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    WSO
    Earnings call· Jun 2026(Q2 FY26)

    WATSCO Q2 FY26 earnings call WSO

    Jul 29, 2026 Source

    Executive summary

    Watsco Q2 FY26 — Stabilizing Markets Drive Revenue Growth and Digital Adoption

    Watsco navigated a normalizing operating environment in Q2 FY26, with stabilizing markets and strong digital ecosystem performance driving revenue growth. The company's strategic investments in technology and acquisitions are yielding results, despite some gross margin compression from moderating OEM pricing and regional construction slowdowns. Management remains focused on long-term margin goals and continued operational efficiency.

    Highlights

    5

    • Residential HVAC equipment grew 5% with gains in both unit volume and pricing.

    • E-commerce sales grew 13%, reaching 37% of total sales over the last 12 months.

    • Operating cash flow for the 6-month period improved by $168 million.

    • Acquired Jackson Supply, adding $230 million in annual sales and 25 Sunbelt locations.

    • Increased annual dividend by 10% to $13.20 per share, marking 52 consecutive years of dividends.

    Concerns

    4

    • Gross margin declined to 27.5% from 29.3% last year, primarily due to more moderate OEM pricing actions in 2026 compared to aggressive actions in 2025.

    • New construction in Southern states (Florida, Texas) is experiencing a slowdown.

    • Field inventory was about $100 million ahead of what was anticipated, though overall field stock is down $200 million.

    • Commercial HVAC (VRF segment) was down 8% due to A2L transition disruptions.

    Guidance & targets

    6
    CategoryTargetConfidence
    Gross profit margin
    30%
    high materiality
    High
    Inventory efficiency
    Achieve further efficiency
    medium materiality
    Medium
    SupplySync.com scaling
    Scale to more and more customers
    medium materiality
    High
    Organic growth
    Mid-single figure, low about 4%, 5%
    high materiality
    High
    Inventory management
    Owning less over the rest of the year than a year ago
    medium materiality
    High
    Inventory turns
    Slowly creep back up
    medium materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Residential HVAC equipment
    Gains in both unit volume and pricing.
    		—5%——
    Commercial HVAC
    Most of the decline was in VRF segment due to A2L transition disruptions. Unitary commercial and applied segments were relatively flat.
    		—-8%——
    International
    Outperformed by domestic, but not a significant drag on total business.
    		—single digits decline——
    Commercial Refrigeration
    Attributed to a couple of nice customer wins in one business unit. Larger refrigeration equipment jobs generally carry a lower margin.
    		—strong outgrowth——

    Operational metrics

    21
    Sales
    $2.1Bup 2%
    Q2 FY26

    Total sales for the quarter.

    Gross profit
    $579M
    Q2 FY26

    Gross profit for the quarter.

    Gross margin
    27.5%vs 29.3% last year
    Q2 FY26

    Gross margin for the quarter, with comparison to the prior year.

    SG&A increase (excluding acquisitions)
    2%
    Q2 FY26

    Increase in Selling, General & Administrative expenses, excluding the impact of acquisitions.

    Operating income
    $238M
    Q2 FY26

    Operating income for the quarter.

    Operating margin
    11.3%
    Q2 FY26

    Operating margin for the quarter.

    Earnings per share
    $4
    Q2 FY26

    Earnings per share for the quarter.

    Cash balance
    $464M
    Q2 FY26

    Cash balance at the end of the quarter.

    Debt
    $0
    Q2 FY26

    No debt at the end of the quarter.

    Annual dividend increase
    10%
    Annual

    Increase in annual dividend per share, marking 52 consecutive years of payments.

    E-commerce sales growth
    13%
    Q2 FY26

    Growth rate of e-commerce sales, outpacing overall growth.

    OnCallAir proposals presented
    340,000
    Last year

    Number of proposals presented to homeowners using the OnCallAir tool.

    OnCallAir gross merchandise value
    $1.9B15% increase
    Last year

    Total value generated through the OnCallAir platform.

    Jackson Supply annual sales
    $230M
    Annual

    Annual sales of the acquired Jackson Supply business.

    Jackson Supply locations
    25
    Current

    Number of locations operated by Jackson Supply.

    Jackson Supply inventory acquired
    $60M
    June 1

    Inventory acquired as part of the Jackson Supply acquisition.

    Field stock inventory reduction
    $200Mdown
    Q2 FY26

    Reduction in field stock inventory.

    Inventory balance vs. plan
    $100Mahead of plan
    June 30

    Inventory balance was higher than anticipated at quarter-end.

    Unit price increase
    2%
    Q2 FY26

    Composite price increase on units.

    Organic growth
    4-5%
    July

    Organic growth observed through July 28, including unit growth.

    Commodities revenue
    $35M
    Q2 FY26

    Revenue from commodity-related products (refrigerant, steel, copper).

