Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended December 31, 2025 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to . Commission File Number 1-5581 WATSCO, INC. (Exact name of registrant as specified in its charter) | FLORIDA | 59-0778222 | | --- | --- | | (State or ot ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended December 31, 2025 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to . Commission File Number 1-5581 WATSCO, INC. (Exact name of registrant as specified in its charter) | FLORIDA | 59-0778222 | | --- | --- | | (State or ot ...

Core Viewpoint - Watsco, Inc. reported fourth-quarter results that fell short of analyst expectations, yet the stock saw an intra-day increase of over 4% despite the disappointing figures [1] Financial Performance - Earnings per share for the fourth quarter were $1.68, missing the consensus estimate of $1.88 by $0.20 [1] - Revenue for the quarter was $1.58 billion, below the expected $1.62 billion and down 10% year-over-year [1] - Operating income decreased by 25% to $102 million, with the operating margin contracting to 6.4% from 7.8% a year earlier [2] - HVAC equipment sales, which represent 67% of total revenue, fell by 13% during the quarter [2] - For the full year 2025, revenue decreased by 5% year-over-year to $7.24 billion, and earnings per share dropped from $13.30 in 2024 to $12.25 [2] Dividend and Cash Flow - Despite the weaker performance, the company announced a 10% increase in its annual dividend to $13.20 per share [2] - Watsco achieved record operating cash flow of $400 million in the fourth quarter, aided by a significant reduction in inventory from a peak of $2.1 billion during 2025 to $1.4 billion at year-end [3] Industry Context - Management attributed the downturn to industry volatility, particularly the transition to A2L refrigerant products, which impacted approximately 55% of products sold and necessitated the conversion of over $1 billion in inventory [3]

Financial Data and Key Metrics Changes - The company achieved double-digit pricing gains on new A2L products, raising growth margins by 40 basis points to 27.1% [4] - Unit volumes declined during the quarter, which was expected given the strong 20% growth rate in the previous year [4] - Operating efficiency improved as SG&A expenses dropped by 2% [4] - The company generated record fourth-quarter cash flow of $400 million and met its $500 million inventory reduction goal [5] Business Line Data and Key Metrics Changes - E-commerce sales accounted for 35% of total sales, exceeding 60% in certain U.S. markets [5] - The annual run rate of sales through OnCall Air, the digital selling platform, increased by 20% to reach $1.8 billion for the year [6] - The aftermarket add-on replacement market was down 6% in 2025, contributing to the overall 17% unit decline [12][14] Market Data and Key Metrics Changes - The company noted a more stable channel compared to previous years, with contractors better prepared to sell new technology [11] - The residential market faced challenges, with industry unit volumes expected to decline by 10%-15% according to OEMs [35] Company Strategy and Development Direction - The company plans to enhance growth margins with a long-term goal of achieving 30% [4] - Investments in innovation and technology are ongoing, including the development of new technology for institutional customers and the use of AI to improve customer experience [6][7] - The company aims to grow its non-equipment market, which currently represents about 30% of sales [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a more normalized operating environment in 2026, following significant regulatory changes and supply chain disruptions [2][20] - The company is focused on driving sales and customer relationships, emphasizing long-term growth over short-term gains [134] Other Important Information - The company announced a 10% increase in annual dividends to $13.20, marking its 52nd consecutive year of dividend payments [3] - The company remains debt-free and is looking for acquisition opportunities to further grow its business [33] Q&A Session Summary Question: What is the outlook for pricing dynamics as the market normalizes? - Management indicated that the product line is now stable, and contractors are better prepared to sell the new technology, leading to improved sales [11][12] Question: How does the company view the dividend increase in relation to earnings? - Management noted that cash flow is strong enough to support the dividend increase, and they are confident in future earnings growth [30][34] Question: What are the expectations for industry unit volumes in 2026? - Management acknowledged the difficulty in predicting unit volumes but expressed a belief that the market is returning to a more conventional starting point [123][126] Question: How is the company managing inventory levels? - The company reported that inventory is in good shape, with a goal to improve inventory turns to enhance cash flow [82][85] Question: What trends are observed in the commercial and international markets? - The commercial market showed a slight decline, while the international business faced geopolitical challenges but did not worsen [98]

