Watsco (WSO) Q3 2026 Earnings Report

The call was strongly positive overall. Watsco reported record revenue and gross profit, improving organic demand, strong acquisition performance, significant digital and technology growth, a robust balance sheet, and positive October momentum. The main challenges were gross margin below the 30% long-term goal, higher SG&A and variable costs, an incomplete replacement-market recovery, increased inventory, and expected input-cost-driven pricing pressure. Management characterized these issues as manageable within a broader recovery and long-term growth strategy.

Management expects the impact from the A2L transition to be “largely over by the end of this year,” remains focused on its “long-term goal of 30%” gross margins, and said Hydros “will continue to scale in 2027 to more locations and more vendors”; October was “looking healthy to date,” with management saying it “hope and expect to carry it through the end of the year, but hard to say,” while total-company revenues were “up double digits so far in this quarter,” including acquisitions. Management expects “some price increases this fall going into next year,” and said the expectation is that OEM pricing actions over “the next 12 months” will “come early and more conventional and kind of more ordinary”; fourth-quarter margin is “generally” better, with a “20, 30 basis points of improvement” over a “10-year average,” although management said, “I’m not giving guidance.” Management also said there is “an opportunity” for year-end inventory to be “more or less equal to last year at the year-end, excluding the two acquisitions we have made,” and that side discharge, currently “in the 8%-10% range of the total market today,” “is going to continue to grow.”