Financial Data and Key Metrics Changes - Sales declined by 4%, with double-digit pricing gains for new equipment offset by lower volumes [5][6] - Record gross profit margins were achieved, leading to an increase in EBIT and expanded EBIT margins despite lower sales [6][7] - SG&A expenses increased by 6% due to additional costs during the product transition and the addition of 10 new locations from recent acquisitions [7][8] - The company maintains a strong cash position with no debt [8] Business Line Data and Key Metrics Changes - Residential new construction and international markets remain subdued, with residential new construction down by 15% to 20% [18] - The annual volume of products sold through OnCallAir, the digital selling platform, increased by 19% to $1.6 billion [9] - Parts and supply segment, currently about 30% of sales, is expected to grow significantly over time [10] Market Data and Key Metrics Changes - International sales, particularly in Mexico, were volatile and negatively impacted earnings by approximately $0.10 per share for the quarter [21] - The company experienced a late start to the summer season, affecting overall market performance [5] Company Strategy and Development Direction - The company is transitioning to next-generation equipment using A2L refrigerants, affecting about 55% of historical product sales [4] - A new technology-driven sales platform is being developed to capture larger national customers, expected to launch in 2026 [10] - The company aims for a gross profit margin of 30% and is focusing on growing the parts and supply segment [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, noting that the transition to new products will simplify operations by 2026 [4] - The company is focused on controlling margins and pricing, despite external market challenges [23] - Management acknowledged the current market noise due to various macroeconomic factors but remains confident in the company's ability to grow and take market share [125] Other Important Information - E-commerce sales have grown to $2.5 billion, representing 34% of total sales [8] - The company has launched two AI platforms to enhance data utilization and improve customer experience [11] Q&A Session Summary Question: What happened to volumes in the quarter? - Management noted that April was strong, May was weak due to weather, and June rebounded. Residential new construction was down 15% to 20%, but replacement sales remained strong [18] Question: How sustainable are the gross margins? - Management indicated that while the current gross margin of 29% is strong, it may not be sustainable in the second half due to the absence of pricing benefits seen in the first half [26][28] Question: What is the impact of the cylinder shortage? - Management stated that the refrigerant allocation issue is becoming less of a concern, with expectations to be off allocation by August [40] Question: How is inventory being managed during the transition? - The company has invested more in inventory than anticipated due to lower industry demand, but is focused on improving inventory turnover [48][52] Question: What is the outlook for M&A activity? - Management expressed eagerness for potential M&A opportunities in the current soft market, highlighting a strong balance sheet to support acquisitions [53][55] Question: How are consumer preferences changing during the product transition? - Management noted that the market remains focused on minimum efficiency products, with no significant shift towards high-efficiency systems [60] Question: What are the expectations for pricing in the second half? - Management does not anticipate significant price increases on equipment but expects some inflationary pressures on non-equipment products due to tariffs [118]

Company Performance - Watsco reported quarterly earnings of $4.52 per share, missing the Zacks Consensus Estimate of $4.84 per share, representing an earnings surprise of -6.61% [1] - The company posted revenues of $2.06 billion for the quarter, missing the Zacks Consensus Estimate by 6.82%, compared to year-ago revenues of $2.14 billion [2] - Over the last four quarters, Watsco has surpassed consensus EPS estimates only once [2] Stock Outlook - Watsco shares have declined approximately 1.9% since the beginning of the year, while the S&P 500 has gained 8.3% [3] - The current consensus EPS estimate for the upcoming quarter is $4.81 on revenues of $2.28 billion, and for the current fiscal year, it is $14.16 on revenues of $7.83 billion [7] Industry Context - The Building Products - Air Conditioner and Heating industry, to which Watsco belongs, is currently ranked in the top 37% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8]

