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MIAMI - On Wednesday, Watsco Inc . (NYSE:WSO) reported second quarter earnings that fell short of analyst expectations, as the HVAC distributor navigates the industry-wide transition to next-generation A2L refrigerants.
The company’s shares edged down 0.18% in pre-market trading following the announcement.
For the second quarter of 2025, Watsco posted earnings per share of $4.52, missing the analyst consensus of $4.80. Revenue declined 4% YoY to $2.06 billion, below the $2.23 billion analysts had expected. Despite these misses, the company achieved record gross profit margins of 29.3%, expanding 220 basis points from the previous year, while operating income increased 1% to $272 million.
The sales decline primarily stemmed from lower unit volumes resulting from more temperate weather conditions, reduced homebuilding activity, and disruptions related to the A2L refrigerant transition. HVAC equipment sales, which represent 68% of total sales, decreased 6% during the quarter.
"Despite the challenging environment, I am proud that we improved gross margins and generated a measure of earnings growth, which highlights our entrepreneurial culture and the resilience of our business model," said Albert H. Nahmad, Chairman and CEO of Watsco.
The company maintains a strong financial position with $293 million in cash, no debt, and $3 billion in shareholders’ equity. In April, Watsco raised its annual dividend by 11% to $12.00 per share, marking its 51st consecutive year of dividends.
Watsco’s digital initiatives continue to gain traction, with e-commerce sales reaching $2.5 billion for the twelve-month period ended June 30, 2025, representing 34% of overall sales. The company has invested more than $250 million in technology over the past five years.
The A2L product transition is accelerating, with these new environmentally-friendly systems representing 60% of domestic sales in the second quarter, up from 25% in the first quarter. This transition will ultimately convert nearly $1 billion of inventory across more than 650 locations in the U.S.
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