Watsco, Inc.

Second-quarter sales increased 2% to $2.1 billion. Gross profit was $579 million, gross margin was 27.5% versus 29.3% a year ago, operating income was $238 million with an 11.3% operating margin, and EPS was $4. Residential HVAC equipment grew 5% in the quarter, while overall same-store sales rose 1% and total sales rose 2%. Management did not provide formal next-quarter or full-year financial guidance, but said July through July 28 showed 4% to 5% organic growth and that they expect inventory turns to slowly improve as lead times normalize and the A2L transition moves behind them.

Al Nahmad framed the quarter as evidence that markets are stabilizing after several years of pandemic, supply-chain, regulatory, and tariff disruption. He highlighted normalized operating conditions, revenue growth, and measurable progress from Watsco’s digital ecosystem, while stressing the company’s long-term goal of 30% gross margin. His tone was confident and upbeat, especially around Jackson Supply, the dividend record, and the company’s no-debt balance sheet.

Barry Logan emphasized that the main gross-margin comparison issue was last year’s unusual OEM pricing environment, which made 2025 gross margin unusually high; he said the recent 27.5% margin is more representative of the longer-term trend. He pointed to a 2% price increase on units as a conventional level, noted that equipment outgrew non-equipment and that lower inventory levels can reduce purchase discounts and rebates, and said operating cash flow for the first six months improved by $168 million due to a lower ramp-up of seasonal inventory. He also noted $464 million in cash and no debt, and said Jackson added about $20 million of revenue in June after closing on June 1.

Analysts focused on gross-margin normalization, pricing, new-construction weakness in the South, inventory levels, and whether sell-through volumes are still deteriorating. Management said the gross-margin comparison mostly reflects last year’s anomaly, not a structural break, and reiterated that 27%+ is the baseline and 30% remains the long-term target. On demand, they said they are seeing a slowdown in new construction in Florida and Texas, but also said the broader market is stable, July is running at 4% to 5% organic growth through July 28, and they believe the market has likely bottomed.