Watsco Cites Regulation-Driven Snarls as 2Q Sales Fall 6% - Modern Distribution Management

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Watsco Cites Regulation-Driven Snarls as 2Q Sales Fall 6%

Watsco's second-quarter sales were impacted by a wide-ranging regulatory requirement that took effect on Jan. 1.

Miami, Florida-based HVACR equipment distributor Watsco‘s 6% drop in sales to $2 billion in the second quarter was impacted by a wide-ranging regulatory requirement that took effect on Jan. 1 and required a sweeping product transition to new, higher-efficiency HVAC equipment systems. 

Notably, the product transition disproportionately affected one of Watsco’s primary original equipment manufacturer partners and resulted in temporary production and availability delays, which in turn affected sales. The company estimates the sales impact caused by the delays was $75 to $80 million during the quarter ($115 to $125 million for the six-month period). 

Still, in an Aug. 1 news release, Watsco Chairman and CEO Albert Nahmad said the quarter’s performance was the second-best quarter in the company’s history, especially considering the myriad of challenges and continuing investment into technology platforms. 

eCommerce sales, for example, outpaced overal sales growth rates in the second quarter and accounted for 34% of total sales.

Watsco reported a 6% decrease in gross profit to $563 million, but a gross margin improvement of 20 basis points year-over-year to 28.1%. In 2Q 2023, Watsco recorded a 8% decrease in HVAC equipment sales (69% of sales), a 7% decrease in other HVAC products (27% of sales) and a 1% decrease in commercial refrigeration products (4% of sales).

The 2023 results follow a record-breaking year in 2022, which was driven by robust replacement demand, above-average OEM pricing actions, strong end markets and an earlier start to hotter summer weather conditions. In contrast, OEM pricing actions in 2023 were more moderate and unit volumes reflect more conventional rates of replacement. Weather conditions were also more temperate.

In 1Q 2023, sales increased 2% over the same period in 2022. 

Watsco ranked No. 4 among Industrial Distributors and No. 1 for HVACR Distributors on MDM’s 2023 Top Distributors List.

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