What Happened?
Shares of equipment distributor Watsco (NYSE:WSO) fell 3.8% in the afternoon session after the company reported second-quarter results that fell short of analyst expectations for both revenue and earnings.
The heating and air conditioning distributor posted second-quarter revenue of $2.06 billion, a 3.6% decline from the prior year and short of the $2.23 billion consensus estimate. Similarly, earnings per share of $4.52 missed analyst expectations of $4.80. The company attributed the sales decline to lower unit volumes, which stemmed from milder weather, a slowdown in homebuilding, and disruptions related to the industry's transition to A2L refrigerants. Sales of HVAC equipment, which made up 68% of total revenue, decreased by 6% during the quarter. While the company noted it achieved record gross profit margins, the overall miss on key metrics weighed on investor sentiment.
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What Is The Market Telling Us
Watsco’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 8.5% on the news that the company reported underwhelming first-quarter 2025 results. Its revenue missed significantly, and its EBITDA fell short of Wall Street's estimates. Sales fell modestly, and operating income declined by a wider margin as the business was hit by slow demand in new housing and overseas markets. Overall, this was a weaker quarter.
Watsco is down 5.7% since the beginning of the year, and at $442.11 per share, it is trading 22.3% below its 52-week high of $568.78 from November 2024. Investors who bought $1,000 worth of Watsco’s shares 5 years ago would now be looking at an investment worth $1,886.
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