Watsco, Inc.

Watsco reported second-quarter sales of $2.1 billion, up 2% year over year. Gross profit was $579 million and gross margin was 27.5% versus 29.3% a year ago. Operating income was $238 million, operating margin was 11.3%, and EPS came in at $4 per share. Management said residential HVAC equipment grew 5%, equipment prices were up 2%, and July through July 28 was running at 4% to 5% organic growth. For the balance of the year, management emphasized it does not provide formal guidance, but said the market appears stable, inventory should continue to be managed lower than last year, and gross margins should be viewed against the last 12 months rather than the unusually strong prior-year quarter.

Albert Nahmad framed the quarter as evidence that markets are stabilizing and Watsco’s investments are starting to show through. He repeatedly pointed to a more normal operating environment, said the company remains focused on reaching a long-term 30% gross margin goal, and highlighted the Jackson Supply acquisition as a strategic addition with $230 million in annual sales. His tone was confident and long-term oriented, emphasizing resilience, growth, and balance sheet strength.

Barry Logan focused on the gross margin normalization versus last year’s anomaly, saying 2025 benefited from aggressive OEM pricing tied to inflation and tariffs, while 2026 pricing is back to historical levels. He said gross margins over the last 12 months were about 27.5%, and explained the lower 2026 margin largely reflects the prior-year comparison, product mix, and lighter inventory levels that reduce purchase discounts and rebates. On the balance sheet, the company ended with $464 million in cash and no debt, and operating cash flow for the 6-month period improved by $168 million due to lower seasonal inventory ramp-up. He also noted annual dividend growth of 10% to $13.20 per share in April.

Analysts pressed management on why gross margin had fallen from last year’s elevated level, and management said the prior-year quarter was an anomaly caused by volatile pricing and tariff-driven OEM actions. They also asked about a slowdown in Southern new construction; management said Florida and Texas are slower, while the North is stronger. On end demand, management pushed back on the idea that the market is getting worse, saying it has stabilized, units fell 17% last year because COVID pulled replacement demand forward, and they now believe the current level is a foundation for future growth.