Watsco (NYSE:WSO) Posts Earnings Results, Misses Expectations By $0.41 EPS

Key Points

• Watsco missed quarterly expectations: EPS was $4.00 versus the $4.41 consensus, while revenue reached $2.10 billion, slightly below estimates but up 2.1% year over year.
• Margins weakened amid uneven demand: Gross margin fell to 27.5% from 29.3% a year earlier, commercial sales declined about 8%, and new construction slowed in Florida and Texas. Management expects approximately 4%–5% growth through July.
• The company expanded and increased shareholder returns: Watsco completed its Jackson Supply acquisition, ended the quarter with $464 million in cash and no debt, and raised its annual dividend 10% to $13.20 per share. Shares fell sharply following the results, and analysts’ average rating remains “Hold.”

Watsco (NYSE:WSO - Get Free Report) posted its earnings results on Wednesday. The construction company reported $4.00 EPS for the quarter, missing the consensus estimate of $4.41 by ($0.41), FiscalAI reports. Watsco had a return on equity of 15.31% and a net margin of 6.85%.The business had revenue of $2.10 billion during the quarter, compared to the consensus estimate of $2.14 billion. During the same period in the prior year, the firm earned $4.52 earnings per share. The business's revenue was up 2.1% on a year-over-year basis.

Here are the key takeaways from Watsco's conference call:

• Revenue grew 2% to $2.1 billion, with residential HVAC equipment sales up 5% on gains in both unit volume and pricing. Management characterized the market as stabilizing and expects roughly 4%–5% growth through July.
• Gross margin declined to 27.5% from 29.3% a year ago, primarily because 2025 included unusually aggressive OEM pricing and tariff-related benefits. Management views 27%–plus as the current baseline but reiterated a long-term goal of reaching 30% gross margin.
• Demand trends remain uneven: new construction is slowing in Florida and Texas, while Northern states are performing strongly; commercial sales fell about 8%, largely due to the VRF product transition to A2L refrigerants.
• Watsco completed its acquisition of Jackson Supply on June 1, adding approximately $20 million of June revenue and 25 Sunbelt locations. Management said Jackson’s leadership has an ambitious growth plan and that profitability is consistent with Watsco’s overall profile.
• Technology initiatives continued to gain traction, with e-commerce sales up 13% and reaching 37% of sales over the last 12 months, while OnCall Air proposals generated $1.9 billion in gross merchandise value. The company ended the quarter with $464 million in cash, no debt, and raised its annual dividend 10% to $13.20 per share.

Watsco Stock Performance

Shares of WSO stock traded down $56.02 during mid-day trading on Wednesday, reaching $311.49. The company's stock had a trading volume of 765,752 shares, compared to its average volume of 425,708. The firm's 50-day moving average is $383.45 and its two-hundred day moving average is $393.67. The company has a market cap of $12.67 billion, a P/E ratio of 25.79 and a beta of 1.02. Watsco has a 1-year low of $309.17 and a 1-year high of $459.99.

Watsco Dividend Announcement

The firm also recently disclosed a quarterly dividend, which will be paid on Friday, July 31st. Stockholders of record on Thursday, July 16th will be paid a $3.30 dividend. The ex-dividend date is Thursday, July 16th. This represents a $13.20 dividend on an annualized basis and a dividend yield of 4.2%. Watsco's dividend payout ratio is currently 109.54%.

Wall Street Analyst Weigh In

Several equities research analysts recently weighed in on the company. Stephens boosted their target price on Watsco from $475.00 to $485.00 and gave the stock an "overweight" rating in a report on Wednesday, April 29th. DA Davidson assumed coverage on shares of Watsco in a research report on Tuesday, June 16th. They set a "neutral" rating and a $385.00 target price for the company. Weiss Ratings restated a "hold (c)" rating on shares of Watsco in a report on Friday, June 26th. Robert W. Baird lowered their price target on Watsco from $460.00 to $420.00 and set an "outperform" rating on the stock in a research report on Tuesday. Finally, Morgan Stanley boosted their price objective on Watsco from $370.00 to $405.00 and gave the stock an "equal weight" rating in a research report on Friday, July 10th. Two analysts have rated the stock with a Buy rating and nine have given a Hold rating to the stock. Based on data from MarketBeat.com, Watsco has an average rating of "Hold" and an average target price of $404.88.

Institutional Inflows and Outflows

Several hedge funds have recently added to or reduced their stakes in the business. Bamco Inc. NY acquired a new stake in Watsco during the fourth quarter valued at approximately $35,000. Quarry LP acquired a new position in shares of Watsco in the 4th quarter worth approximately $37,000. Resources Management Corp CT ADV lifted its position in shares of Watsco by 150.0% during the 4th quarter. Resources Management Corp CT ADV now owns 125 shares of the construction company's stock worth $42,000 after buying an additional 75 shares during the period. Los Angeles Capital Management LLC acquired a new stake in Watsco in the 4th quarter valued at $59,000. Finally, Headlands Technologies LLC acquired a new stake in Watsco in the 2nd quarter valued at $121,000. Institutional investors and hedge funds own 89.71% of the company's stock.

Watsco Company Profile

Watsco, Inc is the largest distributor of heating, ventilation, air conditioning and refrigeration (HVAC/R) equipment, parts and supplies in the United States. Headquartered in Miami, Florida, the company operates a network of more than 600 branches across the continental U.S., Canada and Puerto Rico. Watsco serves residential and commercial contractors by providing essential components for climate control systems, including air conditioners, furnaces, heat pumps, coils, refrigerants, controls and electrical and piping supplies.

Founded in 1947, Watsco has grown from a single regional distributor into an industry leader through a combination of organic expansion, acquisitions and strategic partnerships with original equipment manufacturers such as Carrier, Trane, Goodman and Lennox.

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