管理層發言
Good day, and welcome to the Watsco, Inc. Second Quarter 2026 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Al Nahmad, Chairman. Please go ahead.
Good morning, everyone. Welcome to our second quarter earnings call. This is Al Nahmad, Chairman and CEO; and with me is A.J. Nahmad, President; also Paul Johnston and Barry Logan and Rick Gomez. Before we start, our cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. I'm happy to report that our second quarter results reflect stabilizing markets under far more conventional operating conditions. The last 5 years brought a pandemic, supply chain disruptions, regulatory transitions and tariff volatility. Through it all, we stayed the course and invested in our business. Now the operating environment is normalizing, revenue is growing and our digital ecosystem is producing measurable results. Our largest and most impacted product segment, residential HVAC equipment grew 5% during the quarter with gains in both unit volume and pricing. We closed on Jackson Supply on June 1, and we are thrilled to welcome their team to the Watsco family. Jackson is a legend in our industry with $230 million in annual sales, operating from 25 Sunbelt locations. As in our culture, the Jackson team will continue to operate and grow their business with our full support. They have big ambitions, and we will gladly support their leadership team in any way we can. Turning to second quarter results. Sales increased 2% to $2.1 billion. Gross profit was $579 million with gross margin of 27.5% versus 29.3% last year. SG&A increased 2%, excluding acquisitions. Operating income was $238 million and had an operating margin of 11.3%. Earnings per share came in at $4 per share. My earlier comment regarding volatility and disruption had the greatest short-term impact on the gross margins. Let me say that again. My earlier comment regarding volatility and disruption had the greatest short-term impact on our gross margins in 2026 versus 2025. During 2025, OEMs instituted aggressive pricing action in response to inflation and tariffs, benefiting gross margin in 2025. By comparison, 2026 OEM pricing actions were more moderate and consistent with historical levels. Looking beyond the onetime impact from a year ago, gross margins over the last month have been in a narrow range and more consistent with historical gross margins. Now this is important. Having said that, we remain focused on reaching our long-term goal of 30% in gross profit margin. As for SG&A, we have become a more efficient company as business conditions have simplified. The modest increase in SG&A reflects continued technology investments along with the addition of Jackson Supply. Moving on to our balance sheet. We ended the quarter with $464 million in cash and no debt. No surprise. We remain committed to maintaining a pristine balance sheet, enabling investment in growth opportunities as they come up. Operating cash flow for the 6-month period improved by $168 million, reflecting a lower ramp-up of seasonal inventory. We expect to achieve further inventory efficiency as lead times normalize and the A2L product transition moves behind us. In April, we increased our annual dividend by 10% to $13.20 per share. Interestingly, 2026 marks our 52nd consecutive year of paying dividends. Finally, I'm going to hand the call over to A.J., our President, to provide an update on Watsco's technology initiatives. A.J.?
Thank you, and good morning, everyone. With the complexity of the last few years largely behind us, we believe our technology investments have made us a stronger company with higher growth prospects and a widening competitive moat. Our goals have been ambitious and straightforward. First, build the industry's largest repository of data—product, market, customer, competitor pricing—you name it. This underpins and empowers the industry's most advanced technology platforms. Second, through widespread adoption and use of our technologies, revolutionize our customer experience so that contractors, installers and technicians love doing business and only want to do business with the Watsco companies. Next, transform our supply chain and store-level operations through digital platforms to better serve those customers and gain operating efficiencies along the way. And finally, develop and launch technologies that help our customers grow their own businesses so they can drag us along with their growth. Big picture, we see contractor behavior evolving in ways that benefit the technology-enabled distributor in the long term. In terms of 2026 first half highlights, our core technology platforms continue to scale and add value. E-commerce sales have grown 13%, well outpacing overall growth. In terms of penetration, e-commerce reached 37% of total sales over the last 12 months with certain markets at 50% to 70% penetration. Digital engagement with our mobile apps is strong as well at more than 70,000 active monthly users. And our OnCallAir platform continues its growth trajectory. Over the last year, more than 340,000 proposals were presented to homeowners using the tool, generating $1.9 billion of gross merchandise value, a 15% increase over the comparable period. Simply put, the contractors we serve digitally are growing faster, attrit less, and we believe we can lower our cost to serve at scale over time. At our Investor Day last year, we communicated several new initiatives that leverage our technology advantage and represent new growth opportunities that will materialize in the years ahead. SupplySync.com, our newest platform to serve the growing segment of large institutional customers, launched in the second quarter to great fanfare. Our plan is to scale it to more and more customers in the coming months and years. This is a new and growing channel with different customer needs. We see an incremental growth opportunity beyond our day-to-day business while leveraging our existing scale and infrastructure. VCR, which stands for vendor consolidation and rationalization, has expanded across many of our non-equipment product categories. Relationships with our strategic vendor partners continue to strengthen. Hydros, which is our investment in shared logistics and distribution among our business units, has further matured and will become more important over time. And the transformational use of AI continues to evolve throughout Watsco. I could spend the next few hours just on that subject. These investments, along with our scale, entrepreneurial culture and capacity to invest are unmatched in our industry. In closing, a reminder of our fundamentals. Watsco is the market leader and the technology leader in what remains a highly fragmented HVAC distribution market. The products we sell are a necessity and the installed base continues to expand. We have deep and collaborative relationships with industry-leading manufacturers and industry partners. We offer the broadest variety of products and operate a large and growing network to serve more and more customers. And our unique ownership culture shared by more than 7,000 employees rewards and incentivizes long-term performance. With that, let's turn to Q&A.
