A month has gone by since the last earnings report for Watsco (WSO Quick QuoteWSO - Free Report) . Shares have lost about 9.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Watsco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.

Watsco Q4 Earnings & Revenues Lag Estimates, Gross Margin Up Y/Y

Watsco reported lower-than-expected fourth-quarter 2025 results with earnings and revenues missing the Zacks Consensus Estimate and decreasing year over year.

The quarterly results reflect reduced demand volumes for HVAC equipment and products, with the return of seasonality pulling back the numbers further. Also, a weaker consumer spending environment and a slowdown in housing activity are concerning.

The bottom line was adversely impacted by reduced leverage from the top line, despite several pricing optimizations and reduced expenses.

Inside WSO’s Q4 Headlines

The company reported earnings of $1.68 per share, missing the Zacks Consensus Estimate of $1.94 by 13.4% and declining 29.1% year over year from $2.37 per share.

Revenues of $1.58 billion also missed the consensus mark of $1.61 billion by 1.9% and tumbled year over year by 10%.

Segment-wise, HVAC equipment (67% of sales) fell 13%, and other HVAC products (29% of sales) declined 4%, somewhat offset by 5% growth in commercial refrigeration sales (4% of sales).

Watsco’s Margins and Profitability

Gross profit of $428.4 million was down from $468.1 million reported in the year-ago quarter. However, the gross margin expanded 40 basis points to 27.1%, driven by effective pricing and product mix optimization.

Operating income declined 25.5% year over year to $101.5 million, with operating margin contracting 140 bps to 6.4%.

Selling, general and administrative expenses inched down 1.7% to $332.6 million.

WSO’s 2025 Highlights

During the year, revenues declined year over year by 5% to $7.24 billion, with earnings per share reducing 7.9% to $12.25.

Gross profit decreased 1% to $2 billion, but gross margin expanded 120 bps to 28%. Operating income also declined 8% to $720 million from 2024, with the operating margin of 10% contracting 30 bps.

WSO’s Balance Sheet and Liquidity

As of 2025, Watsco had $433.3 million in cash and cash equivalents, down from $526.3 million at the end of 2024. As of Dec. 31, 2025, net cash provided by operating activities was down to $569.6 million from $773.1 million as of Dec. 31, 2024. The company reported no long-term debt, underscoring its conservative capital structure.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -7.23% due to these changes.

VGM Scores

At this time, Watsco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for value investors.

Overall, the stock has an aggregate VGM Score of C. 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. Notably, Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.