Watsco’s third quarter was met with a negative market reaction, as the company’s non-GAAP earnings per share came in below Wall Street expectations despite revenue growth. Management attributed the quarter’s performance to a combination of stronger demand, particularly in residential HVAC equipment, and the effects of recent acquisitions. CEO Albert Nahmad noted, “Demand trends are now normalizing, organic growth is improving, and our digital ecosystem is producing measurable results in driving growth.” Operating margin contraction was a focus, with executives citing a shift in customer mix and increased investments in technology as contributing factors.
Is now the time to buy WSO? Find out in our full research report (it’s free for active Edge members).
Watsco (WSO) Q3 2026 highlights:
- Revenue $2.22 billion vs S&P analysts’ estimates of $2.21 billion (7.4% year-on-year growth, in line)
- Adjusted EPS $3.77 vs S&P analysts’ expectations of $4.18 (9.7% miss)
- Operating margin 10.1%, down from 11.4% in the same quarter last year
- Market capitalization $11.2 billion
While we enjoy listening to the management’s commentary, our favorite part of earnings calls is 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 Q3 earnings call
- Tommy Moll (Stephens): asked about the drivers behind the lower operating margin and how customer mix and technology investments are affecting profitability. CFO Barry Logan explained that larger customers using more technology contribute to lower margins but also reduce cost to serve, while technology investments are expected to deliver operating leverage over time.
- David Manthey (Baird): questioned the levers available to improve gross margins and the impact of equipment mix, pricing, and customer segments. President A.J. Nahmad responded that pricing optimization and increased adoption of digital tools are expected to drive margin improvement over the long term, though quarter-to-quarter results may fluctuate.
- Ryan Merkel (William Blair): asked about recent sales trends and the potential for continued momentum in new construction and side discharge product adoption. Management reported double-digit revenue growth in October, driven by acquisitions and ongoing product expansion, especially in high-efficiency segments.
- Steve Volkmann (Jefferies): inquired about pricing expectations from OEMs and inventory management for the coming year. Management said that rising input costs may lead to higher prices in 2027, and inventory will be managed to align with seasonal cash flow and demand trends, with some influence from recent acquisitions.
- Mitch Moore (KeyBanc): probed the effect of contractor consolidation on margins and whether smaller contractors are likely to rebound as the market recovers. Management noted that while consolidation brings some margin pressure, it also creates volume opportunities, and recovery among smaller contractors is expected as industry conditions improve.
Catalysts in upcoming quarters
In upcoming quarters, our team will monitor (1) the pace of integration and performance for newly acquired businesses like The Granite Group and Jackson Supply, (2) adoption and incremental revenue contribution from Watsco’s digital platforms such as SupplySync and VCR, and (3) progress toward gross margin recovery as industry volumes normalize and product mix evolves. Additional focus will be placed on how customer consolidation and technology investment influence the company’s cost structure and competitive positioning.
Watsco currently trades at $292.49, down from $305.33 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
The best stocks for high-quality investors
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
