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 five 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 one-time 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 six-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 at 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 jump in quickly? I heard that. The prepared remark was actually 'last 12 months.' I think there was just a skip in the...
I'm misreading.
Yes. Normalization of the last 12 months. So go ahead, Barry.
Yes. I mean, Steve, again, this is the trend-line discussion we're talking about versus last year, which was not a trend line in terms of where things have been. So three to four years ago, when margins achieved 27% plus, the question was: will they retreat back to something less than that over time? And we emphatically said no; 27% is the baseline that we expect going forward. I think we said that prior to all the challenges of the last few years going through product change and regulatory change and everything else. So if you look at the trend line over that two-, three-, four-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 almost the period where you can look back and say when did some of these volatile items begin to recede. Look back the last 12 months; 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 and identify analytically that last year stands out on its own. I can't say ignore it, but I would say discount it in the analysis of looking forward over the next several quarters.
Yes. And 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; we are investing to do exactly that. We believe we can achieve that.
Great. Okay. And then maybe just for the follow-up. We're hearing some commentary, especially in 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 definitely 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 an unusual scenario where you're seeing strength in the North and weakness in the South right now. 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?
Again, there's aspirational prices that are announced and then there's how it plays out in real life. Segments of customers and market pricing can be specific even 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 of what a unit is, which is a compressor-bearing unit. That 2% is, I would say, a very conventional level if I look back over a 10- to 15-year average.
Got it. That's super helpful. And then one more on gross margins here. On the gross margin bridge, you sized the 2025 pricing and A2L comparison of roughly 130 basis points of the 175 basis point decline. Can you walk through the remaining 50 basis points? And then a little more color on how we should be thinking about gross margins for the remainder of the year, Q3 and Q4?
Sure. First, as you may notice in the data, the equipment business outgrew the non-equipment business. There is a gross-margin differential between those two product populations that accounts for a chunk of the remaining difference. We're also owning less inventory all year long, which means purchases are less, and some of the attributes we gain in purchase discounts or rebates can moderate. That's okay; it goes hand in hand with how inventory should be managed in this environment. Other puts and takes aren't material, but that's how I'd view what's in the numbers today. If you look back at the last 12 months and the last two or three years, we're in the range we've been in year-to-date. Looking forward, we're not ones to give projections. You heard our comments about the last 12 months and where things sit today. Time will tell what the rest of the year will be, but that's how I would look at it: look at trends over the last 12 months.
The next question comes from Chris Snyder with Morgan Stanley.
I guess you guys built more inventory than you normally would in the first half of the year. I think it was up maybe since the end of last year about 35% or 36%. How much of that was intentional versus a demand shortfall that caused you to exit with more inventory? Any reads on what it means for your pace of inventory purchases into the back half and also price cost into the back half, since you did buy a little earlier this year?
Barry?
I can give the answer. I think we're probably about $100 million ahead of what we might have thought — about seven days' worth of inventory, which is remarkable. I don't think there's any 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 Jackson Supply. As far as the second half, the idea is to continue to grind on keeping 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 we intend to do that over the next six months.
Inventory is peak for the year, I believe. The supply chain among our OEM partners is healthier than in previous years, so we expect inventory turns to slowly creep back up.
I appreciate that. And then just a higher-level question on end demand: from sell-through numbers, it seems end demand is not getting better and might be getting worse given negative comps. Is there any plan or strategy Watsco can use to help improve affordability in the industry, such as carrying lower-cost brands, or anything else? It seems like a challenge and it doesn't seem like it's getting better.
First, we carry various brands; I think we have 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.
I would say the market is ahead of the curve. The market is stabilized; I don't think it's getting worse. I think we've hit bottom and we're coming back out of it. I feel very good that the market is not going to go down further. There will still be regional differences. As I mentioned earlier, 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 emphasize something important for understanding the situation. Units were down 17% in the calendar year last year. Why were they down 17%? There are components inside that number. Our view and data show the COVID period clearly borrowed replacement volume from the future. If units were up 10% or 15% for two years, that borrowed some measure of replacement volume from the period that followed. Our analysis shows last year's correction in volume, down 17%, fixed much of that overhang. Time will tell, but the data is sound in our view. As we look at this year, when systems break, consumers will have to repair or replace them. If we're right about our trend line, this is the baseline, or foundation, for the next few years. Looking back a year ago and thinking there's an easy comp is not the right way to view it. The question is whether this 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're 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.
I think Al said earlier we're seeing 4% to 5% organic growth through July 28. Both the second quarter and July would have unit growth to accomplish that. Nothing magical usually happens from June to July, so I believe unit growth is on its way for at least what we're seeing into the third quarter.
Okay. I appreciate that. My follow-up is on price. Only 2% for equipment is a little bit lower than I expected, since there was a price increase in March and another around May. I know one was pulled back. Isn't there some A2L mix you're helping with? Is anything going on with competitive conditions, or why isn't price a little higher than 2%?