    Industry KPIs

    3
    MetricValueDetails
    Daily sales rate4-5%%
    End market growth mix—
    Digital vending managed inventory penetration37%%

    Product announcements

    1
    ProductTypeDetails
    SupplySync.comlaunch

    Deals & partnerships

    1
    Jackson SupplyAcquisition of a leading HVAC distributor in the Sunbelt.

    Closed on June 1, 2026. Jackson Supply operates from 25 Sunbelt locations. The Jackson team will continue to operate and grow their business with Watsco's support, leveraging capital, relationships, and technology.

    Risks & headwinds

    5
    Gross margin compressionQ2 FY26

    27.5% in Q2 FY26 vs 29.3% in Q2 FY25

    Mitigation: Focus on long-term goal of 30% gross profit margin through investments; normalizing OEM pricing actions are now more consistent with historical levels.

    Slowdown in new constructionCurrent

    Explicitly noted in Florida and Texas

    Mitigation: Market is stabilizing, with strength in Northern states offsetting weakness in the South; company carries diverse brands to compete at any level.

    Higher-than-anticipated inventoryQ2 FY26

    Approximately $100 million ahead of plan (June 30)

    Mitigation: Expect to achieve further inventory efficiency as lead times normalize and A2L product transition concludes; field stock is already down $200 million; inventory turns expected to slowly creep back up.

    Commercial HVAC (VRF) segment declineQ2 FY26

    Down 8% overall commercial, most in VRF

    Mitigation: Disruption due to A2L transition over the last 12 months; unitary commercial and applied segments were relatively flat.

    Refrigerant headwindsQ2 FY26

    Refrigerant sales slightly down; A2L price higher than 410A but price has come down since last year's launch

    Mitigation: Refrigerant is a very small portion of the business ($35M in Q2 commodities revenue).

    What to watch in Q3 FY26

    5

    Gross margin trajectory

    Next quarter
    Current27.5%
    TargetMovement towards 30% long-term goal

    Why it matters

    Gross margin is a key profitability driver and management has a stated long-term target.

    Having said that, we remain focused on reaching our long-term goal of 30% in gross profit margin.

    Q&A highlights

    6

    Clarification on the meaning of 'normalized' gross margins, given the Q2 level.

    Management clarified that 27% and change is the expected baseline, with last year's 29%+ being an anomaly due to aggressive OEM pricing. They reiterated a long-term goal of 30% gross margin.

    “And in the medium and long term, we're super ambitious and we have our sights set on 30% gross margins in the long term. And that's not just a hope and a prayer. We are investing to do exactly that.”

    asked by Steve Volkmann · answered by Aaron Nahmad

    2 min read6 chapters

    Detailed Narrative

    01

    Market Normalization and Strategic Investments

    Watsco reports stabilizing markets after five years of volatility, including a pandemic, supply chain disruption🌐s, regulatory transitions, and tariff volatility🌐. The company's sustained investments in its business, particularly its digital ecosystem, are now producing measurable results, positioning it for continued growth in a normalized operating environment.

    02

    Digital Ecosystem and Customer Engagement

    Watsco's technology platforms are scaling, with e-commerce sales growing 13% and reaching 37% of total sales over the last 12 months. Mobile apps have over 70,000 active monthly users, and the OnCallAir platform generated $1.9 billion in gross merchandise value from 340,000 proposals, a 15% increase. These digital tools are enabling contractors to grow faster and are expected to lower the cost to serve at scale.

    03

    New Growth Initiatives

    The company launched SupplySync.com, a new platform targeting large institutional customers, with plans for future scaling. Other initiatives like Vendor Consolidation and Rationalization (VCR) and Hydros (shared logistics) are maturing, enhancing product availability and operational efficiency, particularly for non-equipment categories. AI is also being integrated across the business.

    04

    Gross Margin Dynamics

    Gross profit margin decreased to 27.5% from 29.3% in the prior year, primarily due to a normalization of OEM pricing actions. While 2025 benefited from aggressive OEM pricing in response to inflation and tariffs, 2026 saw more moderate, historically consistent pricing. The company maintains a long-term goal of 30% gross profit margin, supported by ongoing investments.

    05

    Inventory Management and Supply Chain

    Operating cash flow improved by $168 million for the six-month period, driven by a lower ramp-up of seasonal inventory. The company anticipates further inventory efficiency as lead times normalize and the A2L product transition concludes. Despite some overstocking in the first half, field stock is down, and inventory turns are expected to improve.

    06

    Jackson Supply Acquisition

    Watsco successfully closed the acquisition of Jackson Supply on June 1, adding $230 million in annual sales and 25 Sunbelt locations. The Jackson team will continue to operate autonomously with Watsco's support, leveraging Watsco's capital, relationships, and technology to pursue aggressive growth plans, having previously doubled their business in recent years.

    AI-generated summary of the company’s earnings call. Not investment advice.