As previously announced, Watsco raised its annual dividend by 11% to $12.00 per share effective in April 2025. At March 31, 2025, Watsco had $432 million of cash, no outstanding debt and $3 billion of shareholders’ equity. 2025 marks the Company’s 51st consecutive year of paying dividends.

Watsco continues to invest in its industry-leading technologies to enrich the customer experience, drive growth, gain market share and improve operating efficiency. Watsco’s digital user-community consists of approximately 67,000 contractors and technicians that engage through state-of-the-art platforms capable of influencing nearly every aspect of their day. Since launching its digital platform, Watsco has generated higher sales growth rates among digital users, achieved customer acquisition and reduced attrition. Watsco has also begun to establish pathways for AI-related initiatives and leveraging the substantial data streams curated by the Company.

First Quarter Performance

Watsco's results reflected the early stages of a large-scale product transition from regulatory changes that went into effect January 1, 2025, which affected approximately 55% of Watsco’s sales and ultimately converted nearly $1 billion of inventory over the course of the year. The new products represented HVAC systems used in the U.S. for residential and light-commercial applications that contain refrigerants (termed A2L refrigerants) that offer considerably lower global warming properties (GWP), a measurement of environmental impact.

First quarter sales mix represented a composite of old and new HVAC systems, which experienced varying levels of sales demand across end-markets. Watsco’s core U.S. market for residential replacement sales increased 10% (12% on a same-day basis), reflecting new customer acquisition, unit growth, price-capture and an improved mix of higher-efficiency products, along with improved gross margins. This contrasts with a 9% decline in sales to international markets (9% of first quarter 2025 sales), lower volumes related to new housing markets and a disparity in certain end-markets on the timing and cadence of the A2L product transition. While still early in the selling season, recent sales and margin trends have improved and the company expects more resilient demand during the seasonally stronger periods that follows the first quarter.

Albert H. Nahmad, chairman and CEO, stated: “The transition to the new A2L products is well underway. Regulatory changes have historically been good for our business, and we see the same opportunity as this transition influences more than half of the products we sell and offers most every customer we serve the opportunity to benefit their business. We are encouraged by the strength in sales, margins and improved efficiency mix in our core replacement market, as well as another good quarter of acquiring new customers. We have built a strong inventory position ahead of the selling season to support our customers and will help them compete and gain share as the transition unfolds.”

First Quarter Performance

• Revenues decreased 2% to $1.53 billion
• Gross profit of $430 million was flat versus last year
• Gross profit margin improved 60 basis-points to 28.1%
• SG&A expenses increased 4%
• Operating income was $112 million with an operating margin of 7.3%
• Earnings per share of $1.93 versus $2.17 for the prior year
• Sales trends (excluding acquisitions)
• 1% decrease in HVAC equipment (67% of sales)
• 3% decrease in other HVAC products (29% of sales)
• 5% decrease in commercial refrigeration products (4% of sales)

Watsco’s OEM partners and suppliers continue to assess the impacts of tariffs along with other inflationary impacts and have recently announced varying levels of pricing actions. Consequently, they have implemented pricing actions to customers by leveraging technology platforms as an efficient means to capture the changes in conditions. Although the extent and duration of tariff-related impacts are uncertain, Watsco has long-considered their primary focus on the HVAC replacement market to be a stabilizing factor given the necessity of these products in providing comfort and healthy environments to homeowners and businesses.   

It is important to note that the first and fourth quarters are highly seasonal as demand for replacement HVAC systems is typically highest in the second and third calendar quarters. Accordingly, the company’s first quarter results are disproportionately affected by seasonality.

Cash Flow, Financial Strength and Liquidity

Watsco’s objective is to maintain a healthy balance sheet that allows for strategic investments in new growth opportunities as they arise. The company’s financial position has been pivotal to its ability to deliver sustained long-term returns, enabling investments regardless of macroeconomic or industry conditions.  

During the first quarter, operating cash flow was a use of cash totaling $178 million, reflecting inventory investments in the new A2L products ahead of the selling season as well as the timing of vendor payments. The company’s stated goal is to generate annual operating cash flow in excess of net income consistent with its long-term track record.