We had the A2L price come out from the government with a new tariff, and then like a month later it got pulled back. We didn't recover the price increase completely.
The other point is when OEMs announce increases, they often say 'up to' a certain amount. 'Up to' is the operative part — it doesn't mean everything goes up by that amount. You usually blend into something less than what OEMs announce. Customer mix matters: if you're primarily RNC you yield one thing; if you're primarily AOR you yield another. The blended cost for us was up pretty close to what price was up, and whatever got passed through based on customer mix is what we ended up passing through.
Part of the issue is larger customers that advertise and promote dominated the add-on replacement market; they did not get full pass-through. So a lot of smaller contractors and non-advertising contractors did not see the business flow down to them as quickly as historically. That difference in customer mix probably drove price down.
The next question comes from David Manthey with Baird.
I know it's a small segment, but 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 shipped. Generally, those larger refrigeration equipment jobs carry lower margin. We didn't dissect that too much in terms of the margin trend. Yes, it would have weighed on margin, but we'll take the volume and the growth that came from it.
Okay. And then regarding the other HVAC segment, you have had initiatives there historically. Is there anything new or ongoing to improve growth in other HVAC equipment?
Keep going.
A.J. talked about SupplySync, VCR and Hydros — those all influence future other-HVAC product growth. SupplySync targets customers weighted toward equipment versus total Watsco mix, so there's incremental non-equipment opportunity as we scale it. VCR is not just consolidating vendors; it's about being more relevant, having a broader array and better replenishment of non-equipment products throughout our system. Hydros is logistics and replenishment that enables that to a local branch, so a branch in Tulsa doesn't need to hold excessive nonequipment inventory; Hydros can resupply within 24 hours and enable 650 domestic locations to be in the non-equipment business. All our core platforms — e-commerce and digital adoption — drive extra lines when we transact digitally, usually accessories accompanying orders, which are accretive to margin. Non-equipment growth is embedded through every initiative we have, both technology and otherwise. I'll add our pricing-optimization efforts: ensuring every customer has complete pricing profiles for every product available. That sounds obvious, but due to SKU complexity and markets it's hard. The new tools allow us to do that at scale, making sure we're competitive in all markets to all customers.
The next question comes from Jeff Hammond with KeyBanc Capital Markets.
A couple of clear points: HVAC equipment up 3%, residential up 5% — can you walk through the other pieces like commercial and whether international markets are still a drag?
We have a few commercial segments. VRF was down the most and overall commercial was down about 8%, with most of that decline in VRF, which went through its own transition to A2L over the last 12 months. Unitary commercial was relatively flat and applied relatively flat. International still trailed domestic but the gap is smaller; international is down single digits and given its percentage of total business it's not a big drag.
I jumped on late. Any more color on Jackson in terms of revenue contribution in the quarter? How should we think about early-days profitability and opportunities as you bring them into the fold?
Analytically, same-store sales were up 1% and overall up 2%. If you do the math, Jackson contributed about $20 million for one month in June; we closed June 1. But more important is their plan: over the last five to ten years they've doubled the business, opened locations, added states and markets; they have a complete blend of parts, supplies and equipment. They're entrepreneurial and growth-hungry. Profitability is consistent with Watsco's profile. Doubling is their goal; it didn't take them too long to go from $100 million to $230 million in recent years, so it's exciting for us.
To add, Jim and Jennifer and their team are growth-hungry entrepreneurs: scrappy, competitive and wanting to win and grow. That's why we like them so much, and they value having our capital, relationships, technology and other resources while operating in their way.
The next question comes from Aidan Harman with Wolfe Research.
This is Nigel on for Aidan. Curious: how are the economics of replace versus repair evolving? Specifically, how is the price of refrigerants, such as A2L versus R-410A or R-22, changing the economics of replace versus repair? Also, on the other equipment segment, could commodity prices have been a tailwind this quarter?
Paul, do you want to take the first part of that?
The difference between R-410A and the A2L product is operational: with R-410A you can remove the outdoor unit and replace it without replacing indoor components. With A2L, you must replace the coil — a fan coil or regular coil — because you need sensing devices in case of a leak since the refrigerant is slightly flammable. You also need a switch to switch on the air blower and dissipate gas in the event of a leak. That's the big difference between A2L and R-410A.
More about price: I was thinking about refrigerant price specifically as opposed to technicalities. How does refrigerant pricing affect replace versus repair?
Refrigerant pricing is higher for A2L compared to R-410A. R-410A is inexpensive; A2L uses R-1234yf which has a higher refrigerant cost. However, refrigerant is a very small portion of what we sell and refrigerant sales are slightly down right now.
To be precise, our commodities are refrigerant, steel products and copper. That's where we see inflation and deflation in ordinary times. Commodities accounted for about $35 million of revenue in the second quarter. There was a refrigerant headwind in the quarter because a year ago we were launching A2L refrigerant; this year everyone has it, so the price has come down. But it's $35 million in a $2 billion quarter, just to put it in context.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Nahmad for any closing remarks.
Well, 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.