[Executive Summary](index=1&type=section&id=Executive%20Summary) Watsco reports Q2 2025 results with record gross margins, expanded operating margins, and strong financial health [Company Overview and Q2 2025 Highlights](index=1&type=section&id=Company%20Overview%20and%20Q2%202025%20Highlights) Watsco, a leading HVAC distributor, achieved earnings growth and an 11% dividend increase in Q2 2025, maintaining a debt-free balance sheet - Watsco is the largest distributor in the **$74 billion** North American HVAC market, achieving an **18% compounded annual total-shareholder return** since 1989[2](index=2&type=chunk) - The company maintains a strong financial position with **$293 million in cash**, **no debt**, and **$3 billion in shareholders' equity** as of June 30, 2025[3](index=3&type=chunk) - The 2025 results are significantly influenced by the regulatory transition to A2L refrigerants, which impacts nearly **$1 billion of inventory** across over 650 U.S. locations[4](index=4&type=chunk) - In April 2025, the annual dividend was increased by **11% to $12.00 per share**, marking the 51st consecutive year of dividends[2](index=2&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) [Second Quarter 2025 Performance](index=1&type=section&id=Second%20Quarter%202025%20Performance) Q2 2025 revenue declined 4% to $2.06 billion, yet gross profit grew 4% to $603 million with record 29.3% gross margin - Sales trends were impacted by double-digit pricing realization from the A2L product transition, offset by lower unit volumes due to temperate weather, reduced homebuilding, and transition-related installation issues, with the sales mix of new A2L equipment growing from **25% in Q1 to 60% in Q2**[6](index=6&type=chunk) Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Change vs. Q2 2024 | | :--- | :--- | :--- | | Revenues | $2.06 billion | -4% | | Gross Profit | $603 million | +4% | | Gross Profit Margin | 29.3% | +220 bps | | Operating Income | $272 million | +1% | | Operating Margin | 13.2% | +60 bps | | Earnings Per Share | $4.52 | +0.7% | Q2 2025 Sales Performance by Category | Category | % of Sales | YoY Change | | :--- | :--- | :--- | | HVAC Equipment | 68% | -6% | | Other HVAC Products | 28% | Flat | | Commercial Refrigeration | 4% | +3% | | **Region** | | | | Domestic Markets | N/A | -3% | | Non-US Markets | N/A | -12% | [Six-Month 2025 Performance](index=2&type=section&id=Six-Month%202025%20Performance) H1 2025 revenue decreased 3% to $3.59 billion, while gross profit rose 2% to $1.03 billion with a 28.7% gross margin Six-Month 2025 Key Financial Metrics | Metric | H1 2025 | Change vs. H1 2024 | | :--- | :--- | :--- | | Revenues | $3.59 billion | -3% | | Gross Profit | $1.03 billion | +2% | | Gross Profit Margin | 28.7% | +140 bps | | Operating Income | $384 million | -3% | | Operating Margin | 10.7% | Flat | | Earnings Per Share | $6.50 | -2.8% | Six-Month 2025 Sales Performance by Category | Category | % of Sales | YoY Change | | :--- | :--- | :--- | | HVAC Equipment | 68% | -4% | | Other HVAC Products | 28% | -2% | | Commercial Refrigeration | 4% | -1% | | **Region** | | | | Domestic Markets | N/A | -2% | | Non-U.S. Markets | N/A | -10% | [Strategic Initiatives and Growth Drivers](index=2&type=section&id=Strategic%20Initiatives%20and%20Growth%20Drivers) [Innovation & Strategic Technology Initiatives](index=2&type=section&id=Innovation%20%26%20Strategic%20Technology%20Initiatives) Watsco's $250M technology investment drives e-commerce, digital platforms, and AI tools, contributing to record gross margins - The company has invested more than **$250 million in technology** over the last five years, with a current annual run rate of **$60 million**, employing nearly **300 technologists**[11](index=11&type=chunk) [HVAC Pro+ & E-Commerce](index=2&type=section&id=HVAC%20Pro%2B%20%26%20E-Commerce) HVAC Pro+ user community grew 17%, driving e-commerce sales to $2.5 billion, representing 34% of total sales - The authenticated user community for HVAC Pro+ Mobile Apps grew **17% year-over-year** to more than **70,000 users**[11](index=11&type=chunk) - E-commerce sales totaled approximately **$2.5 billion** for the twelve months ended June 30, 2025, comprising **34% of the company's overall sales**[11](index=11&type=chunk) [OnCallAir® Digital Sales Platform](index=3&type=section&id=OnCallAir%C2%AE%20Digital%20Sales%20Platform) OnCallAir® generated $1.6 billion in GMV over 12 months, with H1 2025 GMV up 19% to $886 million - The gross merchandise value (GMV) of products sold through OnCallAir® was approximately **$1.6 billion** for the 12-month period ending June 30, 2025[13](index=13&type=chunk) - In the first half of 2025, contractors using OnCallAir® generated **$886 million in GMV**, a **19% increase** versus the same period last year[13](index=13&type=chunk) [Pricing Optimization and AI Initiatives](index=3&type=section&id=Pricing%20Optimization%20and%20AI%20Initiatives) Pricing optimization and new AI tools enhance gross margins and provide real-time expertise and productivity gains - The pricing optimization platform has been a key contributor to the company's **record gross margin performance in 2025** by applying sophisticated pricing rules and strategies[13](index=13&type=chunk) - Watsco has deployed two AI tools: "Ask.Watsco," an internal engine with over **2,100 users** to enhance productivity, and "AL.watsco," a customer-facing model to provide real-time expertise and recommendations[13](index=13&type=chunk) [Other Growth Initiatives](index=3&type=section&id=Other%20Growth%20Initiatives) New initiatives target non-equipment product sales and large institutional customers with enterprise-wide solutions - The company launched initiatives in 2025 to grow sales of non-equipment products, which represent nearly half of the market and **$1.7 billion in Watsco's purchases** over the last 12 months[13](index=13&type=chunk) - A new strategy, Project "WatscoOne," is being developed to target large institutional customers with enterprise-wide solutions, expected to launch in early 2026[13](index=13&type=chunk) [Buy & Build Acquisition Strategy](index=4&type=section&id=Buy%20%26%20Build%20Acquisition%20Strategy) Watsco continues its "buy and build" strategy, acquiring three distributors in 2025, adding $1.6 billion in annualized sales since 2019 - The North American HVAC/R distribution market is estimated at **$74 billion** and remains highly fragmented with approximately **2,100 independent distributors**[14](index=14&type=chunk) - Since 2019, Watsco has acquired **12 companies** that now represent about **$1.6 billion in annualized sales** and **120 locations**[14](index=14&type=chunk) - **Three distributors** in key Sunbelt markets have been acquired so far in 2025[14](index=14&type=chunk) [Financial Position and Shareholder Returns](index=4&type=section&id=Financial%20Position%20and%20Shareholder%20Returns) [Cash Flow, Financial Strength and Liquidity](index=4&type=section&id=Cash%20Flow%2C%20Financial%20Strength%20and%20Liquidity) Watsco maintains a strong balance sheet, with H1 2025 operating cash flow used for A2L inventory and seasonal buildup - Operating cash flow was a use of **$185 million** for the six months ended June 30, 2025, compared to a source of **$161 million** in the prior year period[16](index=16&type=chunk)[28](index=28&type=chunk) - The use of cash was primarily due to new A2L inventory investments and peak seasonal inventory buildup[16](index=16&type=chunk) - The company's stated goal is to generate annual operating cash flow in excess of net income, consistent with its long-term track record[16](index=16&type=chunk) [Dividend Policy](index=4&type=section&id=Dividend%20Policy) Watsco increased its annual dividend by 11% to $12.00 per share in April 2025, reflecting confidence in future cash flow - In April 2025, Watsco announced an **11% increase** to its annual dividend, raising it to **$12.00 per share**[17](index=17&type=chunk) - The company's philosophy is to share increasing amounts of cash flow via higher dividends while maintaining capacity for network-building investments[17](index=17&type=chunk) [Appendix: Condensed Consolidated Financial Statements](index=6&type=section&id=Appendix%3A%20Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Results of Operations](index=6&type=section&id=Condensed%20Consolidated%20Results%20of%20Operations) Q2 2025 revenue declined 4% to $2.06 billion, but gross margin expanded to 29.3%, with net income largely flat Q2 Financial Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenues | $2,062,442 | $2,139,328 | | Gross Profit | $603,488 | $579,760 | | Operating Income | $271,869 | $268,803 | | Net Income (Watsco) | $183,613 | $181,410 | | Diluted EPS | $4.52 | $4.49 | Six-Month Financial Summary (in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenues | $3,593,528 | $3,704,319 | | Gross Profit | $1,033,111 | $1,010,385 | | Operating Income | $384,057 | $395,340 | | Net Income (Watsco) | $263,674 | $268,414 | | Diluted EPS | $6.50 | $6.69 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets reached $4.73 billion, driven by A2L inventory, maintaining a debt-free position Key Balance Sheet Items (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $292,978 | $526,271 | | Inventories, net | $1,952,842 | $1,385,436 | | Total current assets | $3,299,718 | $3,079,981 | | Total assets | $4,729,513 | $4,479,523 | | Total liabilities | $1,507,694 | $1,415,285 | | Shareholders' equity | $3,221,819 | $3,064,238 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) H1 2025 operating cash flow was a use of $185.1 million, primarily due to increased inventory investments Six-Month Cash Flow Summary (in thousands) | Cash Flow Category | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(185,090) | $161,441 | | Net cash provided by (used in) investing activities | $222,252 | $(217,315) | | Net cash (used in) provided by financing activities | $(274,233) | $73,810 | | **Net (decrease) increase in cash** | **$(233,293)** | **$14,742** |

Executive Summary & Company Overview Watsco, the largest North American HVAC distributor, maintains strong financial health and strategic growth, actively managing the A2L transition and advancing AI initiatives [Company Profile and Market Position](index=1&type=section&id=Company%20Profile%20and%20Market%20Position) Watsco, the largest North American HVAC distributor, boasts strong financial health, 18% shareholder return, and 51 consecutive years of dividend increases - Watsco is the largest distributor in the highly-fragmented **$74 billion North American market** for HVAC products[2](index=2&type=chunk) - The company has achieved an **18% compounded annual total-shareholder return** since entering distribution in 1989[2](index=2&type=chunk) Company Profile and Market Position Table | Metric | Value (as of June 30, 2025) | | :----- | :-------------------------- | | Cash | $293 million | | Debt | None | | Shareholders' Equity | $3 billion | - In April 2025, the Company raised its annual dividend by **11% increase** to **$12.00 per share**, marking its **51st consecutive year** of dividends[2](index=2&type=chunk) [Strategic Initiatives and A2L Transition](index=1&type=section&id=Strategic%20Initiatives%20and%20A2L%20Transition) Watsco is managing a nearly $1 billion A2L refrigerant inventory transition while advancing AI-driven initiatives to enhance customer experience and efficiency - The ongoing regulatory transition to A2L refrigerants will ultimately result in the conversion of **nearly $1 billion of inventory** (**55% of all products sold**) across more than 650 locations in the U.S[4](index=4&type=chunk) - Watsco has made substantial investments in customer training, technology enhancements, and new inventory to support customers during the A2L transition[4](index=4&type=chunk) - The Company is advancing AI-driven initiatives to leverage its extensive data assets to enhance the customer experience and improve efficiencies, with more than **70,000 contractors engaging with its platforms**[3](index=3&type=chunk) Financial Performance Highlights Despite revenue declines, Watsco achieved record gross profit margins in Q2 and the first half of 2025, driven by pricing strategies [Second Quarter 2025 Performance](index=1&type=section&id=Second%20Quarter%202025%20Performance) Q2 2025 revenues decreased 4% to $2.06 billion, but gross profit rose 4% to a record $603 million, with margin expanding to 29.3% Second Quarter 2025 Financial Highlights (YoY Comparison) | Metric | Q2 2025 ($ millions) | Q2 2024 ($ millions) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Revenues | $2,062.4 | $2,139.3 | -4% | | Gross Profit | $603.5 | $579.8 | +4% | | Gross Profit Margin | 29.3% | 27.1% | +220 bps | | Operating Income | $271.9 | $268.8 | +1% | | Diluted EPS | $4.52 | $4.49 | +0.7% | - Sales trends reflect **double-digit pricing realization** primarily attributable to the A2L product transition, offset by lower unit volumes resulting from more temperate weather conditions, lower homebuilding activity, and transition-related impacts[6](index=6&type=chunk) - The sales mix of new A2L equipment sold domestically was approximately **25% during the first quarter** and **60% during the second quarter**[6](index=6&type=chunk) - **Gross profit margin expanded** due to margin increases across several product categories attributable to further scaling of Watsco's pricing