Watsco Inc. reported a 2% decline in Q1 revenue to $1.53 billion, down from $1.56 billion in the same period last year.
While the quarter marked the start of a sweeping regulatory product transition across the HVAC industry, Watsco is doubling down on its digital platforms to drive customer engagement, streamline pricing, and gain share in a fragmented market. Watsco is a large distributor of heating, ventilation, air conditioning, and refrigeration (HVAC/R) products in North America.
Digital transformation was a central theme in Watsco’s quarterly update. The company emphasized the growing role its ecommerce and mobile tools are playing in maintaining customer loyalty and improving operational efficiency. Approximately 67,000 contractors and technicians are now active users of Watsco’s digital platforms. They engage with real-time inventory, pricing, ordering, and support systems that the company says are directly correlated with higher sales growth and 60% lower attrition rates.
“Our technology platforms have become essential to how customers operate,” said chairman and CEO Albert Nahmad. “Contractors who engage with our digital tools grow faster, stay longer, and serve their customers better. These platforms are now influencing every aspect of a contractor’s workday — from pricing and availability to service and support.”
Watsco reported net income of $80.1 million in Q1. That’s an 8% decline from $87.0 million in the first quarter of 2024.
How Watsco is approaching HVAC industry changes
The first quarter’s performance came amid a significant industry shift. New federal environmental regulations that took effect Jan. 1 require residential and light-commercial HVAC systems to use A2L refrigerants, which have lower global warming potential (GWP). The rule change impacts more than 50% of Watsco’s product portfolio. The company expects it to drive upgrades and replacements throughout the year. Watsco has committed to converting $1 billion of inventory during the transition.
Additionally, Watsco said its digital infrastructure has been instrumental in helping customers adapt to the change, particularly in managing product availability, understanding specifications, and implementing pass-through price adjustments in response to upstream tariff and cost shifts.
“Our platforms are designed for speed and scale,” Nahmad said. “As our OEM partners adjust pricing due to inflation and tariffs, we can relay those changes to customers instantly. That capability matters in a transition year like this when accuracy and timing are critical.”
In Watsco’s core U.S. market, residential replacement sales rose 10% year over year — or 12% on a same-day basis — driven by:
- Strong demand
- New customer wins
- Price increases
- A shift toward higher-efficiency systems
More Watsco revenue streams
In contrast, international sales, which accounted for 9% of total revenue, declined by 9%. And volumes tied to new housing construction remained soft. Still, Watsco said it is seeing improvement in sales and margins as the spring season begins and expects stronger performance in the second and third quarters, which typically represent peak HVAC demand.
Beyond its digital initiatives, Watsco continues to execute its acquisition strategy, adding two new companies to its network this year. Since 2019, Watsco has acquired 11 distributors representing $1.6 billion in annualized revenue. The company now operates 693 locations across the U.S., Canada, Mexico, and the Caribbean, serving more than 375,000 contractors and technicians.
The HVAC/R distribution market in North America is estimated to be worth $74 billion and remains highly fragmented, with more than 2,100 independent distributors. Watsco says its scale, digital tools, deep vendor relationships, and broad product offering — over 200,000 SKUs from more than 20 equipment OEMs and 1,500 non-equipment suppliers — position it to lead in an increasingly competitive environment.
AI and Watsco ecommerce sales
The company is also investing in internal AI and data initiatives to further enhance its digital capabilities. Executives noted that Watsco’s platforms are generating substantial operational data that can be used to improve pricing precision, customer service, and logistics planning.
“We are just scratching the surface of how digital and AI can transform HVAC distribution,” said Nahmad. “We’re building the foundation now for a smarter, more efficient business model that can adapt quickly to change and deliver more value to our customers.”
Looking ahead, Watsco says its focus on digital growth, customer retention, and strategic inventory management will be critical as it enters the seasonally stronger second and third quarters. The company also reaffirmed its commitment to returning capital to shareholders, having raised its annual dividend by 11% to $12.00 per share earlier this month.
“Our digital capabilities, balance sheet strength, and customer-first approach give us the confidence to execute in any market environment,” Nahmad said. “As the HVAC industry evolves, we intend to lead that evolution.”
Watsco ecommerce sales reached $2.6 billion in 2024. Additionally, ecommerce sales accounted for 35% of Watsco revenue for the year.
Here’s last quarter’s update on Watsco ecommerce sales.
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