分析師問答
Our first question comes from Steve Volkmann with Jefferies.
Al, I think you said something in your prepared remarks about how the last month, the gross margin has kind of normalized to historical levels. I'm curious exactly what you think that means because it felt like we were sort of in a normal level in the second quarter, but maybe you have a different definition of that?
I'm going to have Barry Logan, my expert.
Can I just jump in briefly? I heard that. The prepared remarks were actually last 12 months. I think there was just a skip in the script.
I'm misreading.
Yes. Normalization of the last 12 months. Go ahead, Barry.
Yes. Steve, again, this is the trend-line kind of discussion we're talking about versus last year, which was not a trend line in terms of where things have been. So 3 to 4 years ago, when margins achieved 27% plus, the question was, will they retreat back to something less than that over time? We emphatically said no; 27% is the baseline we expect going forward. And I think we said that prior to all the challenges of the last few years through product change and regulatory change and everything else. If you look at the trend line over that 2-, 3-, 4-year period now, 27% and change has been where we are. Last year is the anomaly at 29% plus in the second quarter. What we were conveying in Al's remarks as well as the press release is let's look at things over the last 12 months, which is the period where you can look back and see when some of these volatile items began to recede. Look back the last 12 months and I think the margin is 27.5%. The first quarter and second quarter are in that narrow range as well. It's a way to show that last year stands out on its own, and while I can't say ignore it, you should discount it in the analysis of looking forward over the next several quarters.
In the medium and long term, we're super ambitious and we have our sights set on 30% gross margins in the long term. That's not just a hope and a prayer. We are investing to do exactly that. We believe we can achieve that.
Great. Okay. Maybe just a follow-up. We're hearing some commentary, especially in the southern states, about a real slowdown in new builds. Are you seeing that in your business? Is that part of what's impacting you or not so much?
Paul, do you want to take that?
Yes. We're seeing a slowdown in new construction in the South, predominantly in Florida and in Texas. Those are the two big new construction states, and they are slower right now. It's a very unusual scenario where you're seeing strength in the North and weakness in the South right now. But that's the way the market shakes out.
The next question comes from Brett Linzey with Mizuho.
It's Ryan on here for Brett today. I'm curious on pricing. You said OEM pricing in 2026 has normalized to historical trends. Does that mean roughly 2% to 3% annual increases from your primary OEM partners? And how does that compare to your own realized ASP growth in the quarter?
There are aspirational prices that are announced and then there's real life as it plays out—the segments of customers and even market pricing is specific by market. Within brands, it has different attributes. The composite we reported in this quarter is a 2% price increase on units. When we say units, that's the AHRI equivalent definition, which is a compressor-bearing unit. That 2% is a conventional level if I look back over a 10- to 15-year average.
Got it. That's helpful. One more on gross margins. On the gross margin bridge, you sized the 2025 pricing and A2L comparison of roughly 130 basis points of the 175 or so decline. Can you walk through the remaining 50 basis points? And how should we think about gross margins for the remainder of the year, Q3 and Q4?