technologies and OEM pricing actions[8](index=8&type=chunk) [Six-Month Period Ended June 30, 2025 Performance](index=2&type=section&id=Six-Month%20Period%20Ended%20June%2030%2C%202025%20Performance) Six-month revenues decreased 3% to $3.59 billion, while gross profit increased 2% to $1.03 billion, with margin reaching a record 28.7% Six-Month Period Ended June 30, 2025 Financial Highlights (YoY Comparison) | Metric | 6 Months 2025 ($ millions) | 6 Months 2024 ($ millions) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :--------- |\n| Revenues | $3,593.5 | $3,704.3 | -3% | | Gross Profit | $1,033.1 | $1,010.4 | +2% | | Gross Profit Margin | 28.7% | 27.3% | +140 bps | | Operating Income | $384.1 | $395.3 | -3% | | Diluted EPS | $6.50 | $6.69 | -2.8% | - Domestic markets saw a **2% decline**, while non-U.S. markets experienced a **10% decline** in sales for the six-month period[11](index=11&type=chunk) Innovation & Strategic Technology Initiatives Watsco invests heavily in digital platforms, AI tools, and new sales strategies to enhance customer experience and operational efficiency [Digital Ecosystem and E-commerce](index=2&type=section&id=Digital%20Ecosystem%20and%20E-commerce) Watsco's $250 million tech investment drives a digital ecosystem, with e-commerce sales reaching $2.5 billion and 70,000 authenticated users - Watsco has invested more than **$250 million in technology** over the last five years (an annual current run rate of **$60 million)** and employs close to **300 technologists**[11](index=11&type=chunk) - The authenticated user community of HVAC Pro+ Mobile Apps grew **17% to more than 70,000 users** over the 12-month period ended June 30, 2025[11](index=11&type=chunk) - E-commerce sales totaled approximately **$2.5 billion for the twelve-month period** ended June 30, 2025, comprising **34% of the Company's overall sales**, with some regions **exceeding 60% e-commerce penetration**[11](index=11&type=chunk) - OnCallAir®, Watsco's digital sales platform, generated approximately **$1.6 billion in gross merchandise value (GMV)** for the 12-month period ended June 30, 2025, with GMV **increasing 19% to $886 million** in the first half of 2025[13](index=13&type=chunk) [AI-Driven Initiatives](index=3&type=section&id=AI-Driven%20Initiatives) Watsco leverages 15 years of data with AI tools like 'Ask.Watsco' and 'AL.watsco' to boost internal productivity and customer expertise - Watsco's AI platform is anchored by 'Ask.Watsco,' an internally-focused AI engine designed to enhance productivity, decision-making, and customer service for **over 2,100 current internal users**[13](index=13&type=chunk) - Complementing its internal platform, Watsco has developed 'AL.watsco,' a customer-facing AI model that delivers HVAC expertise directly to customers and partners, trained on extensive data pools[13](index=13&type=chunk) - These AI tools leverage Watsco's industry-leading data sets around customers, products, and vendors that have been curated over the **last 15 years**[13](index=13&type=chunk) [Non-Equipment Sales & Institutional Channel Strategies](index=3&type=section&id=Non-Equipment%20Sales%20%26%20Institutional%20Channel%20Strategies) Watsco is expanding non-equipment sales, optimizing sourcing, and launching 'Project WatscoOne' for institutional customers in 2026 - The Company estimates that **nearly half of the HVAC/R products** sold in its marketplace represent non-equipment products[13](index=13&type=chunk) - Watsco is leveraging its product and pricing data to optimize and streamline sourcing of non-equipment products across its supplier network[13](index=13&type=chunk) - Watsco expects to begin offering enterprise-wide solutions to institutional customers (termed Project 'WatscoOne') in **early 2026**[13](index=13&type=chunk) Growth Strategies & Financial Strength Watsco pursues a "buy and build" acquisition strategy while maintaining a strong balance sheet and consistent dividend growth [Buy & Build Acquisition Strategy](index=4&type=section&id=Buy%20%26%20Build%20Acquisition%20Strategy) Watsco's "buy and build" strategy added three distributors in 2025, contributing to $1.6 billion in annualized sales from 12 acquisitions since 2019 - Thus far in 2025, the Company has acquired **three distributors** in key Sunbelt markets[14](index=14&type=chunk) - Since 2019, Watsco has acquired **12 companies** that today represent approximately **$1.6 billion in annualized sales** and **120 locations**[14](index=14&type=chunk) - The HVAC/R distribution landscape in North America, estimated