HVACR distributor Watsco reported its 2025 third quarter financial results on Oct. 30, which reflected a challenging end-market environment but highlighted the company’s margin resilience and operational discipline.

Miami-based Watsco posted total 3Q revenue of $2.07 billion, down 4% year-over-year, while gross margin expanded by 130 basis points to a company 3Q record of 27.5%. SG&A expenses increased 5%; operating profit fell 6% to $235 million on margin of 11.4% (down 20 bps); and net profit of $189 million fell 6.2%.

MDM Case Study: Watsco (Premium access here) 

3Q Sales Trends

• Watsco saw a 3% overall sales decline in U.S. markets and a 14% decline outside the U.S.
• Sales fell 7% in HVAC equipment (67% of sales)
• Sales increased 2% in other HVAC products (29% of sales)
• Sales increased 4% in commercial refrigeration products (4% of sales)

A2L Product Transition Impacts

Watsco noted how its 2025 results have reflected the industry’s significant regulatory transition to new HVAC systems that incorporate A2L refrigerants — a mandate that impacted nearly 55% of all products and required the company to convert over $1 billion of inventory across more than 650 locations. That transition began in September 2024 and is set to conclude in early 2026, which Watsco said has created volatility in sales, industry shipments, distributor inventories and further compounded by overall weaker consumer spending and slower housing-related activities.

On that front, Watsco pointed to industry shipment data published by AHRI showing meaningful declines in unit shipments, though distributor volumes have remained less volatile. Double-digit pricing actions have helped maintain revenues for A2L, as Watsco noted price realization for new A2L products has averaged about 15% inclusive of mid-year OEM price actions.

CEO Commentary

“This has been one of the most challenging business environments in recent memory, and I am gratified that we have largely sustained our profitability, improved margins, improved cash flow, and navigated the A2L transition successfully while continuing to invest in long-term growth,” Watsco Chairman and CEO Albert Nahmad said in the company’s 3Q earnings release. “Gross profit, gross margin and operating cash flow for the quarter established new records, reflecting substantial progress toward optimizing inventories and positioning the company to invest in growth alongside its OEM partners.”

Watsco topped the HVACR category on MDM’s 2025 Top Distributors Lists.

“We are in a wonderful industry, our balance sheet has never been stronger and our technology advantage remains immense,” Nahmad continued. “Although short-term market conditions remain fluid, we operate a resilient business in a resilient industry and our focus on the long-term has been, and will be, far more consequential as we build our network, scale our technologies to delight customers and partner with our OEMs to grow and gain share.”