Watsco's fourth quarter results reflected ongoing industry disruption from the transition to next-generation A2L refrigerant equipment, resulting in lower unit volumes compared to the prior year. Management attributed the sales decline to a “20% growth rate last year” that created a tough comparison, alongside a 17% drop in unit volumes in 2025. Despite these headwinds, CEO Albert Nahmad highlighted progress in gross margin improvement, stating, “We achieved double-digit pricing gains on the new A2L products and raised gross margins by 40 basis points to 27.1%.” The company also emphasized disciplined cost control, with SG&A expenses dropping 2% even as new locations were integrated.

Is now the time to buy WSO? Find out in our full research report (it’s free for active Edge members).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Watsco’s Q4 Earnings Call

• David Manthey (Baird) asked about normalization and contractor readiness post-A2L transition. CEO Albert Nahmad and President Paul Johnston emphasized improved channel stability and contractor training, predicting greater confidence in selling the new systems.
• Tommy Ma (Stephens) questioned the rationale for raising dividends above recent earnings. CFO Barry Logan highlighted robust cash flow and a debt-free balance sheet as the basis for dividend confidence, despite lower GAAP profit.
• Ryan Merkel (William Blair) pressed for details on early 2026 sales trends. Logan reported mid-single-digit declines in January and February but cautioned against extrapolating these results ahead of the busier summer season.
• Brett Linzey (Mizuho) inquired about gross margin building blocks and the sustainability of recent gains. Management pointed to pricing optimization, product mix, and early progress in the nonequipment initiative as key contributors, with further upside expected from technology adoption.
• Steve Tusa (JPMorgan) asked about the impact of system replacement requirements on consumer behavior. Management noted contractors must now replace both indoor and outdoor units, which may increase repair activity but ultimately drives higher system sales as old inventory phases out.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace and effectiveness of technology adoption in sales and pricing optimization, (2) the degree to which the parts and supplies initiative increases non-equipment revenue mix and margins, and (3) signs of market normalization in unit volumes as contractors adapt to the A2L product environment. Execution on inventory turns and cash flow generation will also be key indicators of operational progress.

Watsco currently trades at $411.87, down from $417.92 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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