Watsco Inc. reported lower sales but steady profitability in the third quarter as the nation’s largest HVAC distributor continued working through a disruptive industry shift to next-generation A2L refrigerants. Executives said the transition, which touched more than half of the products Watsco sells, created months of volatility but is now largely behind the company.
“We look forward to operating a far simpler business in 2026,” Chairman and CEO Albert Nahmad told analysts. “Our earnings are largely intact, and our technology advantages remain immense.”
Watsco reported third-quarter sales of $2.17 billion, down 4% from a year ago, as unit volumes softened across many markets. U.S. sales were down 3%. The company posted net income of $116 million, slightly lower than the same period last year.
Executives said the market remains unsettled as contractors work through A2L complexity, regional demand differences, and uneven consumer behavior. Still, Watsco noted pockets of strength—particularly in parts, supplies, and commercial refrigeration—while new A2L-compliant equipment carried significantly higher prices that helped offset volume pressure.
Gross margins improved again in the quarter, the result of long-running pricing and mix initiatives aimed at lifting profitability across the business.
Nahmad emphasized that digital adoption among contractors continues to reshape how Watsco interacts with the field.
Ecommerce now accounts for 34% of companywide sales, and in some markets reaches 60% to 70%. Watsco’s mobile app has grown to 72,000 active contractors and technicians, an 18% increase. Sales flowing through OnCallAir, the company’s digital selling platform for contractors, climbed to an annualized $1.7 billion.
The company is also accelerating its use of data and artificial intelligence—both to improve pricing decisions and to build new tools aimed at institutional buyers. “We have begun to harness artificial intelligence offering the potential to further transform our customer experience,” Nahmad said.
With the transition winding down, analysts pressed Watsco on near-term demand. The company acknowledged a softer start to the fourth quarter, but said conditions are nowhere near the steep declines cited by some manufacturers.
“We are not seeing an increase in demand,” Nahmad said. “It’s still below this time last year.” Watsco executives said October sales were down between 5% and 10%, reflecting a slower market but not the plunge seen in OEM shipment data.
Executives stressed that last year’s fourth quarter was unusually strong due to pre-transition stockpiling of older R-410A systems. That dynamic, they said, has distorted year-over-year comparisons.
The company continues to see varied consumer behavior depending on region and contractor capabilities.
“In the Sunbelt, replacement is a more ordinary and necessary purchase,” said Executive Vice President Paul Johnston. In northern states, homeowners with older systems are more likely to repair. Watsco said parts account for 8% of revenue and supplies more than 20%, underscoring that nonequipment growth is not overshadowing the larger equipment-replacement market.
Nahmad said Watsco’s cash position, lack of debt, and co-investment plans with OEM partners give the company the flexibility to pursue acquisitions and fund new technology.
Despite the noisy backdrop, executives repeatedly stressed the fundamentals. “It’s been one of the noisiest years in our industry in some memory,” said Rick Gomez, vice president of corporate development. “With all that noise, our earnings are largely intact, and that says a lot about the resiliency of our business model.”
