Management said unit volumes declined in the quarter, which Nahmad framed as expected given a strong comparison in the prior year’s fourth quarter, when unit growth exceeded 20%.In the fourth quarter, Nahmad said Watsco achieved “double-digit pricing gains” on new A2L products and increased gross margin by 40 basis points to 27.1%. He reiterated the company’s longer-term gross margin objective of reaching 30% and said Watsco has ongoing initiatives intended to support that trajectory.Watsco also announced a ...

Watsco (NYSE:WSO) Q4 2025 Earnings call February 17, 2026 10:00 AM ET Company ParticipantsA.J. Nahmad - PresidentAaron Nahmad - PresidentAlbert Nahmad - Chairman and CEOBarry Logan - EVPChris Snyder - Executive DirectorMike Francis - Equity Research AssociatePaul Johnston - COORick Gomez - CFOSteve Tusa - Managing DirectorConference Call ParticipantsDavid Manthey - Senior Research AnalystJeff Hammond - Managing Director and Equity Research AnalystPatrick Baumann - AnalystTommy Moll - Equity Research Analyst ...

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]

Financial Data and Key Metrics Changes - The company reported a total sales decline of 4% and a 3% decline in the U.S. market, with unit volumes remaining subdued but achieving double-digit pricing gains on new products [4][5] - Gross margins improved by 130 basis points to 27.5%, with ongoing initiatives aimed at exceeding 30% in the long term [4][5] - Record cash flow of $355 million was generated in the third quarter, with a strong balance sheet and no debt [5][6] Business Line Data and Key Metrics Changes - Non-equipment sales, which include parts and supplies, accounted for over 20% of revenues, with parts alone making up 8% [15] - The company is focusing on enhancing sales in the non-equipment market, which currently represents roughly 30% of total sales [8] Market Data and Key Metrics Changes - E-commerce penetration has grown to 34% of total sales, reaching up to 60% to 70% in certain U.S. markets [7] - The number of contractors and technicians using the mobile app has increased by 18%, totaling 72,000 users [7] Company Strategy and Development Direction - The company is investing in innovation and technology to enhance competitive positioning, including the development of new technology for institutional customers and the use of AI for operational efficiency [8] - There is a focus on improving inventory turns and cash flow, with a target of reducing inventory by $500 million by year-end [55][57] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term fundamentals of the industry despite current volatility, expecting improvements as the product transition concludes [4][5] - The company is preparing for potential acquisition opportunities due to its strong financial position, with a focus on maintaining flexibility in capital allocation [45] Other Important Information - The transition to next-generation equipment with A2L refrigerants is largely complete, affecting approximately 55% of products sold [3][4] - The company is experiencing a fluid market environment, with varying demand across different regions [26][39] Q&A Session Summary Question: What is the dynamic between repair and replace in the current market? - Management indicated that both repair and replace are occurring, with geographic differences influencing consumer behavior [12][14] Question: How does the company view the recent distributor movement reported by Carrier? - Management acknowledged the softness in demand but noted that their experience shows a mid-single-digit decline in revenue, which is not as severe as reported by others [17][33] Question: What is the outlook for inventory levels by year-end? - Management aims to improve inventory turns and expects to end the year with inventories near historical levels [50][55] Question: Is there a plan for aggressive share repurchase given the current stock valuation? - Management is considering using cash for acquisitions rather than share repurchases, given the potential opportunities in the market [45] Question: What are the trends in customer behavior regarding product mix? - There has been a shift towards lower-tier products, but the company is also seeing success in selling higher efficiency systems through its OnCall Air platform [80][81]

Financial Data and Key Metrics Changes - Watsco Inc. reported a total sales decline of 4% and a 3% decline in the U.S. for the third quarter [3][4] - Gross margins improved by 130 basis points to 27.5% [3][4] - Operating expenses increased by 5%, attributed to inefficiencies related to product transition and new locations [4] - Record cash flow of $355 million was generated in the third quarter [4] Business Line Data and Key Metrics Changes - Unit volumes remained subdued, but there were double-digit pricing gains on new products [3] - Sales growth was noted in non-equipment and commercial refrigeration products [3] - Non-equipment sales, which include parts and supplies, accounted for over 20% of Watsco's revenues, with parts alone making up 8% [12] Market Data and Key Metrics Changes - E-commerce penetration grew to 34% of total sales, reaching up to 60% to 70% in certain U.S. markets [5] - The number of contractors using the mobile app increased by 18%, totaling 72,000 users [5] - The annual run rate of sales through the OnCall Air digital platform increased by 19%, reaching $1.7 billion over the last 12 months [5] Company Strategy and Development Direction - The company is focused on transitioning to next-generation equipment with A2L refrigerants, which is expected to simplify operations by 2026 [2][3] - Watsco is investing in innovation and technology to enhance competitive positioning, including the use of AI and pricing optimization tools [6][7] - The company aims to exceed 30% gross margins in the long term and is actively working on initiatives to improve operational efficiency [4][6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term fundamentals of the industry despite current volatility [3] - The transition to new refrigerants is seen as a temporary challenge, with expectations for improved performance as it concludes [3] - Management acknowledged the impact of macroeconomic factors on consumer spending and housing activity, which are affecting demand [25][111] Other Important Information - The company has a strong balance sheet with no debt and a healthy cash position, allowing for potential investments in growth opportunities [4][26] - Management is open to increasing acquisition activity in light of industry softness [48] Q&A Session Summary Question: What is the dynamic between repair and replace in the current market? - Management indicated that both repair and replace are occurring, with geographic differences influencing consumer behavior [11][12] Question: How does Watsco view the recent distributor movement reported by Carrier? - Management acknowledged the reported declines but noted that their own demand is not as severe, indicating a mid-single-digit decline in revenue [14][30] Question: What are the expectations for inventory levels by year-end? - Management aims to improve inventory turns and expects to end the year with inventories near historical levels [54][56] Question: How is the company managing pricing in the current environment? - Management stated that they are in a strong position to negotiate with OEMs and are focused on maintaining margins despite potential price increases [69][71] Question: What trends are being observed in contractor sales and inventory? - Management noted variability among contractors, with some performing well while others are struggling, reflecting a diverse market landscape [93][94] Question: How does the company view the impact of A2L refrigerants on consumer behavior? - Management believes that while A2L products are more expensive, broader macroeconomic factors are more influential on consumer spending [111]