Watsco 2025 Q2 Earnings Misses Targets as Net Income Grows 1%

Watsco (WSO) reported its fiscal 2025 Q2 earnings on Jul 30th, 2025. Analysts had anticipated stronger results, but Watsco missed earnings expectations with an EPS of $4.52, falling short of the Zacks Consensus Estimate of $4.84. Revenue also fell short, decreasing by 3.6% year-over-year to $2.06 billion. Despite these challenges, the company managed to increase its net income by 1% compared to the previous year. Looking ahead, Watsco anticipates improved sales trends, supported by better performance in July than in June. The company aims to achieve gross profit margins of 30% through strategic pricing and product mix adjustments. Watsco remains optimistic about capturing market share as the industry stabilizes, with potential growth opportunities anticipated in 2026.

Revenue

Watsco's total revenue decreased by 3.6% to $2.06 billion in Q2 2025, down from $2.14 billion in the same quarter of 2024.

Earnings/Net Income

Watsco's EPS rose 0.7% to $4.52 in 2025 Q2 from $4.49 in 2024 Q2, marking continued earnings growth. Meanwhile, the company's profitability strengthened with net income of $216.77 million in 2025 Q2, marking 1.0% growth from $214.65 million in 2024 Q2. Overall, the EPS performance was below market expectations.

Price Action

The stock price of Watsco dropped 3.47% during the latest trading day, tumbled 9.13% during the most recent full trading week, and edged up 1.41% month-to-date.

Post-Earnings Price Action Review

The strategy of purchasing Watsco (WSO) shares after quarters where revenue increased quarter-over-quarter and holding them for 30 days has yielded no returns over the past three years. This strategy resulted in a CAGR of 0.00% with no excess return, clearly underperforming relative to the benchmark. Furthermore, the strategy experienced no drawdown, indicating a flat performance rather than any significant loss. Despite attempts to capitalize on favorable earnings reports, this approach has not generated added value for investors, highlighting the need for alternative strategies or market conditions to enhance outcomes. The strategy’s consistent underperformance suggests a reevaluation to identify more promising investment tactics, particularly as the company navigates ongoing market transitions.

CEO Commentary

Albert H. Nahmad, Chairman and CEO, expressed that Watsco delivered healthy second-quarter results despite soft market conditions. He highlighted a significant product transition to next-generation equipment with A2L refrigerants impacting 55% of historical sales. Nahmad noted that regulatory changes historically benefit their business, and he anticipates this transition will yield a simpler operational structure by 2026. He emphasized record gross profit margins achieved through OEM pricing actions and their Pricefx platform, while also acknowledging increased SG&A costs due to the transition and acquisitions. The CEO underscored a strong balance sheet and the ongoing commitment to invest in technology and innovation to differentiate from competitors.

Guidance

Watsco expects continued improvement in sales trends with July showing better performance compared to June. The company aims for gross profit margins to reach 30% through enhanced pricing strategies and a shift in product mix towards higher-margin parts and supplies. Nahmad indicated that inventory levels are being actively managed, targeting a reduction in excess stock while transitioning from R-410A to A2L products. The leadership remains optimistic about capturing market share as the industry stabilizes, with a hopeful outlook for further growth opportunities in 2026.

Additional News

In May 2025, Watsco announced the acquisition of Southern Ice Equipment Distributors, a leading food-service and commercial refrigeration distributor in Sunbelt markets, enhancing its strategic market presence. Earlier in July, Watsco's Board of Directors declared a regular quarterly cash dividend of $3.00 per share, marking its 200th consecutive quarter of dividend payments, reflecting the company's commitment to shareholder returns. Additionally, in April 2025, Watsco had raised its annual dividend by 11% to $12.00 per share, underscoring a robust financial position and the ability to provide increasing cash flow to shareholders through higher dividends while maintaining a conservative financial stance.