Watsco, Inc. Q1 2026 Earnings Call Summary

Moby Intelligence

3 min read

Management observes improving market stability as the industry transitions from five years of volatility driven by COVID-19, supply chain constraints, and regulatory shifts.
The A2L product transition has matured, leading to a more simplified operating environment and a richer sales mix of high-efficiency systems.
First quarter sales growth of 2% in U.S. markets was driven by pricing and product mix, which helped offset lower unit volumes that began stabilizing late in the quarter.
The acquisition of Jackson Supply adds $230 million in annual sales and 25 Sunbelt locations, specifically strengthening the company’s presence in the fragmented parts and supplies segment.
Technology adoption is accelerating, with e-commerce sales growing 16% and the OnCallAir platform seeing a 20% increase in customer sales, providing a lower cost-to-serve and higher gross margins.
Gross margins remained stable due to disciplined pricing execution and the deployment of proprietary pricing optimization tools across the branch network.
The company maintains a debt-free balance sheet, providing the financial flexibility to invest in inventory, technology, and M&A regardless of broader market conditions.

Management noted that the operating environment has largely normalized as of the start of 2026, allowing for improved operating efficiency and a focus on technology investments.
Gross merchandise value for the OnCallAir digital platform is projected to exceed $2 billion this year as contractor adoption gains momentum.
Inventory turns are expected to improve and contribute to cash flow for the remainder of the year as the supply chain stabilizes and manufacturers maintain consistent production lines.
The company anticipates potential price increases across the board in the second quarter, driven by manufacturer pressure from Section 232 duties.
Strategic initiatives including the Hydros system and new innovations for institutional customers are set to launch in the second quarter to drive market share and margin expansion.

The Jackson Supply acquisition is expected to close in the second quarter, with the existing leadership team remaining in place to maintain its entrepreneurial culture.
Section 232 tariffs are creating upward pricing pressure for OEMs, which management expects will be passed through to the distribution level.
Unit volumes remained a headwind in the first quarter, indicating the market has not yet fully ‘healed’ despite incremental improvements in March and April.
Inventory levels were elevated by approximately 25% quarter-over-quarter, reflecting the higher cost of A2L equipment and the need to stock indoor units compatible with new refrigerants.