Financial Data and Key Metrics Changes - Watsco achieved a 10% increase in annual dividends, raising it to $13.20, marking the 52nd consecutive year of dividend payments [3] - The company reported a 40 basis points increase in gross margins to 27.1% for the fourth quarter [4] - Operating efficiency improved as SG&A expenses dropped by 2% [4] - Record cash flow of $400 million was generated in the fourth quarter [5] Business Line Data and Key Metrics Changes - Unit volumes declined during the quarter, following a strong 20% growth rate in the previous year [4] - E-commerce sales accounted for 35% of total sales, exceeding 60% in certain U.S. markets [5] - The annual run rate of sales through OnCall Air, the digital selling platform, increased by 20% to $1.8 billion [6] Market Data and Key Metrics Changes - The aftermarket add-on replacement market was down 6% in 2025, contributing to an overall unit decline of 17% [12][14] - New construction impacted the unit decline, with a 7% component attributed to the previous year's strong fourth quarter [13] Company Strategy and Development Direction - Watsco is focused on enhancing growth margins with a long-term goal of achieving 30% [4] - The company is investing in technology and innovation to maintain competitive advantages [5] - A new initiative aims to grow sales in the fragmented non-equipment market, which currently represents about 30% of total sales [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a more stable operating environment in 2026, following significant regulatory changes [2] - The transition to A2L products is largely complete, and management expects improved sales performance and operating efficiency [4] - The company is focused on long-term growth and maintaining a clean balance sheet, having been debt-free throughout 2025 [5][21] Other Important Information - Watsco met its $500 million inventory reduction goal established earlier in the year [5] - The company is leveraging artificial intelligence to enhance customer experience and operational efficiency [6] Q&A Session Summary Question: What is the outlook for pricing dynamics as the market normalizes? - Management indicated that the channel is more stable this year, with contractors better prepared to sell the new technology [11][12] Question: How does the dividend increase relate to future earnings? - Management emphasized confidence in cash flow and the importance of maintaining a consistent dividend track record [30][34] Question: What are the expectations for industry unit volumes in 2026? - Management noted that while there are challenges, they believe the market is returning to a more conventional starting point [120][123] Question: How is the company addressing inventory management? - Management stated that inventory is in good shape and they aim to improve inventory turns to enhance cash flow [82][85]

Financial Data and Key Metrics Changes - Watsco achieved a 10% increase in annual dividends, raising it to $13.20, marking the 52nd consecutive year of dividend payments [3] - The company reported a 40 basis point increase in gross margins to 27.1% [4] - Unit volumes declined during the quarter, reflecting a 17% overall unit decline for 2025, following a strong 20% growth in the previous year [4][13] Business Line Data and Key Metrics Changes - The company added 12 business acquisitions, contributing over $1.6 billion in sales [3] - E-commerce sales accounted for 35% of total sales, exceeding 60% in certain U.S. markets [5] - The OnCall Air digital selling platform saw a 20% increase in gross merchandise value, reaching $1.8 billion for the year [6] Market Data and Key Metrics Changes - The aftermarket add-on replacement market was down 6% in 2025, influenced by a weaker consumer and contractor uncertainty [14][16] - The commercial segment experienced a decline in the high single digits, while international business showed mixed results, with Canada performing better than Latin America [95] Company Strategy and Development Direction - Watsco is focused on improving inventory turns and generating incremental cash flow, with a long-term goal of achieving 30% gross margins [5][6] - The company is investing in technology and innovation to enhance competitive positioning and drive sales growth [6][39] - A new initiative aims to grow sales in the fragmented non-equipment market, which currently represents about 30% of total sales [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a more stable operating environment in 2026, following significant regulatory changes and supply chain disruptions [2][19] - The company anticipates gradual margin improvement as the transition to A2L products matures throughout the year [5] - Management emphasized a long-term focus on growth and customer relationships, despite short-term market fluctuations [131] Other Important Information - Watsco achieved a record cash flow of $400 million in the fourth quarter and met its $500 million inventory reduction goal [5] - The company maintained a debt-free status throughout 2025, allowing for continued investment in growth opportunities [4][31] Q&A Session Summary Question: What is the outlook for pricing dynamics as the market normalizes? - Management indicated that the product line is now stable, with a single pricing structure for customers, and expressed confidence in contractors' ability to sell the new technology [12][18] Question: How does the dividend increase relate to future earnings? - Management acknowledged that the dividend exceeds the earnings rate for 2025 but emphasized strong cash flow and a commitment to maintaining the dividend track record [26][31] Question: What are the expectations for industry unit volumes in 2026? - Management noted that while industry forecasts suggest declines, Watsco's sales are directly tied to contractor installations, providing a more stable outlook [35][37] Question: How is the company addressing inventory management? - Management stated that inventory is in good shape, with ongoing efforts to improve quality and efficiency, aiming for a total of 5 inventory turns [79][81] Question: What trends are observed in the residential market? - Management reported that ductless and ducted products experienced similar declines, and there is no significant price sensitivity observed among contractors [101][108]

