Watsco (WSO) Down 9.9% Since Last Earnings Report: Can It Rebound?

Core Viewpoint - Watsco reported disappointing fourth-quarter results for 2025, with earnings and revenues missing estimates and showing a year-over-year decline, raising concerns about demand and market conditions [2][4]. Financial Performance - Earnings per share were $1.68, missing the Zacks Consensus Estimate of $1.94 by 13.4% and down 29.1% from $2.37 year over year [4]. - Revenues totaled $1.58 billion, falling short of the consensus estimate of $1.61 billion by 1.9% and decreasing 10% year over year [4]. - Gross profit decreased to $428.4 million from $468.1 million in the previous year, while gross margin improved by 40 basis points to 27.1% due to pricing and product mix optimization [5]. Segment Performance - HVAC equipment sales, which account for 67% of total sales, declined by 13%, while other HVAC products (29% of sales) fell by 4%. However, commercial refrigeration sales (4% of sales) grew by 5% [4]. Annual Overview - For the full year 2025, revenues decreased by 5% to $7.24 billion, and earnings per share fell by 7.9% to $12.25 [6]. - Gross profit for the year was $2 billion, down 1%, but gross margin expanded by 120 basis points to 28% [6]. Balance Sheet and Liquidity - As of 2025, Watsco had $433.3 million in cash and cash equivalents, a decrease from $526.3 million at the end of 2024. Net cash from operating activities also declined to $569.6 million from $773.1 million [7]. Market Sentiment - There has been a downward trend in estimates, with the consensus estimate shifting down by 7.23% recently [9]. - Watsco currently holds a Zacks Rank of 3 (Hold), indicating expectations for an in-line return in the coming months [11]. VGM Scores - Watsco has a strong Growth Score of A but is lagging in Momentum with an F. The stock has a C grade for value, placing it in the middle 20% for value investors [10].