It has been about a month since the last earnings report for Watsco (WSO Quick QuoteWSO - Free Report) . Shares have lost about 11.1% 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? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent drivers for Watsco, Inc. before we dive into how investors and analysts have reacted as of late.

Watsco Q1 Earnings & Revenues Beat Estimates as A2L Transition Matures

Watsco reported first-quarter 2026 results with earnings and revenues beating the Zacks Consensus Estimate.    While the top line increased and the bottom line tumbled on a year-over-year basis. 

Management characterized first-quarter conditions as more stable, pointing to a more “simplified business environment” now that the transition to A2L products has matured. The company said it expects a more normalized operating backdrop in 2026, while still emphasizing that it remained early in the seasonal selling period.

Inside WSO’s Q1 Headlines

The company reported earnings of $1.87 per share, which beat the Zacks Consensus Estimate of $1.73 by 8.1%. Earnings declined 3.1% from $1.93 a year ago.

Revenues were $1.53 billion, up 0.1% year over year and beat the consensus mark of $1.50 billion by 2%.

Inside WSO’s Q1 Revenue Mix and Demand Signals

Sales increased 2% in U.S. markets in the first quarter, while international sales declined 11%. By product line, HVAC equipment sales decreased 1%, other HVAC products rose 4%, and commercial refrigeration products increased 11%. HVAC equipment remained the largest contributor at 65% of sales, followed by other HVAC products at 30% and commercial refrigeration at 5%.

Management noted that unit volumes stabilized as the quarter progressed, but the company still cited lingering disruption from last year’s A2L transition, lower home-building activity and more restrained consumer spending for replacement systems and upgrades.

Watsco’s Profitability Slips as Mix Shifts

Gross profit was $427.6 million versus $429.6 million in the year-ago quarter. Gross margin declined 20 basis points to 27.9%, which management attributed primarily to the sales mix of HVAC equipment in 2026 compared with 2025.

Selling, general and administrative expenses were essentially flat at $322.9 million and stayed consistent at 21.1% of revenues. Operating income was $110.2 million, translating to a 7.2% operating margin versus 7.3% in the prior-year quarter, reflecting limited leverage on largely unchanged expense levels.

Watsco’s Cash Use Improves and Balance Sheet Stays Clean

Watsco ended the quarter with $392.7 million in cash and cash equivalents, down from $433.3 million as of Dec. 31, 2025. It also held $200 million of short-term cash investments and reported no outstanding borrowings under its revolving credit agreement at March 31, 2026. 

Cash used in operating activities was $18.9 million in the first quarter of 2026, a sharp improvement from $177.6 million of cash used in the year-ago quarter. Management attributed the year-over-year change primarily to the timing of vendor payments and an increase in accounts receivable in 2026 versus 2025.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Watsco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 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.

Performance of an Industry Player

Watsco belongs to the Zacks Manufacturing - General Industrial industry. Another stock from the same industry, Crane (CR Quick QuoteCR - Free Report) , has gained 1.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2026.

Crane reported revenues of $696.4 million in the last reported quarter, representing a year-over-year change of +24.9%. EPS of $1.65 for the same period compares with $1.39 a year ago.

Crane is expected to post earnings of $1.65 per share for the current quarter, representing a year-over-year change of +10.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +3%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Crane. Also, the stock has a VGM Score of C.