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Watsco (WSO) Up 0.8% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Watsco (WSO - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Watsco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Watsco Q2 Earnings & Revenues Miss Estimates as Margins Contract
Watsco reported second-quarter 2026 results with earnings and revenues missing the Zacks Consensus Estimate. Revenues increased year over year, while earnings declined.
The earnings shortfall primarily reflected lower gross margins, as unusually favorable OEM pricing actions in the prior-year period created a difficult comparison. Nonetheless, same-store sales improved, supported by better residential HVAC equipment demand.
Inside WSO’s Q2 Headlines
The company reported earnings of $4 per share, down 11.5% from $4.52 a year ago. The figure missed the Zacks Consensus Estimate of $4.38 by 8.7%.
Revenues rose 2.1% year over year to $2.10 billion but missed the $2.16 billion consensus by 2.6%.
WSO's Residential HVAC Sales Gain Ground
HVAC equipment sales, excluding acquisitions, increased 3% and represented 68% of second-quarter sales. Residential product sales advanced 5%, including a 5% increase in U.S. markets and a 1% gain in international markets. Domestic residential compressor-bearing system volumes rose 2%, while average selling prices increased 2%.
Commercial HVAC product sales declined 8%. Other HVAC products, representing 28% of sales, decreased 1%, while commercial refrigeration products, accounting for 4%, increased 19%. Management said the refrigeration increase reflected customer wins at one of its business units, while commercial HVAC weakness was concentrated in variable refrigerant flow products.
Watsco Faces a Tough Gross Margin Comparison
Gross profit fell 4% year over year to $578.9 million. Gross margin contracted 180 basis points to 27.5% from 29.3%, primarily because 2025 benefited from significant inflationary manufacturer pricing actions, while 2026 pricing returned closer to historical levels.
Management described the recent margin range as more consistent with the company's longer-term trend. It maintained its long-term goal of reaching a 30% gross profit margin through operating and technology initiatives.
WSO's Higher Costs Weigh on Operating Profit
Selling, general and administrative expenses increased 3% to $349 million and rose to 16.6% of revenues from 16.4%. On a same-store basis, SG&A expenses increased 2%, mainly because of higher facilities and transportation costs, partly offset by lower salaries.
Operating income declined 12% to $238.4 million, while operating margin fell to 11.3% from 13.2%. The combination of lower gross profit and higher operating expenses outweighed the benefit of lower income taxes.
Watsco Adds Jackson Supply to Its Sunbelt Footprint
Watsco completed the acquisition of Jackson Supply on June 1. Jackson generated approximately $230.0 million in annual sales in 2025 and operates 25 locations across Texas, Louisiana, Tennessee, Alabama, Mississippi, Oklahoma and Arizona.
The transaction helped lift Watsco's network to 723 locations as of June 30, 2026. Management said Jackson's profitability is consistent with Watsco's overall profile and highlighted the acquired company's plans to expand using Watsco's capital, technology and supplier relationships.
WSO's Cash Use Improves and Balance Sheet Stays Clean
Watsco ended June 2026 with $364.2 million in cash and cash equivalents, up 24.3% from $293 million a year earlier. The company also held $100 million in short-term cash investments and had no outstanding balance under its $600 million revolving credit agreement.
Cash used in operating activities narrowed to $21.4 million in the first half of 2026 from $185.1 million a year earlier. The improvement primarily reflected the timing of vendor payments and a lower increase in inventory, partly offset by higher accounts receivable. Working capital reached $2.37 billion at quarter-end.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -6.58% due to these changes.
VGM Scores
At this time, Watsco has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a score of C on the value side, putting it in the middle 20% for value investors.
Overall, the stock has an aggregate VGM Score of D. 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.
View the Zacks #1 Rank List
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Watsco (WSO) Up 0.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Watsco (WSO - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Watsco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Watsco Q2 Earnings & Revenues Miss Estimates as Margins Contract
Watsco reported second-quarter 2026 results with earnings and revenues missing the Zacks Consensus Estimate. Revenues increased year over year, while earnings declined.
The earnings shortfall primarily reflected lower gross margins, as unusually favorable OEM pricing actions in the prior-year period created a difficult comparison. Nonetheless, same-store sales improved, supported by better residential HVAC equipment demand.
Inside WSO’s Q2 Headlines
The company reported earnings of $4 per share, down 11.5% from $4.52 a year ago. The figure missed the Zacks Consensus Estimate of $4.38 by 8.7%.
Revenues rose 2.1% year over year to $2.10 billion but missed the $2.16 billion consensus by 2.6%.
WSO's Residential HVAC Sales Gain Ground
HVAC equipment sales, excluding acquisitions, increased 3% and represented 68% of second-quarter sales. Residential product sales advanced 5%, including a 5% increase in U.S. markets and a 1% gain in international markets. Domestic residential compressor-bearing system volumes rose 2%, while average selling prices increased 2%.
Commercial HVAC product sales declined 8%. Other HVAC products, representing 28% of sales, decreased 1%, while commercial refrigeration products, accounting for 4%, increased 19%. Management said the refrigeration increase reflected customer wins at one of its business units, while commercial HVAC weakness was concentrated in variable refrigerant flow products.
Watsco Faces a Tough Gross Margin Comparison
Gross profit fell 4% year over year to $578.9 million. Gross margin contracted 180 basis points to 27.5% from 29.3%, primarily because 2025 benefited from significant inflationary manufacturer pricing actions, while 2026 pricing returned closer to historical levels.
Management described the recent margin range as more consistent with the company's longer-term trend. It maintained its long-term goal of reaching a 30% gross profit margin through operating and technology initiatives.
WSO's Higher Costs Weigh on Operating Profit
Selling, general and administrative expenses increased 3% to $349 million and rose to 16.6% of revenues from 16.4%. On a same-store basis, SG&A expenses increased 2%, mainly because of higher facilities and transportation costs, partly offset by lower salaries.
Operating income declined 12% to $238.4 million, while operating margin fell to 11.3% from 13.2%. The combination of lower gross profit and higher operating expenses outweighed the benefit of lower income taxes.
Watsco Adds Jackson Supply to Its Sunbelt Footprint
Watsco completed the acquisition of Jackson Supply on June 1. Jackson generated approximately $230.0 million in annual sales in 2025 and operates 25 locations across Texas, Louisiana, Tennessee, Alabama, Mississippi, Oklahoma and Arizona.
The transaction helped lift Watsco's network to 723 locations as of June 30, 2026. Management said Jackson's profitability is consistent with Watsco's overall profile and highlighted the acquired company's plans to expand using Watsco's capital, technology and supplier relationships.
WSO's Cash Use Improves and Balance Sheet Stays Clean
Watsco ended June 2026 with $364.2 million in cash and cash equivalents, up 24.3% from $293 million a year earlier. The company also held $100 million in short-term cash investments and had no outstanding balance under its $600 million revolving credit agreement.
Cash used in operating activities narrowed to $21.4 million in the first half of 2026 from $185.1 million a year earlier. The improvement primarily reflected the timing of vendor payments and a lower increase in inventory, partly offset by higher accounts receivable. Working capital reached $2.37 billion at quarter-end.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -6.58% due to these changes.
VGM Scores
At this time, Watsco has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a score of C on the value side, putting it in the middle 20% for value investors.
Overall, the stock has an aggregate VGM Score of D. 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.