Watsco to Report Q2 Earnings: What to Expect in This Season?

Watsco, Inc. WSO is slated to release second-quarter 2025 results on July 30, before market open.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 15.7% and decreased 11.1% year over year. Meanwhile, sales missed the consensus mark by 7.6% and decreased 2.2% year over year.

Watsco's earnings topped the consensus mark in one of the trailing four quarters and missed on three occasions, with an average negative surprise of 5.7%.

Trend in WSO’s Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings decreased to $4.84 per share from $4.91 in the past 30 days. The estimated figure indicates a 7.8% rise from the year-ago earnings of $4.49 per share.

The consensus mark for revenues is pegged at $2.21 billion, implying 3.5% year-over-year growth.

Watsco, Inc. Price and EPS Surprise

Watsco, Inc. price-eps-surprise | Watsco, Inc. Quote

Factors Likely to Shape Watsco’s Quarterly Results

The seasonally stronger HVAC demand and the broader rollout of A2L-compliant systems are expected to have contributed to Watsco’s second-quarter revenues. The company was already seeing mid-single-digit growth in early second-quarter 2025, as highlighted by Watsco in its first-quarter earnings call, supported by strong replacement activity. With 410A inventory winding down and more than 60% of recent equipment sales now consisting of 454B-based systems, Watsco anticipates a smoother sales cadence and higher-value product mix in the quarter. The company does not foresee a surge in pre-buy activity due to the swift price hikes and limited availability of 410A. Also, Watsco’s ongoing new replacement, a richer mix of high-efficiency and updated technology platforms are likely to have aided the performance.

Watsco’s core residential replacement market is positioned to remain strong in the second quarter, helped by improved weather trends and high-efficiency product demand. Commercial product sales, which were a drag in the first quarter, are expected to stabilize as A2L adoption broadens. While international markets may continue to underperform due to macro uncertainties, the 91% domestic revenue share is expected to more than offset this. Notably, parts and supplies may see a gradual recovery, but remain slightly constrained by installation timing.

Our model predicts HVAC Equipment sales (which accounted for 67% of total sales in first-quarter 2025) to have registered 5% year-over-year growth to $1.6billion in the second quarter. HVAC Products (29%) is expected to grow 1% to $540.3 million in the quarter. Meanwhile, Commercial Refrigeration Products sales (4%) are expected to grow 2% to $87.3 million in the quarter.

From the margin’s perspective, a better price/mix is expected to have positively impacted the gross margin in the quarter. Gross margins are expected to benefit from the favorable pricing environment and improved mix. OEM price increases in April—driven largely by tariff concerns—should support near-term pricing power. Management reiterated its aspirational goal of reaching a 30% gross margin long-term. Already, margins were trending positively in the second quarter, as highlighted by WSO in its first-quarter earnings call, aided by technology-enabled pricing precision, richer product mix, and increasing volumes of 454B-based high-efficiency systems. 

While some cost pressures related to refrigerant container shortages exist, management does not expect a material impact. We expect the gross margin to have improved 100 basis points year over year to 28.1%. Also, SG&A expenses, as a percentage of net sales, are expected to have increased to 15% in the quarter from 14.9% a year ago.

What the Zacks Model Unveils for Watsco

Our proven model does not conclusively predict an earnings beat for Watsco this time around. The company does not have the right combination of the two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), to increase the odds of an earnings beat.

Earnings ESP of WSO: Watsco has an Earnings ESP of -2.14% at present. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

WSO’s Zacks Rank: Watsco currently carries a Zacks Rank #3.

Stocks With the Favorable Combination

Here are some companies in the Zacks Construction sector that, according to our model, have the right combination of elements to post an earnings beat in the quarter to be reported.

Primoris Services Corporation PRIM has an Earnings ESP of +5.33% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s earnings beat estimates in each of the last four quarters, the average surprise being 44.8%. Primoris Services’ earnings for the second quarter of 2025 are expected to increase 1.9%.

Armstrong World Industries, Inc. AWI currently has an Earnings ESP of +1.71% and a Zacks Rank of 3.

The company’s earnings beat estimates in each of the trailing four quarters, the average surprise being 6.5%. Armstrong World’s earnings for the second quarter of 2025 are expected to increase 8%.

Masco MAS currently has an Earnings ESP of +2.61% and a Zacks Rank of 3.

The company’s earnings beat estimates in two of the trailing four quarters, missed in one and met on one occasion, the average negative surprise being 0.2%. Masco’s earnings for the second quarter of 2025 are expected to decrease 10%.

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This article originally published on Zacks Investment Research (zacks.com).

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