Watsco — Q3 2026 Earnings Summary

Financial Performance:

• Q3 2026 revenues increased 7% to a record $2.22 billion, with a 4% increase on a same-store basis.
• Nine-month 2026 revenues increased 3% to $5.86 billion.
• Q3 2026 gross profit increased 3% to a record $586 million; gross profit margin was 26.4% (26.5% same-store) compared to 27.5% in the prior year.
• Nine-month 2026 gross profit decreased 1% to $1.59 billion; gross profit margin was 27.2% compared to 28.3% in the prior year.
• Q3 2026 SG&A increased 8% (5% same-store) to $370.7 million; nine-month SG&A increased 4% (2% same-store) to $1.04 billion.
• Q3 2026 operating income decreased 4% to $225 million (10.1% margin vs. 11.4% prior year); nine-month operating income decreased 7% to $574 million (9.8% margin vs. 10.9% prior year).
• Q3 2026 diluted earnings per share decreased 5% to $3.77; nine-month diluted EPS decreased 7% to $9.72.
• Nine-month 2026 operating cash flow increased 79% to $304 million.
• Cash and cash equivalents were $498.7 million as of September 30, 2026, up from $433.3 million at December 31, 2025.
• Inventories, net increased to $1.84 billion as of September 30, 2026, from $1.39 billion at December 31, 2025.
• Total assets were $5.23 billion as of September 30, 2026, compared to $4.41 billion at December 31, 2025.
• Total liabilities were $1.70 billion as of September 30, 2026, compared to $1.19 billion at December 31, 2025.

Guidance and Future Outlook:

• Management stated that long-range objectives for sales, margin, and cash flow generation remain fully intact.
• Residential unit volumes are returning to growth and improving steadily throughout the season.
• Same-store sales growth rates have steadily improved throughout the selling season with further momentum in the fourth quarter.
• The Company believes its technology ecosystem offers a durable and widening competitive advantage.
• Watsco aims to generate annual operating cash flow in excess of net income.

Business Segments and Product Lines:

• Q3 HVAC equipment sales (67% of sales) increased 5%, driven by a 7% increase in residential products and a 5% decline in commercial products.
• Q3 sales of other HVAC products (29% of sales) increased 2%.
• Q3 commercial refrigeration products (4% of sales) increased 10%.
• Nine-month HVAC equipment sales increased 2%, with a 4% increase in residential products and a 4% decline in commercial products.
• Nine-month sales of other HVAC products increased 1%.
• Nine-month commercial refrigeration products increased 14%.
• E-commerce sales increased 12% during the nine-month period, reaching $2.75 billion for the 12 months ended September 30, 2026 (37% of revenues).
• OnCallAir® gross merchandise value (GMV) reached $1.6 billion for the nine months ended September 30, 2026, a 14% increase year-over-year.
• Non-equipment purchases totaled approximately $1.7 billion for the 12 months ended September 30, 2026 (30% of total purchases).
• The Company added 107 locations and $730 million in annualized revenue through recent acquisitions.
• 112 out of 804 locations now offer both HVAC and plumbing products.

Market and Competitive Landscape:

• Watsco is the largest distributor in the highly fragmented North American HVAC/R market, which is valued at $74 billion.
• Digitally-enabled customers continue to outperform broader industry and customer metrics.
• The Company has acquired 74 market-leading businesses since entering distribution in 1989.
• Recent acquisitions include Jackson Supply Company (acquired June 2026, ~$230 million annual sales) and The Granite Group (acquired October 2026, ~$500 million annual sales).
• Jackson Supply serves approximately 5,000 customers from 25 locations in Sunbelt markets.
• The Granite Group serves approximately 11,000 customers from 82 locations in the Northeast.
• More than 73,000 contractors and technicians engage with the Company digitally.

Risks and Challenges:

• Q3 gross margin was impacted by customer mix, end-market mix, timing and lower magnitude of OEM pricing actions in 2026 versus 2025, and differing growth rates of equipment versus non-equipment products.
• Forward-looking statements are subject to uncertainty regarding economic, business, competitive market, new housing starts, capital spending, consumer spending, debt levels, regulatory factors, supplier concentration, and seasonal sales nature.
• Risks include insurance coverage risks and final GAAP adjustments.

Management Commentary and Tone:

• Chairman and CEO Albert H. Nahmad expressed encouragement regarding the return of residential unit volumes to growth and the continued outperformance of technology-enabled customers.
• Nahmad noted that the Company is "meaningfully larger" following the addition of Jackson and Granite, with long-range objectives remaining intact.
• President A.J. Nahmad highlighted progress on investor day initiatives, including the formal launch of SupplySync and early scaling of other digital initiatives.
• Management emphasized that investments in technology, pricing optimization, and non-equipment growth are supportive of long-term margin objectives.

Other Key Points:

• In April 2026, the Company increased its annual cash dividend by 10% to $13.20 per share; Watsco has paid dividends for 52 consecutive years.
• In October 2026, Watsco signed a five-year $750 million unsecured senior revolving credit facility with increased borrowing capacity and covenant flexibility.
• The Company has invested approximately $280 million in digital platforms over the last five years, with a current annual run rate of approximately $64 million.
• Watsco launched a pilot program for SupplySync, an innovative platform targeting the institutional channel for HVAC/R products.
• The Company introduced AI-driven initiatives, including "Ask.Watsco" (internal) and "AL.watsco" (customer-facing), to enhance productivity and customer service.
• Watsco's philosophy includes building upon the success of acquired businesses through investments in growth, leadership continuity, and an equity culture.