A month has gone by since the last earnings report for Watsco (WSO Quick QuoteWSO - Free Report) . Shares have lost about 10.9% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Watsco due for a breakout? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent catalysts for Watsco, Inc. before we dive into how investors and analysts have reacted as of late.

Watsco's Q2 Earnings & Revenues Miss Estimates, Margins Up Y/Y

Watsco reported lower-than-expected second-quarter 2025 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Year over year, the bottom line grew while the top line declined.

The quarter’s performance reflects lower unit volumes due to extensive temperate weather conditions, lower homebuilding activity and transition-related impacts on new system installations.

Nonetheless, it remains optimistic about the new A2L system integration process, increased digital platform penetration and new AI-driven models.

Inside Watsco’s Headlines

The company reported quarterly earnings per share (EPS) of $4.52, missing the Zacks Consensus Estimate of $4.84 by 6.6%. In the year-ago quarter, the company reported EPS of $4.49.

Revenues of $2.06 billion missed the consensus mark of $2.21 billion by 6.8% and declined 4% year over year.

Sales of HVAC equipment (heating, ventilating and air conditioning, comprising 68% of net sales) fell 6% year over year. Sales of other HVAC products (28% of sales) remained flat year over year. Sales from commercial refrigeration products (4% of sales) increased 3% from the year-ago quarter.

HVAC equipment sales tumbled 7% in residential products, which is composed of unitary compressor-bearing systems, furnaces, and other indoor components (6% decrease in U.S. markets and a 20% decrease in international markets). The sales of commercial HVAC equipment were also down 5% year over year (5% decrease in U.S. markets and a 4% decrease in international markets).

Operating Highlights of WSO

The gross margin expanded 220 basis points (bps) in the reported quarter to 29.3%. Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 150 bps year over year to 16.4%.

The operating margin expanded 60 bps year over year to 13.2%.

WSO’s Financial Operations

As of June 30, 2025, Watsco’s cash and cash equivalents totaled $293 million, compared with $526.3 million at the end of 2024. As of the first half of 2025, the net cash used in operating activities was $185.1 million against the net cash provided by operating activities of $161.4 million reported in the comparable year-ago period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Watsco has a poor Growth Score of F, a score with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a score of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.