Loading...
•
Sep 30
Watsco Q3 2025 Earnings Report
Watsco reported record third quarter gross profit, gross margin, and operating cash flow amidst challenging market conditions.
Key Takeaways
Watsco, Inc. experienced a 4% revenue decline to $2.07 billion in Q3 2025, primarily due to a significant regulatory transition to A2L refrigerants and weaker consumer spending. Despite these headwinds, the company achieved record gross profit margin of 27.5% and maintained strong operating cash flow, demonstrating resilience and effective management of the transition.
Revenues decreased 4% to $2.07 billion, with a 3% decline in U.S. markets and a 14% decline in non-U.S. markets.
Gross profit margin expanded by 130 basis points to a record 27.5%, driven by pricing technologies and OEM pricing actions.
Operating income decreased 6% to $235 million, with an operating margin of 11.4%.
Diluted earnings per share were $3.98, down from $4.22 in the prior year, reflecting the challenging market and increased operating expenses related to the A2L transition.
Watsco
Watsco
Watsco Revenue by Segment
Watsco Revenue by Geographic Location
Revenue by Segment
HVAC Equipment Revenue
CapyFin.comOther HVAC Products Revenue
CapyFin.comCommercial Refrigeration Revenue
CapyFin.comRevenue by Geographic Location
United States Revenue
CapyFin.comInternational Revenue
CapyFin.com Forward Guidance
Watsco anticipates that fourth-quarter 2025 results will continue to be affected by the factors that impacted the third quarter, particularly in light of strong sales and earnings comparisons from 2024. However, the company expects improvements in operating efficiency in 2026 as incremental costs associated with the A2L transition are not expected to recur.
Positive Outlook
- Non-recurring A2L transition costs in 2025 are expected to lead to improved operating efficiency in 2026.
- Targeted inventory reductions in Q4 2025 are expected to lead to more conventional working capital trends, improved inventory turns, and enhanced returns on invested capital.
- Continued investments in technology platforms, including AI-driven initiatives, are expected to enhance customer experience, improve efficiencies, and capture market share.
- New initiatives to grow sales of non-equipment products and enhance gross margins are expected to optimize sourcing and improve logistics.
- Project "WatscoOne" aims to offer enterprise-wide solutions to institutional customers starting in early 2026, leveraging market-leading scale and technology.
Challenges Ahead
- Fourth-quarter 2025 results are expected to be affected by the same challenging business and economic factors as the third quarter.
- Strong sales and earnings comparisons from 2024 will make year-over-year growth more challenging in Q4 2025.
- Short-term market conditions remain fluid, indicating ongoing uncertainty.
- Overall weaker consumer spending and slower housing-related activities continue to impact sales.
- The regulatory transition to A2L refrigerants has created volatility in sales, industry shipments, and distributor inventories.
Revenue & Expenses
Visualization of income flow from segment revenue to net income