GET DAILY SIGNALSWatsco (WSO) Reports +7% Revenue Growth but EPS Misses on Margin Pressure
Key Takeaways
- Watsco reported record third-quarter revenue of $2.22 billion, up 7% year over year, with same-store sales up 4%.
- Diluted earnings per share (EPS) came in at $3.77, down from $3.98 a year earlier and below consensus estimates of roughly $4.12.
- Gross margin narrowed to 26.4% from 27.5% a year ago, while operating margin declined to 10.1% from 11.4%.
- Operating cash flow improved 79% to $304 million through nine months, supported by a debt-free balance sheet with $649 million in cash.
- Residential HVAC equipment sales grew 7%, and recent acquisitions of Jackson Supply and The Granite Group added roughly $730 million in annualized revenue.
Why These Results Matter
Watsco, the largest distributor of HVAC and refrigeration equipment in North America, delivered third-quarter results that point to a slowly improving demand environment while margins remain under pressure. After years of supply chain disruptions, regulatory shifts, and tariff swings, management views conditions as returning to normal. The quarter also underscores the company's acquisition approach, as Jackson Supply and The Granite Group extend its reach in Sunbelt and Northeast markets. For investors, the report offers a test of whether WSO can turn recovering volumes into stronger earnings while handling higher operating costs and a changing customer base, even as its digital platforms expand.
Quarterly Results in Detail
For the period ended September 30, 2026, WSO posted record revenue of $2.22 billion, a 7% increase from $2.07 billion in the prior year and roughly in line with analyst forecasts. Gross profit rose 3% to a record $586 million, though the gross margin slipped to 26.4% from 27.5%. Operating income declined 4% to $225 million, with the operating margin at 10.1% versus 11.4% a year earlier. Diluted EPS of $3.77 fell from $3.98 in the year-ago quarter and missed consensus estimates near $4.12. Residential HVAC equipment, the largest product category, advanced 7% on higher unit volumes and pricing. Year-to-date operating cash flow rose 79% to $304 million. I also checked this using Tickeron’s AI Screener to see how the stock compares to others in the industry.
Market Reaction and Sentiment
Shares of WSO moved lower after the release, with reports showing a decline of roughly 3% to 7% in the immediate aftermath as investors focused on the EPS shortfall and softer margins. The reaction reflected concerns over the narrowing gross margin and higher selling, general, and administrative expenses, which management linked partly to variable costs, acquisitions, and technology spending. Sentiment ahead of the report had been mixed, with the stock already down for the year from its 52-week high earlier in 2026. Even so, management highlighted progress through recovering residential volumes and firmer demand trends as encouraging signs for the HVAC cycle.
Forward Outlook and Factors to Watch
Looking ahead, attention will center on whether stronger end-market demand can support sustained revenue growth and margin improvement. Management noted that early fourth-quarter sales trends show continued gains, with residential unit volumes returning to growth. The A2L refrigerant transition is expected to wrap up largely by the end of 2026, which should ease some operational variability. Cost control stays a priority, with fixed costs held nearly flat while investments continue in platforms such as SupplySync, VCR, and Hydros. How quickly these initiatives deliver operating leverage will be closely watched. Acquisitions remain important as well. The addition of Jackson Supply and The Granite Group brings scale but may pressure margins temporarily until those operations reach WSO’s typical profitability levels. The long-term gross margin target of 30% is still in place, though management has cautioned that the path will not be linear. The debt-free balance sheet and solid cash flow continue to support potential further deals in a fragmented market.
Exploring AI Tools for Deeper Analysis
In my research on stocks like this one, I often turn to Tickeron’s AI Screener to quickly filter opportunities by technical patterns, fundamentals, and industry trends. It helps surface relevant ideas without spending hours on manual screens, which is especially useful during earnings season when comparing companies across sectors. The tool has become a regular part of how I evaluate potential trades and monitor broader market movements.
Disclaimer
The information on this webpage is provided for general informational and educational purposes only and is not intended as investment advice, a recommendation to purchase or sell any security, or an offer or solicitation related to investments. It does not consider your personal financial situation, goals, or risk profile, and all investing carries inherent risks, including the possibility of losing your entire investment. For more details, please review our full disclaimer.
Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
WSO's MACD Histogram crosses above signal line
The Moving Average Convergence Divergence (MACD) for WSO turned positive on October 15, 2026. Looking at past instances where WSO's MACD turned positive, the stock continued to rise in 36 of 44 cases over the following month. The odds of a continued upward trend are 82%.
Technical Analysis (Indicators)
Bullish Trend Analysis
The Momentum Indicator moved above the 0 level on October 16, 2026. You may want to consider a long position or call options on WSO as a result. In 62 of 84 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are 74%.
The 10-day moving average for WSO crossed bullishly above the 50-day moving average on October 27, 2026. This indicates that the trend has shifted higher and could be considered a buy signal. In 12 of 15 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are 80%.
Following a +8.34% 3-day Advance, the price is estimated to grow further. Considering data from situations where WSO advanced for three days, in 241 of 351 cases, the price rose further within the following month. The odds of a continued upward trend are 69%.
The Aroon Indicator entered an Uptrend today. In 117 of 188 cases where WSO Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are 62%.
Bearish Trend Analysis
The 10-day RSI Indicator for WSO moved out of overbought territory on October 26, 2026. This could be a bearish sign for the stock. Traders may want to consider selling the stock or buying put options. Tickeron's A.I.dvisor looked at 37 similar instances where the indicator moved out of overbought territory. In 25 of the 37 cases, the stock moved lower in the following days. This puts the odds of a move lower at 68%.
The Stochastic Oscillator may be shifting from an upward trend to a downward trend. In 39 of 55 cases where WSO's Stochastic Oscillator exited the overbought zone, the price fell further within the following month. The odds of a continued downward trend are 71%.
WSO moved below its 50-day moving average on October 27, 2026 date and that indicates a change from an upward trend to a downward trend.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where WSO declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 71%.
WSO broke above its upper Bollinger Band on October 22, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
Fundamental Analysis (Ratings)
The Tickeron Seasonality Score of 43 (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron PE Growth Rating for this company is 48 (best 1 - 100 worst), pointing to consistent earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron SMR rating for this company is 55 (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Valuation Rating of 67 (best 1 - 100 worst) indicates that the company is slightly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (4.147) is normal, around the industry mean (4.085). P/E Ratio (25.774) is within average values for comparable stocks, (0.574). Projected Growth (PEG Ratio) (1.199) is also within normal values, averaging (2.538). Dividend Yield (0.044) settles around the average of (0.492) among similar stocks. P/S Ratio (1.587) is also within normal values, averaging (3.013).
The Tickeron Price Growth Rating for this company is 72 (best 1 - 100 worst), indicating slightly worse than average price growth. WSO’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is 81 (best 1 - 100 worst), indicating that the returns do not compensate for the risks. WSO’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 66, placing this stock worse than average.
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
Advertisement
General Information
a distributer of central air conditioning, heating and refrigeration equipment
Industry ElectronicsDistributors
Advertisement