Watsco faced a challenging Q2, as soft market demand and ongoing regulatory-driven product transitions weighed on performance, prompting a negative reaction from investors. Management attributed the revenue decline primarily to lower volumes in residential new construction and subdued international sales, particularly in Mexico, which CEO Albert Nahmad described as “probably the most volatile market” impacting margins. Despite these pressures, the company achieved elevated gross profit margins through a combination of equipment price increases and ongoing enhancements to its pricing technology platform. Temporary inefficiencies tied to the refrigerant transition and higher SG&A expenses also played a role, as the company navigated one of its most complex product cycles in years.

Is now the time to buy WSO? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Watsco’s Q2 Earnings Call

• Ryan James Merkel (William Blair) asked about weak volume trends and the outlook for July. CEO Albert Nahmad and Paul Johnston cited weather disruptions and product transition effects but noted July was “better” and expected further improvement in August if trends persist.
• Brett Logan Linzey (Mizuho) inquired about gross margin sustainability and the contributions from pricing optimization versus product mix. CFO Rick Gomez explained that about 50–60 basis points of margin improvement were directly attributable to pricing technology, with additional upside from digital adoption.
• Thomas Allen Moll (Stephens) sought clarity on inventory investment and the pace of normalization. CEO Nahmad admitted inventory levels were higher than desired due to soft demand but said the company is focused on reducing inventory turns to historical levels as the transition concludes.
• Patrick Michael Baumann (JPMorgan) queried the new Watsco 1 platform and its potential margin impact. President Aaron Nahmad described the initiative as a “huge undertaking,” intended to broaden the product offering for national customers and improve margins through increased parts and supplies sales.
• Damian Mark Karas (UBS) pressed on pricing outlook amid tariffs and commodity inflation. Paul Johnston indicated equipment prices are likely to remain stable, while parts and supplies could see price adjustments in response to higher copper costs.

Catalysts in Upcoming Quarters

Looking ahead, our team will be monitoring (1) the pace at which Watsco completes its refrigerant product transition and normalizes inventory levels, (2) adoption and impact of digital and AI-driven sales platforms on customer engagement and margins, and (3) recovery in residential new construction and international sales, especially in Mexico. M&A activity and progress on SG&A efficiency will also be key signposts moving forward.

Watsco currently trades at $419.80, down from $464.53 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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