First, equipment outgrew non-equipment and there is a gross margin differential across those populations, which explains a chunk of the remaining difference. We're also owning less inventory all year long, which means purchases are lower and some attributes we gain in purchase discounts or rebates can moderate down. That's okay and goes hand-in-hand with how inventory should be managed. Other puts and takes aren't material. If you look back the last 12 months and prior periods, we're in the range we've been in at this point year-to-date. Looking forward, we don't give formal guidance, but I would look at trends over the last 12 months to gauge where things sit today. Time will tell what the rest of the year will be.
The next question comes from Chris Snyder with Morgan Stanley.
You built more inventory than you normally would in the first half of the year, up maybe 35% or 36% since the end of last year. How much of that was intentional versus just a demand shortfall that caused you to exit with more inventory? Any reads on what it means for your pace of inventory purchase into the back half and price cost into the back half because you did buy a little earlier this year?
Barry?
We were probably about $100 million ahead of what we might have thought at peak inventory, which is notable. There's no strategic or tactical thing that went into the June 30 inventory balance. Our field stock is down almost $200 million. You need to account for the Jackson Supply acquisition: we bought about $60 million of inventory on June 1 as part of that acquisition. For the back half, the idea is to continue to keep inventory ready for customers while owning less over the rest of the year than we did a year ago. We've done that for six months and intend to continue it over the next six months.
Inventory is peak for the year, and the supply chain among our OEM partners is healthier than it was in previous years. We expect inventory turns to slowly creep back up.
I appreciate that. A higher-level question on end demand: a lot of the sell-through numbers suggest end demand is not getting better and may be getting worse given negative comps. Is there anything Watsco can do to help improve affordability in the industry—carrying lower-cost brands or other strategies? It seems like a challenge and it doesn't seem to be getting better.
We carry various brands—26 different brands—so we can compete at any level. Also, peak in the next quarter shows growth for us in the mid-single digits, around 4% to 5%. So maybe things have turned around.
The market is stable. I don't think it's getting worse; that's an overstatement. We've hit bottom and we're coming back out of it. There will be regional differences: the West Coast and the South have been fairly weak to start the year, but the northern-tier states have been very strong.
I need to stress something critical. Units were down 17% in the calendar year last year. Why were they down 17%? Our analysis shows that the COVID period borrowed replacement volume from the future. If units were up 10% to 15% for two years, that borrowed some replacement volumes from the period that followed. Last year's correction of minus 17% fixed much of that overhang. Time will tell, but our data supports that view. So as we look at this year and replacing systems, when systems break consumers will pay to repair or replace. If we're right about our trend line, this is the baseline over the next few years. Looking back a year ago and chasing an easy comp isn't the right way to think about it. The question is whether the foundation has momentum or at least stability, and that's why we use the word stability.
The next question comes from Ryan Merkel with William Blair.
We've covered a lot of ground, but I want to focus on what you are seeing in July. You're talking about the market being stable. Is July getting better? Given easy comps in the second half, are you expecting volume growth year-over-year in the second half?
Barry, Paul, both of you jump in on that.
We're seeing about 4% to 5% organic growth in July through July 28. Both the second quarter and July show unit growth on their way to accomplishing that. Nothing magical usually happens June to July, so I believe unit growth is occurring for at least what's reflected through the third quarter. Jackson obviously adds something to that growth.
Okay. I appreciate that. My follow-up is on price. Only 2% for equipment is a bit lower than I expected, given the March price increase and another in May that got partially pulled back. Isn't there some A2L mix you are still absorbing? Is anything going on with competitive conditions that explains why price isn't higher than 2%?
We had an A2L-related price come out from the OEMs with the new tariff, and then about a month later some of that got pulled back. We didn't recover the full price increase. Larger customers that advertise and promote replacement tend to dominate those flows, and they did not get full recovery, so business didn't flow down to the smaller, non-advertising contractors as quickly as it historically has. So customer mix likely drove some of the price outcome.
When OEMs announce price actions they often say 'up to' a certain amount. 'Up to' is the operative part; it doesn't mean everything went up that amount. You usually blend into something less than what OEMs announce. Customer mix matters: your weighted customer mix determines what you actually yield. The blended cost for us moved pretty close to price, and whatever got passed through based on customer mix is what we ended up passing through.
Part of the issue was larger customers that advertise dominated flows and they did not get full recovery. So much of those flows did not cascade down to smaller contractors quickly, affecting realized price.
