Watsco's Q1 Earnings & Revenues Miss Estimates, Stock Sinks 11%

Watsco, Inc. WSO reported first-quarter 2025 results wherein earnings and revenues missed the Zacks Consensus Estimate and declined year over year.

Following the results, WSO stock declined 11.3% during trading hours yesterday. Investors’ sentiments are likely to have been hurt by a mix of challenges across end markets and seasonal factors. Additionally, uncertainty surrounding the ongoing impacts of tariffs and inflationary pressures weighed on investor outlook.

Although Watsco has implemented pricing actions using its technology platforms to address cost changes, the timing and extent of tariff effects remain unclear. The company acknowledged the seasonal weakness in the first quarter and stated that HVAC replacement activity is usually stronger in the second and third quarters.

Inside Watsco’s Headlines

The company reported quarterly earnings per share (EPS) of $1.93, missing the Zacks Consensus Estimate of $2.29 by 15.7%. In the year-ago quarter, WSO reported EPS of $2.17. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Revenues of $1.53 billion missed the consensus mark of $1.66 billion by 7.6% and declined 2.2% year over year.

Watsco, Inc. Price, Consensus and EPS Surprise

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

Sales of HVAC equipment (heating, ventilating and air conditioning, comprising 67% of net sales) fell 1% year over year. Sales of other HVAC products (29% of sales) declined 3% year over year. Sales from commercial refrigeration products (4% of sales) decreased 5% from the year-ago quarter.

In the core U.S. residential replacement segment, sales rose 10% year over year — or 12% on a same-day basis — driven by new customer acquisitions, unit volume growth, effective price realization and a favorable shift toward higher-efficiency products. These factors also contributed to improved gross margins.

International sales (accounting for 9% of total first-quarter 2025 revenues) declined 9% year over year, courtesy of softer volumes in new housing markets and uneven progress in the transition to A2L-compliant products across certain regions.

Operating Highlights of WSO

The gross margin expanded 60 basis points (bps) in the reported quarter to 28.1%. Our model predicted the gross margin to be 27.4%. Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 130 bps year over year to 21.1%. We expected SG&A expenses, as a percentage of sales, to be 19.4%.

The operating margin contracted 80 bps year over year to 7.3%. Our estimate for the metric was 8.4%.

WSO’s Financial Operations

As of March 31, 2025, Watsco’s cash and cash equivalents totaled $431.8 million, compared with $526.3 million at the end of 2024. As of the first quarter of 2025, the net cash used in operating activities was $177.6 million against the net cash provided by operating activities of $103.7 million reported in the comparable year-ago period.

WSO’s Zacks Rank & Recent Construction Releases

Watsco currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

D.R. Horton, Inc. DHI reported dismal second-quarter fiscal 2025 (ended March 31, 2025) results, with earnings and total revenues missing Zacks Consensus Estimate and decreasing on a year-over-year basis.

D.R. Horton now expects consolidated revenues to be in the range of $33.3-$34.8 billion, down from the previously expected range of $36-$37.5 billion. This compares with $36.8 billion in fiscal 2024. Homes closed are anticipated to be within 85,000-87,000 homes, down from the previously expected range of 90,000-92,000 units. This compares with 89,690 homes closed in fiscal 2024.

KB Home KBH reported lackluster fiscal first-quarter 2025 results. The quarter’s earnings and total revenues missed the Zacks Consensus Estimate and tumbled year over year.

KB Home’s results reflect the softness in the housing market as homebuyers are still navigating through affordability concerns due to high mortgage rates. Besides, the ongoing macroeconomic uncertainties and other regulatory changes in the country are adding to the instability of the housing market. Owing to these market uncertainties and a lower net order level at the end of the quarter, KB Home lowered its fiscal 2025 guidance.

Lennar Corporation LEN reported first-quarter fiscal 2025 results, wherein its earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, the top line increased, but the bottom line declined.

Lennar’s performance was impacted by a challenging macroeconomic environment. Although demand remained strong, higher interest rates, inflation and weak consumer confidence made homeownership less accessible. A limited supply of affordable homes added to the difficulties, leading to a decline in the company's average sales price. Moving forward to fiscal 2025, to counter the market uncertainties, Lennar aims to focus on its volume-based strategy to drive sales and implement an asset-light, land-light business model.

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