to be **$74 billion, remains highly fragmented with approximately 2,100 independent distributors**[14](index=14&type=chunk) [Cash Flow, Financial Strength & Liquidity](index=4&type=section&id=Cash%20Flow%2C%20Financial%20Strength%20%26%20Liquidity) Watsco maintains a strong balance sheet, with operating cash flow impacted by A2L inventory, and increased its annual dividend by 11% to $12.00 per share - Operating cash flow was a use of cash totaling **$185 million** for the six-months ended June 30, 2025, resulting from new A2L inventory investments and peak seasonal inventory buildup[16](index=16&type=chunk)[28](index=28&type=chunk) - In April 2025, Watsco announced an **11% increase** to its annual dividend to **$12.00 per share**[17](index=17&type=chunk) - The Company's objective is to maintain a healthy balance sheet that allows for access to low-cost capital to fund strategic investments in new growth opportunities[15](index=15&type=chunk) Additional Information This section provides company background, forward-looking statement disclaimers, and condensed consolidated financial statements [About Watsco](index=4&type=section&id=About%20Watsco) Watsco operates North America's largest HVAC/R distribution network, focusing on the replacement market and contributing to CO2e emission reduction - Watsco operates the largest distribution network for heating, air conditioning, and refrigeration (HVAC/R) products with **701 locations** in the U.S., Canada, Mexico, and Puerto Rico, serving over **375,000 contractors**[18](index=18&type=chunk) - The company focuses on the replacement market, which has increased in size and importance due to the aging of installed systems and the introduction of energy-efficient models[19](index=19&type=chunk) - Watsco averted an estimated **24.5 million metric tons of CO2e emissions** from January 1, 2020, to June 30, 2025, through the sale of replacement HVAC systems at higher-efficiency standards[20](index=20&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines forward-looking statements, noting that actual results may differ due to various economic, regulatory, and competitive factors - The document includes forward-looking statements regarding expected financial and operational results, which are subject to uncertainty and changes in circumstances[21](index=21&type=chunk)[22](index=22&type=chunk) - Actual results may differ materially due to changes in economic, business, competitive market, regulatory, and other factors, including those detailed in Watsco's SEC filings[22](index=22&type=chunk) [Condensed Consolidated Financial Statements](index=6&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including results of operations, balance sheets, and cash flows [Condensed Consolidated Results of Operations](index=6&type=section&id=Condensed%20Consolidated%20Results%20of%20Operations) This section details unaudited condensed consolidated results of operations for Q2 and six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Results of Operations (Unaudited, in thousands, except share and per share data) | Metric | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :-------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | | Revenues | $2,062,442 | $2,139,328 | $3,593,528 | $3,704,319 | | Cost of sales | 1,458,954 | 1,559,568 | 2,560,417 | 2,693,934 | | Gross profit | 603,488 | 579,760 | 1,033,111 | 1,010,385 | | Gross profit margin | 29.3% | 27.1% | 28.7% | 27.3% | | SG&A expenses | 339,001 | 319,029 | 661,582 | 628,577 | | Operating income | 271,869 | 268,803 | 384,057 | 395,340 | | Operating margin | 13.2% | 12.6% | 10.7% | 10.7% | | Net income attributable to Watsco | $183,613 | $181,410 | $263,674 | $268,414 | | Diluted earnings per share | $4.52 | $4.49 | $6.50 | $6.69 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited, in thousands) | Asset/Liability/Equity | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Cash and cash equivalents | $292,978 | $526,271 | | Accounts receivable, net | 1,015,738 | 877,935 | | Inventories, net | 1,952,842 | 1,385,436 | | Total current assets | 3,299,718 | 3,079,981 | | Total assets | $4,729,513 | $4,479,523 | | Accounts payable and accrued expenses | $955,499 | $873,628 | | Total current liabilities | 1,070,916 | 983,901 | | Total liabilities | 1,507,694 | 1,415,285 | | Watsco's shareholders' equity | 2,760,442 | 2,656,990 | | Total liabilities and shareholders' equity | $4,729,513 | $4,479,523 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited condensed consolidated statements of cash flows for the six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :----------------------------- | :----------------------------- | | Net income | $311,308 | $318,913 | | Net cash (used in) provided by operating activities | (185,090) | 161,441 | | Net cash provided by (used in) investing activities | 222,252 | (217,315) | | Net cash (used in) provided by financing activities | (274,233) | 73,810 | | Net (decrease) increase in cash and cash equivalents | (233,293) | 14,742 | | Cash and cash equivalents at end of period | $292,978 | $224,854 |

