Key Highlights

  • Watsco (NYSE:WSO) reports third-quarter results before the open on Tuesday, October 27, 2026, with consensus earnings of USD 4.11 per share, against USD 4.00 in the second quarter and USD 4.52 a year earlier.
  • Second-quarter revenue rose 2% to USD 2.105 billion, but gross margin fell to 27.5% from 29.3%, and operating income dropped 12% to USD 238.4 million.
  • Management attributed about 130 basis points of margin pressure to the timing of 2025 manufacturer price increases and the refrigerant transition, and expects more conventional supply chain trends for the rest of 2026.
  • The shares closed down 12.92% on Wednesday, July 29, 2026 after the second-quarter report, so the third quarter is a test of whether margins have stabilised.

The Setup: A Margin Reset Under Review

Watsco (NYSE:WSO) is the largest distributor of heating, ventilation and air conditioning equipment in the United States, and it is scheduled to report third-quarter 2026 results before the open on Tuesday, October 27, 2026. Consensus earnings are USD 4.11 per share, compared with USD 4.00 in the second quarter. In its release of Wednesday, July 29, 2026, the company reported revenue of USD 2.105 billion, up 2% and 1% on a same-store basis, and net income of USD 163.3 million. Operating margin was 11.3% against 13.2%. The company gave no numeric guidance. Results cannot be known in advance.

Why Margins, Price Timing and Refrigerants Drive the Stock

Watsco (NYSE:WSO) buys equipment from manufacturers and resells it to contractors, so its margin depends on when suppliers raise prices and when it can pass them on. Management said the 2025 price increases, which captured inflation and tariffs, and the move to A2L refrigerants, a lower-warming-potential class of coolants, together cost about 130 basis points of gross margin. HVAC equipment sales rose 3%, with domestic residential equipment up 5%, made up of unit volume up 2% and average selling prices up 2%, and commercial refrigeration rose 19%. The company held USD 464.2 million of cash and no debt, raised the annual dividend 10% to USD 13.20 per share in April, and closed the Jackson Supply acquisition, which has about USD 230 million of annualised sales.

Risks and What to Watch

The bull case is gross margin recovering from 27.5% toward the 29% area, earnings at or above USD 4.11 and commentary that residential demand and pricing have steadied, which would address the concern that sent the shares down about 13% in July. The bear case is margin remaining near 27.5%, flat unit volume or an inventory build, which would suggest that the second quarter was not a one-off and could extend the decline. Higher borrowing costs after the September 16 Fed increase can also dampen housing related replacement demand. Investors should watch unit volumes, e-commerce sales, which reached USD 2.7 billion over twelve months, and cash flow, with the Fed decision due on Wednesday, October 28, 2026.

Where Things Stand

The answer is that Watsco (NYSE:WSO) can recover to USD 4.11 only if gross margin stabilises, since revenue growth of about 2% is not enough on its own. The bar is a margin above the 27.5% of the second quarter, steady pricing and a confident tone on the rest of 2026. The next catalysts are the results before the open on Tuesday, October 27, 2026, the management call that follows, and the Federal Reserve decision on Wednesday, October 28, 2026. Consensus figures are estimates, not guarantees, and this is not investment advice.