Watsco (WSO) Q4 2025 earnings summary

Executive summary

• Achieved record gross margin and operating cash flow despite regulatory changes, industry volatility, and macroeconomic headwinds, including the transition to A2L refrigerants and supply chain disruptions since 2019.

• Increased annual dividend by 10% to $13.20 per share, marking 52 consecutive years of dividend payments.

• Maintained a debt-free balance sheet with $780 million in cash and investments, supporting ongoing investments in technology and growth.

• Completed 12 acquisitions totaling over $1.6 billion in sales and acquired three distributors in key Sunbelt markets during 2025.

• Continued to scale digital platforms, with e-commerce accounting for 35% of sales, $2.5 billion in e-commerce sales, and 73,000 contractors engaging digitally.

Financial highlights

• Full-year 2025 revenues decreased 5% to $7.24 billion; gross profit decreased 1% to $2.03 billion.

• Gross margin expanded 120 basis points to a record 28.0% in 2025, with a Q4 margin of 27.1%.

• Operating income declined 8% to $720 million (operating margin 10.0% vs. 10.3% prior year); earnings per share were $12.25, down from $13.30 last year.

• Operating cash flow was $570 million for the year and a record $400 million in Q4.

• SG&A expenses dropped 2% in Q4, reflecting improved operating efficiency.

Outlook and guidance

• Management expects a more conventional industry environment and improved growth prospects in 2026, with further opportunities to optimize inventory and operating efficiency.

• Early 2026 sales down mid-single digits (~5%), partly due to severe weather, but not indicative of full-year trends.

• Focus remains on driving sales growth, customer relationships, and leveraging new technology and AI for efficiency.