Core Insights - Watsco, Inc. reported strong operating results for Q2 2025, with record gross profit margins and expanded operating margins amid the transition to A2L products [1][4][7] - The company maintains a robust financial position, with significant cash reserves and no debt, allowing for continued investments in growth and technology [3][14] - The ongoing regulatory transition to next-generation HVAC equipment incorporating A2L refrigerants is expected to impact sales and inventory management [4][6] Financial Performance - Q2 revenues decreased by 4% to $2.06 billion, while gross profit increased by 4% to a record $603 million, resulting in a gross profit margin of 29.3%, up 220 basis points [8][23] - Operating income rose by 1% to $272 million, with an operating margin of 13.2%, reflecting a 60 basis point increase [8][23] - For the first half of 2025, revenues decreased by 3% to $3.59 billion, with gross profit increasing by 2% to $1.03 billion and a gross profit margin of 28.7%, up 140 basis points [11][23] Market Trends and Innovations - The transition to A2L refrigerants is driving double-digit pricing realization, although unit volumes have been affected by weather conditions and lower homebuilding activity [6][9] - Watsco has invested over $250 million in technology over the past five years, enhancing its digital ecosystem and customer experience [11][12] - The company's HVAC Pro+ Mobile Apps and e-commerce platform have significantly improved customer engagement, with e-commerce sales reaching approximately $2.5 billion, accounting for 34% of total sales [11][12] Strategic Initiatives - Watsco's "buy and build" acquisition strategy has led to the acquisition of 12 companies since 2019, contributing approximately $1.6 billion in annualized sales [13] - The company is leveraging AI-driven initiatives to enhance customer experience and operational efficiencies, with tools like "Ask.Watsco" and "AL.watsco" [15][12] - Watsco plans to target institutional customers through Project "WatscoOne," aiming to provide comprehensive solutions across multiple markets and product categories [15]

Core Insights - Watsco, Inc. (WSO) is expected to report second-quarter 2025 results on July 30, with earnings projected at $4.84 per share and revenues at $2.21 billion, indicating year-over-year growth of 7.8% and 3.5% respectively [1][2][7] Earnings Performance - In the last reported quarter, Watsco's earnings missed the Zacks Consensus Estimate by 15.7% and decreased 11.1% year over year, while sales missed by 7.6% and decreased 2.2% year over year [1] - Watsco has topped the consensus mark in one of the last four quarters, with an average negative surprise of 5.7% [1] Estimate Revisions - The Zacks Consensus Estimate for the upcoming quarter's earnings has decreased from $4.91 to $4.84 over the past 30 days [2] Revenue Drivers - Strong HVAC demand and the rollout of A2L-compliant systems are expected to boost Watsco's revenues in the second quarter [3] - The company anticipates a smoother sales cadence and a higher-value product mix, with over 60% of recent equipment sales consisting of 454B-based systems [3] Market Conditions - The core residential replacement market is expected to remain strong due to improved weather trends and high-efficiency product demand [4] - Commercial product sales are projected to stabilize as A2L adoption broadens, while international markets may underperform due to macro uncertainties [4] Sales Projections - HVAC Equipment sales are expected to grow 5% year over year to $1.6 billion, while HVAC Products are projected to grow 1% to $540.3 million [5] - Commercial Refrigeration Products sales are expected to grow 2% to $87.3 million [5] Margin Expectations - Gross margins are expected to improve by 100 basis points to 28.1%, driven by favorable pricing and an improved product mix [6][7] - Management aims for a long-term gross margin goal of 30% [6] Cost Pressures - Some cost pressures related to refrigerant container shortages are noted, but management does not expect a material impact on margins [8] Earnings Prediction Model - The current model does not predict an earnings beat for Watsco, as it lacks a positive Earnings ESP and a favorable Zacks Rank [9] - Watsco currently holds a Zacks Rank of 3 [10]