Core Viewpoint - Watsco reported quarterly earnings of $1.68 per share, missing the Zacks Consensus Estimate of $1.94 per share, and showing a decline from $2.37 per share a year ago, indicating a negative earnings surprise of -13.33% [1] Financial Performance - The company posted revenues of $1.58 billion for the quarter ended December 2025, which was 1.88% below the Zacks Consensus Estimate and a decrease from $1.75 billion in the same quarter last year [2] - Watsco has not surpassed consensus EPS estimates over the last four quarters, indicating a consistent trend of underperformance [2] Stock Performance and Outlook - Watsco shares have increased by approximately 24% since the beginning of the year, contrasting with a slight decline of 0.1% in the S&P 500 [3] - The future performance of Watsco's stock will largely depend on management's commentary during the earnings call and the subsequent revisions of earnings estimates [3][4] Earnings Estimates - The current consensus EPS estimate for the upcoming quarter is $1.91 on revenues of $1.54 billion, while for the current fiscal year, the estimate is $12.91 on revenues of $7.52 billion [7] - The trend of estimate revisions for Watsco has been unfavorable, resulting in a Zacks Rank of 4 (Sell), suggesting expected underperformance in the near future [6] Industry Context - The Manufacturing - General Industrial industry, to which Watsco belongs, is currently ranked in the top 29% of over 250 Zacks industries, indicating a relatively strong position within the market [8] - The performance of Watsco's stock may also be influenced by the overall outlook for the industry, as higher-ranked industries tend to outperform lower-ranked ones significantly [8]

Financial Performance - Watsco reported full-year revenues of $7.2 billion for 2025, a 52% increase from $4.8 billion in 2019, with a compound annual growth rate (CAGR) of 7%[9] - The company's operating income for 2025 was $720 million, up 96% from $367 million in 2019, reflecting a CAGR of 12%[9] - Watsco's earnings per share (EPS) for 2025 were $12.25, compared to $6.50 in 2019, marking an 88% increase[9] - Revenues for Q4 2025 were $1,578,757, a decrease of 9.9% from $1,753,962 in Q4 2024[25] - Net income attributable to Watsco, Inc. was $71,745 in Q4 2025, down from $96,841 in Q4 2024, representing a decline of 26.0%[25] - The diluted earnings per share for 2025 was $12.25, down from $13.30 in 2024, a decrease of 7.9%[25] Profitability and Margins - Gross margin improved to a record 28.0%, an increase of 370 basis points from 24.3%[9] - Gross profit margin improved to 27.1% in Q4 2025 from 26.7% in Q4 2024[25] Cash Flow and Assets - Operating cash flow for 2025 was $570 million, with a record $400 million in the fourth quarter, reflecting a sharp reduction in inventory[17] - Net cash provided by operating activities was $569,613 in 2025, down from $773,102 in 2024, a decrease of 26.4%[29] - Cash and cash equivalents at the end of 2025 were $433,283, down from $526,271 at the end of 2024, a decrease of 17.7%[29] - Total current assets decreased to $2,954,506 in 2025 from $3,079,981 in 2024, a reduction of 4.1%[28] - Total liabilities decreased to $1,192,744 in 2025 from $1,415,285 in 2024, a decline of 16.0%[28] Investments and Acquisitions - The company maintained a debt-free balance sheet with $780 million in cash and investments, allowing for sustained growth investments[6] - Watsco acquired three distributors in key markets during 2025, contributing to a total of 12 acquisitions since 2019, representing approximately $1.6 billion in annualized sales[19] - Business acquisitions net of cash acquired amounted to $19,198 in 2025, compared to $5,173 in 2024, indicating increased investment in growth[29] E-commerce and User Engagement - Watsco's e-commerce sales reached approximately $2.5 billion in 2025, accounting for 35% of overall sales, with some regions exceeding 60% e-commerce penetration[20] - The authenticated user community of Watsco's HVAC Pro+ Mobile Apps increased by 15% to approximately 73,000 users[20] Future Outlook - Watsco plans to continue optimizing inventory and improving operating efficiency as it anticipates a more conventional industry environment in 2026[10] Dividends - Dividends on common stock increased to $473,765 in 2025 from $423,521 in 2024, an increase of 11.9%[29]

