Watsco Q2 Revenue Falls Short Amid Market Challenges, Despite Resilient Business Model

Watsco's Q2 revenue fell short at $2.06 billion, below the anticipated $2.23 billion. Despite market challenges, the company enhanced gross margins and achieved earnings growth. Watsco operates primarily in the US, with significant exposure in the Sunbelt states, and has a market capitalization of approximately $18.68 billion. The company's financial health is underscored by strong liquidity, low debt-to-equity ratio, and solid profitability. Watsco's revenue trends highlight its resilience in a competitive market, driven by its expansive distribution network and strong market presence in the HVACR industry.

In its second quarter (Q2) of 2025, Watsco (NYSE:WSO) reported revenue of $2.06 billion, falling short of Wall Street's expectations of $2.22 billion, a 3.6% year-on-year decline [1]. Despite this, the company's earnings per share (EPS) grew to $4.52, although it was 5.6% below analysts' consensus estimates of $4.79. Watsco's adjusted EBITDA was $282.8 million, down from $304.1 million expected by analysts, marking a 13.7% margin and a 7% miss [2].

Watsco's operating margin remained stable at 13.2%, in line with the same quarter last year, indicating a stable cost structure. The company's free cash flow declined to -$14.04 million from $51.38 million in the same quarter last year. The market capitalization of Watsco stood at approximately $18.68 billion.

Watsco's revenue growth over the past five years has been solid, with a compounded annual growth rate (CAGR) of 9.2%. However, its annualized revenue growth over the last two years has slowed to 2.3%, which is below its five-year trend. Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, an improvement over the last two years [1].

Watsco's financial health is bolstered by strong liquidity, a low debt-to-equity ratio, and solid profitability. The company operates primarily in the US, with significant exposure in the Sunbelt states. Its expansive distribution network and strong market presence in the HVACR industry contribute to its resilience in a competitive market.

References:
[1] https://finance.yahoo.com/news/watsco-nyse-wso-reports-sales-123447271.html
[2] https://markets.financialcontent.com/wral/article/stockstory-2025-7-30-watsco-nysewso-reports-sales-below-analyst-estimates-in-q2-earnings