Watsco Inc., the largest distributor of heating, ventilation, air conditioning and refrigeration equipment, reported lower sales and profit for both the fourth quarter and full year 2025, citing weaker equipment demand and the industrywide transition to new refrigerants.
For the year ending Dec. 31,, revenue declined 5% year over year to $7.24 billion, from $7.62 billion in 2024, according to the company’s earnings report.
Net income attributable to Watsco fell 7% to $497.0 million, compared with $536.3 million a year earlier. Earnings per share were $12.25, down from $13.30 in 2024.
Sales in U.S. markets decreased 4%, while sales outside the United States declined 10%. HVAC equipment, which accounts for about 67% of total revenue, fell 7% for the year. Sales of other HVAC products declined 1%, and commercial refrigeration sales were flat.
Despite the revenue decline, gross margin improved to 28.0%, up from 26.8% in 2024.
Chairman and CEO Albert Nahmad said the industry has faced multiple disruptions in recent years, including supply chain constraints, regulatory changes, and slower housing activity.
“The recent business environment has been among the most complicated in memory,” Nahmad said. He added that the company expects a more stable environment and improved growth prospects in 2026.
In the fourth quarter, revenue decreased 10% year over year to $1.58 billion, from $1.75 billion in the same period in 2024.
Net income attributable to Watsco declined 26% to $71.7 million, compared with $96.8 million a year earlier. Earnings per share were $1.68, down from $2.37 in the fourth quarter of 2024.
HVAC equipment sales fell 13% in the quarter. Sales of other HVAC products declined 4%, while commercial refrigeration sales increased 5%.
The company said fourth-quarter comparisons were affected by strong results in late 2024, when contractors accelerated purchases of older R-410A systems ahead of the transition to A2L refrigerants. Average selling prices increased 11% domestically in the fourth quarter, but lower unit volumes offset the gains.
Watsco noted that its business is seasonal, with results typically strongest in the second and third quarters.
The 2025 shift to A2L refrigerants marked the second regulatory-driven product change in three years. Watsco said the transition affected about 55% of products sold across 650 U.S. locations and required the conversion of more than $1 billion in inventory.
Inventory peaked at $2.1 billion during 2025 and declined 30% to $1.4 billion by Dec. 31, 2025. Operating cash flow totaled $570 million for the year and a record $400 million in the fourth quarter.
Watsco ended the year with $733 million in net cash and no outstanding debt.
Watsco said it has invested more than $250 million in technology over the past five years and employs 300 technology professionals.
Approximately 73,000 contractors use the company’s HVAC Pro+ mobile apps and e-commerce platform, a 15% increase from a year earlier. E-commerce sales reached about $2.5 billion in 2025, representing 35% of total revenue.
The company’s OnCallAir digital sales platform generated $1.8 billion in gross merchandise value in 2025, up 20% year over year. Contractors used the platform to present quotes to approximately 329,000 households during the year.
Watsco also announced a 10% increase in its annual dividend to $13.20 per share, effective with its next regular payment in April 2026. The company said 2026 marks its 52nd consecutive year of paying dividends.
Watsco operates in a highly fragmented North American HVAC distribution market that includes more than 2,100 independent distributors. Since entering distribution in 1989, the company said it has acquired more than 70 businesses as part of its growth strategy.
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