Watsco reports record third-quarter revenue of $2.22 billion as earnings per share fall 5%

Watsco, Inc. (WSO) said Tuesday its third-quarter revenue rose 7% to a record $2.22 billion, while diluted earnings per share fell 5% to $3.77, according to a press release attached to a regulatory filing.

For the nine months ended Sept. 30, revenue rose 3% to $5.86 billion, while operating income fell 7% to $574 million.

On a same-store basis, which excludes locations closed, acquired or opened in the preceding 12 months unless they are close to existing locations, quarterly revenue rose 4%.

Here's how the company did:

• Revenue: $2.22 billion vs. $2.07 billion a year earlier
• Gross profit: $586.3 million vs. $568.9 million a year earlier
• Operating income: $225.2 million vs. $234.8 million a year earlier
• Diluted earnings per share: $3.77 vs. $3.98 a year earlier

Gross profit rose 3% to a record $586 million, but the gross profit margin fell to 26.4% from 27.5%.

The company said the decline reflected customer mix and end-market mix, along with the timing and smaller size of OEM pricing actions in 2026 compared with 2025. It also said the growth rates of equipment and non-equipment products differed.

The company said third-quarter gross margin is more in line with historical seasonality, and year-to-date gross margin levels reflect current market conditions, including more conventional OEM pricing actions.

Selling, general and administrative expenses rose 8%, including 30 new and acquired locations. On a same-store basis, they rose 5%.

Operating income fell 4% to $225 million. Operating margin was 10.1%, compared with 11.4% a year earlier.

HVAC equipment sales, 67% of revenue, rose 5% excluding acquisitions. Residential products rose 7%, while commercial products declined 5%.

Other HVAC products, 29% of sales, rose 2%. Commercial refrigeration products, 4% of sales, rose 10%.

Residential equipment sales grew 7%, including 5% unit growth and a 2% increase in average selling price. The company said same-store sales growth improved steadily through the selling season and has continued into the fourth quarter.

Acquired locations of Jackson Supply Company contributed $78 million in third-quarter sales, a 16% increase over the comparable prior-year period.

Watsco acquired Jackson Supply Company in June 2026. Jackson is an HVAC distributor with annual sales of about $230 million, serving about 5,000 customers from 25 locations in Sunbelt markets.

The Granite Group, founded in 1971 with annual sales of about $500 million, was acquired in October 2026. It serves about 11,000 customers from 82 locations in the Northeast and distributes HVAC and plumbing products.

The two businesses added 107 locations and $730 million in annualized revenue, the company said. Watsco expects them to bolster annual revenue by about 10%.

“Third quarter results and early fourth quarter sales trends are indicative of continued improvement in end-market demand,” Chairman and CEO Albert H. Nahmad said. “We are encouraged to see residential unit volumes return to growth and steadily improve throughout the season.”

Nine-month operating cash flow rose 79% to $304 million. Third-quarter operating cash flow was $325 million, compared with $355 million a year earlier.

Nine-month diluted earnings per share fell 7% to $9.72, from $10.48 a year earlier. Excluding acquisitions, nine-month HVAC equipment sales rose 2%, other HVAC products rose 1%, and commercial refrigeration products rose 14%.

E-commerce sales rose 12% in the nine months and 10% in the third quarter. They reached $2.75 billion for the 12 months ended Sept. 30, or 37% of revenue.

Gross merchandise value through OnCallAir reached $1.6 billion in the nine months, up 14%. Watsco has invested about $280 million in digital platforms over five years, a current annual run rate of about $64 million.

The company launched a pilot of SupplySync, a platform for institutional customers. It also said initiatives to boost non-equipment sales and margins began in 2026. Non-equipment purchases were about $1.7 billion from more than 1,500 vendors over 12 months, or 30% of total purchases.

In April 2026, the company increased its annual cash dividend 10% to $13.20 per share. It has paid dividends for 52 consecutive years.

In October 2026, the company signed a five-year, $750 million unsecured senior revolving credit facility. It said the terms include increased borrowing capacity and covenant flexibility.

Inventories were $1.84 billion at Sept. 30, up from $1.39 billion at Dec. 31, 2025. Cash and cash equivalents were $498.7 million.

The release does not include updated full-year guidance. The company scheduled an earnings call for 10:00 a.m. EDT on Oct. 27.