Watsco (WSO) Q1 2025 earnings summary

Executive summary

• Achieved 10% growth in core U.S. residential replacement sales, offsetting declines in international and new housing markets, amid a large-scale transition to A2L refrigerant systems impacting 55% of sales.

• Revenue for Q1 2025 was $1.53 billion, down 2% year-over-year, with net income at $80.1 million, an 8% decrease from Q1 2024.

• Maintains a debt-free balance sheet, $432 million in cash, and increased annual dividend by 11% to $12.00 per share, marking 51 consecutive years of payments.

• Technology and digital investments drive customer engagement, operational efficiency, and reduced attrition.

• Recent acquisitions expanded geographic reach and product offerings, supporting long-term value creation.

Financial highlights

• Gross margin improved to 28.1% from 27.5% year-over-year, supported by favorable segment mix and higher efficiency product sales.

• Revenues decreased 2% year-over-year to $1.53 billion for Q1 2025.

• Operating income declined to $112 million (operating margin 7.3%), and EPS was $1.93 versus $2.17 last year.

• Price and mix for the unitary business were up about 5% for the quarter.

• Cash dividends paid were $2.70 per share in Q1 2025, with a quarterly increase to $3.00 per share in April 2025.

Outlook and guidance

• Expects more resilient demand in upcoming, seasonally stronger quarters as the A2L transition progresses.

• Management aspires to achieve a 30% gross profit margin over time.

• Focus remains on the replacement market, which is seen as a stabilizing factor amid macroeconomic uncertainty.

• Demand for high-efficiency HVAC systems is expected to rise, supported by regulatory mandates and federal incentives, though tax credit availability is uncertain.

• Expects the transition to 454B refrigerant to accelerate, with 410A inventory largely depleted by end of Q2.