:00 PM

Transcript

Watsco Inc. Reports Q3 2025 Results Amidst Market Transition

WSO

Earnings

Guidance Update

Demand Weakening

Watsco Inc. reported a 4% decline in total sales and a 3% decline in U.S. sales for Q3 2025, while achieving a 130 basis point expansion in gross margins to 27.5% and generating record third-quarter cash flow of $355 million.
The company noted that the transition to A2L refrigerants in 2025 is substantially complete, and they anticipate volatility to ease in 2026.
For October 2025, Watsco observed an overall revenue decline in the 5% to 10% range.
Watsco is focused on improving inventory turns (currently 3.6-3.7) and expects to reduce inventories by $500 million by year-end, with $350 million already achieved in Q3.
The company maintains a strong balance sheet with no debt and a healthy cash position, providing opportunities for M&A and co-investment with OEM partners. They are also investing in technology, with e-commerce accounting for 34% of sales.

Oct 29, 2025, 2:00 PM

Transcript

Watsco Reports Q3 2025 Results Amidst Market Transition

WSO

Earnings

Demand Weakening

New Projects/Investments

Watsco Inc. reported a 4% decline in total sales and a 3% decline in U.S. sales for Q3 2025, experiencing subdued unit volumes despite achieving double-digit pricing gains on new products.
Despite a challenging market environment and a significant product transition, the company generated record third-quarter cash flow of $355 million and expanded gross margins by 130 basis points to 27.5%.
The company is focused on improving inventory management, targeting $500 million in reductions by year-end and aiming to increase inventory turns from the current 3.6-3.7 to enhance cash flow.
Technology initiatives are driving growth, with e-commerce penetration reaching 34% of sales and the OnCall Air digital selling platform processing $1.7 billion in gross merchandise value over the past 12 months.
Watsco maintains a strong balance sheet with no debt and a $600 million cash position, providing significant capacity for future growth investments and potential M&A.

Oct 29, 2025, 2:00 PM

Transcript

Watsco Reports Third Quarter and Nine-Month 2025 Operating Results

WSO

Earnings

New Projects/Investments

Demand Weakening

Watsco reported Q3 2025 revenues of $2.07 billion, a 4% decrease year-over-year, and diluted earnings per share of $3.98. For the nine-month period, revenues decreased 3% to $5.66 billion, and diluted EPS was $10.48.
Despite challenging market conditions and a significant regulatory transition to A2L refrigerants, the company achieved a record Q3 gross profit margin of 27.5% and a record nine-month gross profit margin of 28.3%.
Operating cash flow for Q3 2025 was a record $355 million, contributing to $170 million for the nine-month period ended September 30, 2025.
Watsco continues to invest in technology, with e-commerce sales reaching approximately $2.5 billion (34% of overall sales) and the HVAC Pro+ Mobile Apps user community growing 18% to over 72,000 users over the last 12 months. The company also maintains a strong financial position with over $640 million in cash and investments and no debt.

Oct 29, 2025, 11:30 AM

Press Release

Watsco Discusses HVAC Market Headwinds and Inventory Management

WSO

Demand Weakening

Guidance Update

Dividends

The HVAC market is experiencing significant headwinds, with Watsco reporting unit volumes down 12% year-to-date as of September, and revenue remaining flattish. A major factor in this decline is a 60% reduction in new construction activity and a general decrease in consumer spending on home improvements.
Watsco successfully sold off most of its accumulated 410A inventory, which started the year at approximately $1 billion, with only about $100 million left. The company is actively working to reduce overall inventory levels by year-end.
Despite market challenges, Watsco's earnings were up slightly in Q2 and are anticipated to show a similar trend in Q3. The company's dividend policy is robust, driven by strong cash flow rather than EPS, and Watsco currently operates with no debt.

Sep 11, 2025, 11:50 PM

Transcript

Watsco Discusses Market Conditions and Inventory Management at Morgan Stanley Conference

WSO

Demand Weakening

Dividends

Watsco reported a 12% year-to-date decline in unit sales through July, a trend that remained consistent into September, with revenue dollars being flattish. This decline is largely attributed to reduced new construction activity and decreased consumer spending on home improvements.
The company has significantly reduced its 410A inventory, from approximately $1 billion at the start of the year to about $100 million remaining, with 90% of the inventory reduction expected to be completed by year-end.
Watsco's dividend policy is primarily driven by cash flow rather than EPS, supported by a 50-year history of dividend payments, a 10-11% compounded growth rate over the last 15 years, and a debt-free balance sheet.

Sep 11, 2025, 11:50 PM

Transcript

Watsco Discusses Market Dynamics, Inventory, and Financial Strategy at Laguna Conference

WSO

Demand Weakening

Dividends

New Projects/Investments

Watsco reported a 12% year-to-date decline in units as of Q2, a trend that persisted through September, with revenue remaining "flattish". This unit decline is primarily driven by a 60% impact from new construction and multifamily housing, alongside reduced consumer spending on homes.
The company has largely sold off its initial $1 billion 410A inventory, with approximately $100 million remaining, and is actively working to reduce overall inventory levels by year-end.
Watsco maintains strong pricing, with new product prices up around 12%, and protected margins. The company has no debt and a 50-year history of dividend payments, which are primarily cash flow-driven, allowing for potential increases even in a lower earnings environment.

Sep 11, 2025, 11:50 PM

Transcript

Watsco Discusses Market Dynamics, Inventory, and Dividend Policy

WSO

Demand Weakening

Dividends

New Projects/Investments

Watsco built significant 410A inventory last fall, which has largely sold out, and also built safety stock this year due to extended lead times and uncertainty; the company aims to reduce inventory by the end of this year.
Unit volumes were down 12% year-to-date as of the second quarter call, with 60% of the decline attributed to new construction and multifamily housing, and the remainder consumer-driven.
Revenue dollars were flattish as of July and remained consistent through September, while earnings were up slightly in the second quarter with an opportunity for the third quarter.
The price trend on new products is up around 12% (introductory price plus increases) and is holding steady with higher margins.
Watsco's dividend, paid for 50 years with a 10-11% compounded rate over the last 15 years, is driven by cash flow rather than EPS and is supported by the company's debt-free balance sheet.

Sep 11, 2025, 11:50 PM

Transcript

Earnings Transcripts

Quarterly earnings call transcripts for WATSCO.

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