Watsco Inc (NYSE:WSO) reported fourth-quarter results on Tuesday that came in below Wall Street expectations, as both revenue and earnings declined in a difficult industry backdrop.
Shares fell 4.05% in pre-market trading following the release.
The HVAC/R distributor posted earnings per share of $1.68 for the quarter, $0.20 below the analyst consensus of $1.88.
Revenue totaled $1.58 billion, missing the $1.62 billion estimate and declining 10% from the same period a year earlier.
Operating income for the quarter dropped 25% to $102 million, while operating margin narrowed to 6.4% from 7.8% in the prior-year quarter.
Sales of HVAC equipment — which account for roughly 67% of total revenue — decreased 13% during the period.
“The recent business environment has been among the most complicated in memory,” said Albert H. Nahmad, Chairman and CEO. “We expect a more conventional industry environment and better prospects for growth as 2026 unfolds, and we believe there is room to further optimize inventory and improve operating efficiency.”
For full-year 2025, Watsco generated revenue of $7.24 billion, down 5% year over year, while earnings per share declined to $12.25 from $13.30 in 2024. Despite softer performance, the company raised its annual dividend by 10% to $13.20 per share.
Management cited industry volatility — particularly the transition to A2L refrigerants — as a key headwind. The shift affected about 55% of products sold and required the conversion of more than $1 billion in inventory.
On a more positive note, Watsco produced record operating cash flow of $400 million in the fourth quarter, driven by a significant reduction in inventory levels from a 2025 peak of $2.1 billion to $1.4 billion at year-end.
The company ended the year with a strong balance sheet, holding $780 million in cash and investments and no outstanding debt.