The next question comes from David Manthey with Baird.
On commercial refrigeration, what happened there and are there any gross or operating margin implications for that very strong outgrowth in that segment?
One of our business units in that segment had a couple of nice customer wins this quarter and they shipped. Generally, larger refrigeration equipment jobs carry lower margin. We didn't dissect that too much in the margin trend, but yes, it would have weighed on margins. We'll take the volume and the growth that came from it.
Okay. As it relates to other HVAC equipment, you've had initiatives there previously. Are there any new or ongoing initiatives to improve growth in other HVAC equipment?
Keep going.
A.J. discussed SupplySync, VCR, Hydros, and those all directly influence future other HVAC product growth. SupplySync targets a basket of customers that is even more equipment-weighted, so there is incremental non-equipment opportunity as we scale it. VCR is not just about consolidating vendors; it's about being more relevant, having a broader array and better replenishment of non-equipment products across our system. Hydros is the logistics and replenishment capability that enables local branches to be relevant without carrying excessive inventory. A branch can be resupplied within 24 hours and be in the non-equipment business. Every initiative—e-commerce, digital adoption—adds extra lines when we transact digitally, usually accessories accompanying the order, which are accretive to margin. Non-equipment growth is embedded in every initiative we have going on, both technology and otherwise. We're also investing in pricing optimization efforts to ensure every customer has complete pricing profiles for every product. That sounds obvious, but given SKU complexity and market differences, it's challenging. The tools now allow us to do that at scale. Pricing optimization is about maximizing margins and making sure we're competitive for all products in all markets to all customers.
The next question comes from Jeff Hammond with KeyBanc Capital Markets.
I have a couple of clear points. HVAC equipment up 3%, residential up 5%—can you walk through the other pieces like commercial? Is international still a drag? Also, any more color on Jackson in terms of revenue contribution in the quarter and how to think about early-days profitability and opportunities as you bring them into the fold?
Commercial was down about 8%, with most of that decline in VRF, which has been disrupted by its transition to A2L over the last 12 months. Unitary commercial and applied were relatively flat. International underperformed domestic and is down single digits, but given its smaller percentage of total business, it's not a big drag. Regarding Jackson, same-store sales were up 1% while overall sales were up 2%, so Jackson contributed about $20 million for the month of June, since we closed June 1. More important is their growth plan. They've doubled their business over recent years, opened locations, added states and markets, and blended parts, supplies and equipment. They are entrepreneurial and aggressive with a plan to grow that we support with capital, relationships and technology. Profitability is consistent with the Watsco profile and their ambition is to double over time; they have historically moved quickly from $100 million to $230 million.
To double down on Barry's comments, Jim and Jennifer and their team are growth-hungry entrepreneurs who are scrappy, competitive and like to win and grow. That's why we love them: we give them a home base with more tools, capital and relationships to grow in their way and use anything we've got to help.
The next question comes from Aidan Harman with Wolfe Research.
I'd be curious how the economics of replace versus repair are evolving. Specifically, how is the price of refrigerants—A2L versus R-410A and R-22—changing the economics of replace versus repair? Also, on other equipment, I thought commodity prices might be a tailwind; can you double-click on declines in that segment this quarter?
Paul, do you want to take the first part of that?
The difference between R-410A and the A2L product is that with R-410A you can often just remove the outdoor unit and replace it without replacing anything inside. With A2L, you often must replace the coil—be it a fan coil or regular coil—because you need sensing devices for leaks since A2L refrigerants are slightly flammable. You also need a switch to activate the air blower to dissipate gas in the event of a leak. That's the big technical difference.
More about price: refrigerant pricing is higher than R-410A because A2L uses R-1234yf and similar chemistries. But refrigerant is a very small portion of what you sell. Right now refrigerant sales are slightly down.
To be precise on commodities: in our view commodities are refrigerant, steel products and copper. That's where we see inflation or deflation. That's about $35 million of revenue in the second quarter. There were refrigerant headwinds in the quarter because a year ago we were launching A2L refrigerant and prices were higher; this year, everyone has it and the price has come down. But again, it's $35 million in a $2 billion quarter, for context.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Nahmad for any closing remarks.
First, let me thank all of you for your interest in our business and our company. We appreciate your support and your questions. It gives us a chance to answer them, and we'll see you next quarter. Bye now.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.