Financial Performance - Watsco reported full-year revenues of $7.2 billion for 2025, a 52% increase from $4.8 billion in 2019, with a compound annual growth rate (CAGR) of 7%[9] - The company's operating income for 2025 was $720 million, up 96% from $367 million in 2019, reflecting a CAGR of 12%[9] - Watsco's earnings per share (EPS) for 2025 was $12.25, an 88% increase from $6.50 in 2019[9] - Revenues for Q4 2025 were $1,578,757, a decrease of 9.9% from $1,753,962 in Q4 2024[25] - The diluted earnings per share for 2025 was $12.25, down from $13.30 in 2024, a decrease of 7.9%[25] Profitability and Margins - Gross margin improved to a record 28.0%, an increase of 370 basis points from 24.3% in 2019[9] - Gross profit margin improved to 27.1% in Q4 2025 from 26.7% in Q4 2024[25] Cash Flow and Balance Sheet - The company maintained a debt-free balance sheet with $780 million in cash and investments, resulting in a net cash increase of $814 million since 2019[9] - Operating cash flow reached $570 million for the year, with a record $400 million in the fourth quarter, reflecting a sharp reduction in inventory[17] - Net cash provided by operating activities was $569,613 in 2025, down from $773,102 in 2024, a decrease of 26.4%[29] - Cash and cash equivalents at the end of 2025 were $433,283, down from $526,271 at the end of 2024, a decline of 17.7%[29] Assets and Liabilities - Total current assets decreased to $2,954,506 in 2025 from $3,079,981 in 2024, a decline of 4.1%[28] - Total liabilities decreased to $1,192,744 in 2025 from $1,415,285 in 2024, a reduction of 16.0%[28] Dividends and Investments - Dividends on common stock increased to $473,765 in 2025 from $423,521 in 2024, an increase of 11.9%[29] - Business acquisitions net of cash acquired amounted to $19,198 in 2025, compared to $5,173 in 2024, indicating increased investment in growth[29] E-commerce and Technology - E-commerce sales totaled approximately $2.5 billion in 2025, accounting for 35% of overall sales, with some regions exceeding 60% e-commerce penetration[20] - Watsco plans to continue investing in technology, with over $250 million spent in the last five years, to enhance customer experience and operational efficiency[16] Customer Engagement - Watsco's HVAC Pro+ Mobile Apps user community grew by 15% to approximately 73,000 users, enhancing customer engagement[20] Acquisitions - The company acquired three distributors in key markets during 2025, contributing to a total of 12 acquisitions since 2019, representing approximately $1.6 billion in annualized sales[19]

Core Viewpoint - Watsco, Inc. has announced a 10% increase in its annual dividend to $13.20 per share, reflecting confidence in its business prospects supported by strong cash flow and a solid balance sheet [1][2]. Group 1: Dividend Announcement - The Board of Directors approved a 10% increase in the annual dividend to $13.20 per share for both Common and Class B common stock [1]. - The increased dividend will be reflected in the next quarterly payment scheduled for April 2026 [1]. Group 2: Financial Health and Philosophy - Watsco has a history of paying dividends for 52 consecutive years, demonstrating a commitment to sharing cash flow with shareholders while maintaining a conservative balance sheet [2]. - Future dividend changes will be evaluated based on investment opportunities, cash flow, economic conditions, and the overall financial health of the company [2]. Group 3: Company Overview - Watsco is the largest distributor in the North American HVAC/R market, characterized by a highly fragmented industry [3]. - The company has invested in long-term growth through industry-leading technology platforms, enhancing its financial position and culture of innovation [3]. - Approximately 73,000 contractors, installers, and technicians engage digitally with Watsco, leading to improved growth and reduced attrition [3]. - Watsco is advancing AI-driven initiatives to leverage data assets for enhancing customer experience and operational efficiencies [3].