Watsco’s Q2 2025 sales fell 4% to $2.06 billion, but gross margins expanded to a record 29.3%, boosted by double-digit price increases from manufacturers on A2L HVAC equipment. However, fewer units were sold as a result of milder weather, slower home construction, and challenges tied to the rollout of the new A2L systems.
Why it matters: Watsco is the largest HVAC distributor in North America, and its results offer a snapshot of how the industry is handling the major issues this year, including the disruptive refrigerant transition, soft residential demand, and tariff-driven inflation.
According to Albert Nahmad, the company’s chairman and CEO, “Watsco delivered healthy second-quarter results in soft market conditions. 2025 marks a year of significant product transition to next-generation equipment containing A2L refrigerants. The changes are substantial and complete, and we’ll look forward to operations of a simpler business in 2026.”
The big picture: The sales mix of new A2L equipment sold in the U.S. in Q2 was approximately 25% during the first quarter and 60% during the second quarter. Other important results:
- A2L units made up more than 80% of sales by the end of June;
- R-410A equipment now accounts for less than 5% of inventory; and
- Inventory peaked at $2 billion during the transition but is trending down.
“The honest answer is [inventory] is more than we had hoped for,” said Nahmad. “But we are now very focused on what to do about it.”
Between the lines: Unit volumes lagged expectations due to weather and weak construction, especially in the North.
- Revenues were not as strong as anticipated going into Q2;
- Residential new construction was down 15% to 20%; and
- Mexico — usually a strong performer — was a drag, costing $0.10 a share in Q2 and $0.20 a share year-to-date.
“April came in strong, but May ended up being very weak, mainly because of the weather patterns in the North,” said Paul Johnston, vice president. “Replacement is still holding fairly strong. We didn’t really see a lot of repair in the beginning of the quarter, which we saw towards the end of the quarter and continues into July, but not enough to offset the unit sales that were certainly down.”
Innovation and technology: Watsco has invested more than $250 million in technology over the last five years and has offered these updates:
- More than 70,000 contractors use its HVAC Pro+ Mobile apps, up 70% year over year;
- HVAC contractors used the OnCallAir digital sales tool to sell more than $1.6 billion in products over the past year; and
- E-commerce is now a $2.5 billion business, or 34% of sales.
“We are not standing still,” said Nahmad. “Artificial intelligence offers the potential to further transform our customer experience, improve operating efficiency, and create new data-driven growth strategies.”
What’s next: Watsco is implementing “Dream Plan 2,” a three-year strategy targeting $10 billion in revenue, a 30% gross profit margin, and five times on the inventory turn. Other predictions include:
- No major pricing increases on equipment from OEMs in the second half of the year;
- Increased pricing on copper parts due to new tariffs; and
- The launch of Project “WatscoOne” in early 2026, which is an enterprise-wide solution for institutional customers that delivers a seamless experience across sales, marketing, pricing, product assortment, and order management.
The bottom line: Watsco describes 2025 as “the noisiest year in HVAC” and says it’s navigating through a mix of headwinds, including tariffs, mild weather, soft consumer confidence, cylinder shortages, changes in residential construction, and higher interest rates.
“There are just so many things going on at macro levels, most of which are out of our control,” said Aaron J. (A.J.) Nahmad, company president. “So it’s a lot of noise in the industry, and our job is to win in any environment and emerge bigger and stronger and more profitable and take more share from our competitors. I like where we sit in that equation because of our scale, our balance sheet, and our willingness and ability to invest in technology. I’m very, very pleased to be Watsco, given all this noise.”