About Watsco, Inc.
Watsco, Inc. (NYSE: WSO) is a leading American distributor of heating, ventilation, air-conditioning, and refrigeration (HVAC/R) equipment, parts, and supplies. Headquartered in Miami, Florida, the company operates across the United States, Canada, Mexico, and parts of Latin America, serving contractors and dealers involved in residential and light-commercial HVAC systems.
Founded in 1956, Watsco originally manufactured HVAC components but shifted its focus to distribution in 1989 after acquiring Gemaire Distributors, which helped build its nationwide distribution network.
Today, Watsco is one of the largest HVAC/R distributors in North America, offering a wide range of air-conditioning units, furnaces, compressors, thermostats, and related supplies sourced from numerous equipment manufacturers. The company primarily generates revenue by supplying these products to contractors servicing replacement, repair, and new construction markets.
In short, Watsco is a major HVAC distribution company with a large branch network and strong presence in the North American heating and cooling equipment supply chain.
Dividend Increase Announcement
Watsco, Inc. announced a 10% increase in its annual dividend to $13.20 per share, effective from the next regular payment in April 2026. This milestone also marks the Company’s 52nd consecutive year of dividend payments, reflecting its long-standing commitment to returning value to shareholders.
Market Leadership & Growth Track Record
Watsco is the largest distributor in the highly fragmented North American HVAC market, and since entering the distribution business in 1989, the Company has delivered a 17% compounded annual total shareholder return. This performance has been achieved through consistent organic growth combined with the acquisition of more than 70 market-leading businesses.
Strong Financial Position & Digital Strategy
The Company maintains a strong balance sheet with $780 million in cash and investments and no debt, allowing continued investment in technology and expansion. Around 73,000 contractors, installers, and technicians engage digitally with Watsco, supporting customer growth and reducing attrition. The Company has also introduced AI-driven initiatives to enhance customer experience and improve operational efficiency as the HVAC industry adopts more digital, data-driven solutions.
Recent Industry Dynamics
Since 2019, the HVAC/R industry has faced volatility due to COVID-19 supply chain disruptions, regulatory changes requiring higher-efficiency products, reduced legacy refrigerant availability, and slower housing activity. In 2025, the shift to A2L refrigerant products—impacting about 55% of products across 650 locations—required the conversion of over $1 billion of inventory. Watsco responded by investing in personnel, logistics, technology, and training to support customers during the transition.
Financial Highlights (2019–2025)
Despite industry challenges, Watsco achieved solid growth from 2019 to 2025, with revenues rising 52% to $7.2 billion, operating income nearly doubling to $720 million, gross margin improving to 28.0%, earnings per share increasing to $12.25, and dividends growing 83%. The Company also strengthened its balance sheet, moving from net debt of $81 million to net cash of $733 million, demonstrating resilience and effective execution.
2025 Full-Year Performance
In 2025, Watsco reported revenues of $7.24 billion, down 5% year-over-year, while gross profit declined slightly to $2.0 billion. Despite lower sales, the company achieved a record gross margin of 28.0%, expanding by 120 basis points due to pricing optimization and OEM pricing actions. Operating income decreased 8% to $720 million, and earnings per share fell to $12.25 from $13.30. Operating cash flow remained strong at $570 million, representing 97% of net income.
Sales Trends – 2025
Sales declined 4% in U.S. markets and 10% internationally, mainly due to lower HVAC equipment volumes amid slower homebuilding activity. HVAC equipment sales dropped 7%, other HVAC products declined 1%, and commercial refrigeration sales were flat. Higher average selling prices linked to the A2L product transition partially offset volume declines.
Fourth Quarter 2025 Performance
In the fourth quarter, revenues decreased 10% to $1.58 billion, and gross profit declined 8% to $428 million, though gross margin improved slightly to 27.1%. Operating income fell 25% to $102 million, with EPS at $1.68 compared to $2.37 last year. However, operating cash flow reached a record $400 million due to improved working capital management.
Fourth Quarter Sales Trends
HVAC equipment sales declined 13%, other HVAC products fell 4%, while commercial refrigeration sales increased 5%. Results were impacted by tough comparisons with 2024, when strong residential HVAC demand occurred ahead of the A2L transition. Seasonal factors also influenced results, as HVAC demand is typically stronger in the second and third quarters.
Innovation and Strategic Technology Initiatives
Watsco continues investing heavily in technology, spending over $250 million in five years to develop a comprehensive digital ecosystem. Its HVAC Pro+ mobile apps and e-commerce platform enhanced customer experience through real-time inventory, pricing tools, and 24/7 ordering. In 2025, e-commerce sales totaled $2.5 billion, representing 35% of total sales, while HVAC Pro+ users grew 15% to about 73,000.
The company’s OnCallAir platform also expanded, generating $1.8 billion in gross merchandise value, helping contractors present solutions digitally to homeowners and strengthening customer engagement.
Cash Flow, Financial Strength and Liquidity
Watsco invested heavily in inventory during the A2L transition, with inventory peaking at $2.1 billion before declining to $1.4 billion by year-end. Strong operating cash flow reflects inventory reductions and disciplined working capital management. The company aims to maintain a strong balance sheet and generate operating cash flow above net income to support future growth and strategic investments.
Buy-and-Build Acquisition Strategy
Watsco continues expanding through acquisitions, partnering with over 70 independent distributors. In 2025, three distributors were acquired in key Sunbelt markets, contributing to scale and leadership depth. Since 2019, 12 acquired companies now represent about $1.6 billion in annualized sales across 120 locations, supporting Watsco’s growth in the highly fragmented HVAC/R distribution industry.
The post Watsco Generates Record Fourth Quarter Cash Flow in Challenging Market Conditions first appeared on AlphaStreet News.
