Company Reports

Watsco released disappointing results compared with last year. Revenue increased only 2% to $2.1 billion, operating income decreased to 12% (11.3% margin), and EPS fell 12% to $4.00.

Watsco was founded in 1947 as an HVAC/R parts and components manufacturer but pivoted to distribution in the late 1980s. Since 1989, Watsco has acquired numerous distributors, expanding the firm's scale and market share. However, forming multiple joint ventures with Carrier transformed the company, giving Watsco exclusive distribution rights to a premium HVAC brand. Watsco formed its first joint venture with Carrier in 2009. The joint venture added $1.3 billion in revenue and comprised 110 locations (95 from Carrier and 15 from Watsco), 19,000 customers, and 1,400 employees. Watsco formed two more joint ventures with Carrier in 2011 and 2012, further deepening the relationship between the two firms. Under Watsco’s control, the Carrier assets have grown to over $4 billion in contribution, and Watsco holds approximately 80% of the equity, with the remainder held by Carrier.

Watsco reported flattish revenue ($1.5 billion) and margins (gross margin compressed 20 basis points to 27.9% and operating margin compressed 10 basis points to 7.2%) during an admittedly seasonally weak quarter. Strong cash flow and a net cash balance sheet allowed for a 10% dividend increase.

Watsco was founded in 1947 as an HVAC/R parts and components manufacturer but pivoted to distribution in the late 1980s. Since 1989, Watsco has acquired numerous distributors, expanding the firm's scale and market share. However, forming multiple joint ventures with Carrier transformed the company, giving Watsco exclusive distribution rights to a premium HVAC brand. Watsco formed its first joint venture with Carrier in 2009. The joint venture added $1.3 billion in revenue and comprised 110 locations (95 from Carrier and 15 from Watsco), 19,000 customers, and 1,400 employees. Watsco formed two more joint ventures with Carrier in 2011 and 2012, further deepening the relationship between the two firms. Under Watsco’s control, the Carrier assets have grown to over $4 billion in contribution, and Watsco holds approximately 80% of the equity, with the remainder held by Carrier.

Watsco was founded in 1947 as an HVAC/R parts and components manufacturer but pivoted to distribution in the late 1980s. Since 1989, Watsco has acquired numerous distributors, expanding the firm's scale and market share. However, forming multiple joint ventures with Carrier transformed the company, giving Watsco exclusive distribution rights to a premium HVAC brand. Watsco formed its first joint venture with Carrier in 2009. The joint venture added $1.3 billion in revenue and comprised 110 locations (95 from Carrier and 15 from Watsco), 19,000 customers, and 1,400 employees. Watsco formed two more joint ventures with Carrier in 2011 and 2012, further deepening the relationship between the two firms. Under Watsco’s control, the Carrier assets have grown to over $4 billion in contribution, and Watsco holds approximately 80% of the equity, with the remainder held by Carrier.

Watsco sales declined 5% to $7.2 billion and gross margin hit a record of 28% on strong pricing amid a dynamic environment in HVAC characterized by evolving efficiency and refrigerant requirements and a weak residential housing market.

We are relaunching coverage of Watsco, the nation’s leading distributor of HVAC products serving residential and light-commercial markets.

Watsco was founded in 1947 as an HVAC/R parts and components manufacturer but pivoted to distribution in the late 1980s. Since 1989, Watsco has acquired numerous distributors, expanding the firm's scale and market share. However, forming multiple joint ventures with Carrier transformed the company, giving Watsco exclusive distribution rights to a premium HVAC brand. Watsco formed its first joint venture with Carrier in 2009. The joint venture added $1.3 billion in revenue and comprised 110 locations (95 from Carrier and 15 from Watsco), 19,000 customers, and 1,400 employees. Watsco formed two more joint ventures with Carrier in 2011 and 2012, further deepening the relationship between the two firms. Under Watsco’s control, the Carrier assets have grown to over $4 billion in contribution, and Watsco holds approximately 80% of the equity, with the remainder held by Carrier.

We will discontinue analyst coverage of Watsco on or about Nov. 7.

Watsco is the largest player in the fragmented heating, ventilation, air conditioning, and refrigeration distribution industry with a mid- to high-teens percentage market share. The company mostly operates in the United States (about 90% of sales) with an outsize presence in the Sun Belt states.

According to the Air-Conditioning, Heating, and Refrigeration Institute, US shipments of air conditioners and heat pumps declined year over year by 22% in June and 27% in July. HVAC manufacturers have confirmed weakening demand.

Watsco's second-quarter sales declined 4% year over year as the US residential heating, ventilation, and air conditioning industry faced several headwinds. Nevertheless, Watsco delivered a 13.2% operating margin, 60 basis points higher than last year.

Watsco is the largest player in the fragmented heating, ventilation, air conditioning, and refrigeration distribution industry with a mid- to high-teens percentage market share. The company mostly operates in the United States (about 90% of sales) with an outsize presence in the Sun Belt states.

Watsco is the largest player in the fragmented heating, ventilation, air conditioning, and refrigeration distribution industry with a mid- to high-teens percentage market share. The company mostly operates in the United States (about 90% of sales) with an outsize presence in the Sunbelt states.

Watsco's first-quarter revenue declined 2% year over year to $1.5 billion, and operating margin narrowed 80 basis points to 7.3%. Lower sales volumes tied to new construction and in international markets obfuscated strong demand in the US replacement market.

Watsco is the largest player in the fragmented heating, ventilation, air conditioning, and refrigeration distribution industry with a mid- to high-teens percentage market share. The company mostly operates in the United States (about 90% of sales) with an outsize presence in the Sunbelt states.

Watsco's fourth-quarter revenue surged 9% year over year to a record $1.75 billion and operating margin expanded 110 basis points to 7.8%. The heating, ventilation, and air-conditioning industry's shift to higher-price products using a new refrigerant should support continued growth in 2025.

Third-quarter revenue grew roughly 2% year over year, but EPS of $4.22 declined 3% as operating margin narrowed. Watsco's stock traded lower on Oct. 23 as both revenue and EPS missed consensus expectations.

Watsco is the largest player in the fragmented heating, ventilation, air conditioning, and refrigeration distribution industry with a mid- to high-teens percentage market share. The company mostly operates in the United States (about 90% of sales) with an outsize presence in the Sunbelt states.

Watsco’s stock traded lower on July 30 after the narrow-moat-rated distributor of heating, ventilation, air-conditioning, and refrigeration products reported second-quarter revenue and earnings per share that fell short of FactSet consensus estimates. This was the third consecutive quarter Watsco missed on the top and bottom lines. Nevertheless, Watsco continues to deliver above-historical-average profit margins, but we believe market expectations for the company have become too optimistic. Indeed, while we’ve raised our fair value estimate approximately 9% to $310 per share, that’s still well below Watsco’s current stock price. Roughly 7 percentage points of our fair value estimate raise came from our upwardly revised free cash flow conversion forecast due to better working capital management. The time value of money since our last update accounted for 2 percentage points of our increased fair value.