Company Overview - Watsco, Inc. is the largest distributor of heating, air conditioning, and refrigeration (HVAC/R) products with operations in the United States, Canada, Mexico, Puerto Rico, and exports to Latin America and the Caribbean [4] Market Focus - The company focuses on the replacement market, which has grown due to the aging of installed systems, the introduction of higher energy-efficient models, and the necessity of HVAC products in homes and businesses [5] - Approximately 102 million HVAC systems in the U.S. have been in service for over 10 years, many operating below current minimum efficiency standards [5] Environmental Impact - Watsco plays a significant role in addressing climate change by lowering CO2e emissions through the sale of higher-efficiency HVAC systems [6] - HVAC systems account for roughly half of U.S. household energy consumption, making the replacement of older systems critical for reducing electricity consumption and carbon footprints [6] Emission Reduction Achievements - From January 1, 2020, to June 30, 2025, Watsco is estimated to have averted 24.5 million metric tons of CO2e emissions, equivalent to removing 5.7 million gas-powered vehicles from the road annually [7]

Group 1 - Watsco is the largest HVAC maintenance and repair service provider and distributor in the US, with over 375,000 contractors and technicians [1] - The company is benefiting from the industry transition to A2L refrigerants, which is identified as a key catalyst for growth [1]

Core Points - Watsco, Inc. has declared a quarterly cash dividend of $3.00 per share, marking the 200th consecutive quarter of dividend payments [1][2] - The company has a history of paying dividends for 51 consecutive years, reflecting its commitment to sharing cash flow while maintaining a conservative balance sheet [2] - Watsco focuses on the replacement market for HVAC/R products, which is growing due to aging systems and the need for energy-efficient models [4] Company Overview - Watsco is the largest distributor of heating, air conditioning, and refrigeration products in the U.S., Canada, Mexico, and Puerto Rico, with exports to Latin America and the Caribbean [3] - The company plays a significant role in addressing climate change by promoting the replacement of older HVAC systems with higher efficiency models [5] Market Opportunity - There are approximately 102 million HVAC systems in the U.S. that are over 10 years old, many of which operate below current efficiency standards, presenting a substantial market opportunity for Watsco [4] - From January 1, 2020, to March 31, 2025, Watsco is estimated to have averted 23.7 million metric tons of CO2e emissions through the sale of higher-efficiency HVAC systems, equivalent to removing 5.5 million gas-powered vehicles from the road annually [6]

Business Overview - Watsco operates in a highly fragmented market and is a market leader in the HVAC/R distribution industry[4, 13] - The company has a wide geographic presence with 690 locations across the United States, Canada, and Latin America & Caribbean[12] - Watsco's business model involves supplying equipment, parts, and supplies to contractors for the repair or replacement of HVAC systems[10] - The company's revenues are primarily generated in the United States (90%), with the majority coming from residential HVAC equipment (54%)[19] Technology and Digital Transformation - Watsco is focused on transforming the customer experience through enhanced technology, including a robust e-commerce platform and mobile apps[4, 23] - The company's annualized e-commerce revenue in 2023 was $24 billion, a 5% increase[32] - Watsco has digitized over 15 million product SKUs and made them accessible in its mobile app[29, 33] - E-commerce users experience approximately 50% less attrition compared to traditional customers[32] Financial Performance and Shareholder Value - From 1989 to 12/31/23, Watsco's revenues grew from $64 million to $73 billion, representing a 15% compound annual growth rate (CAGR)[41] - The company's market capitalization increased from $22 million to $169 billion during the same period, a 22% CAGR[41] - Watsco raised its annual dividend rate to $1080 per share, effective in April 2024[45]