Mr. Nahmad further commented: “Our strong balance sheet remains a strategic asset to support customers as we navigate the A2L product transition and build inventory ahead of the selling season. I am also pleased to welcome two new companies to our family in 2025. We are actively seeking opportunities to partner with other market-leading businesses as we believe our scale, culture and technologies help distributors win.”

Long-Term Growth Drivers

Watsco believes that various company-specific and industry-driven catalysts will support continued growth and profitability in the years ahead. Watsco’s scale, technology platforms, OEM relationships and entrepreneurial ownership culture are competitive advantages that they believe position them favorably over the long-term.

Technology Investments – Watsco’s technology advantage is an important long-term catalyst for growth. Active users of their technology and e-commerce platforms produce higher growth rates and exhibited approximately 60% less attrition. Consequently, the company believes that increased adoption by more contractors will aid future growth and profitability and ultimately lower the overall cost to serve customers. Watsco has also invested in numerous internal technologies with the goal of further enhancing margins and improving operating efficiencies.

Buy and Build Acquisition Strategy - Watsco has partnered with more than 70 independent distributors who have chosen to join the Watsco family, contributing to the Company’s scale and, more importantly, its community of seasoned leaders. Since 2019, Watsco has acquired 11 companies that represent $1.6 billion in annualized sales and 113 locations across our network. Their “buy and build” strategy builds upon their long-standing legacies through investment in new locations, new products and by leveraging Watsco’s technology platforms. The HVAC/R distribution landscape in North America, which is estimated to be $74 billion in size, remains highly fragmented with more than 2,100 independent distributors.

Scale and Product Depth - Watsco operates the largest HVAC/R network across North America, consisting of 693 locations that support more than 130,000 contractor customers. Watsco also possesses a varied assortment of products in the industry to support customers with approximately $1.8 billion in inventory across 200,000 SKUs produced by over 20 equipment OEMs and more than 1,500 non-equipment vendors. This scale and reach, coupled with growing digital presence, are key differentiators given the fragmented nature of the industry, allowing Watsco to compete effectively in a macroeconomic environment.  

Use of Non-GAAP Financial Information

The company disclosed a sales metric on “same-day basis,” which is non-GAAP and refers to the presentation of the metric adjusted to reflect the same number of sales days in the current period as in the prior period. This adjustment allows for a more meaningful comparison of financial performance between periods by eliminating the impact of differences in the number of sales days. The company believes that this information provides greater comparability regarding its ongoing operating performance. These measures should not be considered an alternative to measurements required by U.S. GAAP. Adjusted GAAP measures are useful to assist investors in evaluating the ongoing operating performance for the current reporting period and, where provided, over different reporting periods.

Watsco operates the largest distribution network for heating, air conditioning and refrigeration (HVAC/R) products with locations in the U.S., Canada, Mexico, and Puerto Rico, and on an export basis to Latin America and the Caribbean. Watsco estimates that over 375,000 owner-operators, technicians, and installers visit or call one of its 693 locations each year to get information, obtain technical support and buy products.

According to data published in March 2023 by the Energy Information Administration, there are approximately 102 million HVAC systems installed in the United States that have been in service for more than 10 years, most of which operate below current efficiency standards. Watsco's focus on replacement units gave them the opportunity to be a significant contributor toward climate change as it plays an important role to lower CO2e emissions. According to the Department of Energy, HVAC systems account for roughly half of U.S. household energy consumption. As such, replacing older systems at higher efficiency levels is a critical means for homeowners to reduce electricity consumption and their carbon footprint.

Based on estimates validated by independent sources, Watsco averted an estimated 23.7 million metric tons of CO2e emissions from January 1, 2020 to March 31, 2025 through the sale of replacement HVAC systems at higher-efficiency standards, an equivalent of removing 5.5 million gas powered vehicles annually off the road.

More information, including sources and assumptions used to support the Company’s estimates, can be found on Watco's website.