Watsco Inc. (NYSE: WSO) reported third-quarter revenue of $2.22 billion in 2026, marking a 7.4% increase from the same period the previous year and meeting Wall Street’s expectations. However, the company’s adjusted earnings per share (EPS) of $3.77 fell short of analysts’ consensus estimate of $4.18, a decline of 9.7%.
Watsco’s operating margin decreased to 10.1%, down from 11.4% in the previous year, which contributed to a negative market reaction following the earnings announcement. The company currently has a market capitalization of $11.2 billion.
CEO Albert Nahmad explained that the quarter’s performance was marked by stronger demand in residential HVAC equipment and the positive impact of recent acquisitions. He stated, “Demand trends are now normalizing, organic growth is improving, and our digital ecosystem is producing measurable results in driving growth.”
During the earnings call, company executives discussed the factors influencing performance. Management cited an evolving customer mix and increased investments in technology as contributing to the decline in margins. President A.J. Nahmad noted that ongoing technology initiatives and successful integration of acquisitions are crucial for enhancing efficiency and expanding market share moving forward.
Watsco’s recent acquisitions, including Jackson Supply and The Granite Group, have supported sales growth and extended the company’s reach into plumbing distribution. Efforts are being made to integrate these businesses while maintaining their existing leadership structures and leveraging Watsco’s technological assets.
Management highlighted a shift toward larger contractors who are more engaged with technology, which may offer reduced costs but typically operate at lower margins. Additionally, e-commerce and digital platforms now account for 37% of total sales, with revenues from these segments growing faster than the overall business. Initiatives like SupplySync and VCR are expected to enhance procurement, logistics, and customer engagement.
Looking ahead, Watsco aims to achieve higher gross margins supported by digital advancements and a better understanding of contractor behaviors. Nonetheless, executives cautioned that profitability might remain under pressure due to ongoing investments and the current state of industry consolidation. CFO Barry Logan characterized the pricing environment as “a more ordinary and conventional” one while acknowledging continuing challenges with cost structures and customer mix.
The company plans to focus on the performance of newly acquired businesses, digital platform uptake, and the restoration of gross margins as industry conditions stabilize in upcoming quarters. Currently, Watsco’s stock is trading at $292.49, down from $305.33 prior to the earnings release.
