Watsco Inc. reported another quarter of revenue growth despite more difficult market conditions, it said. Revenue grew 1% to $1.56 billion in the quarter ended March 31, a Q1 record for the company. Ecommerce remained a strong point compared to in-store sales.
Albert H. Nahmad, chairman and CEO, Watsco Inc.
“While softer market conditions persisted during what is essentially the low-season for product sales, we are currently experiencing growth in end-market demand as we enter the summer selling season,” CEO Albert H. Nahmad said in a written statement. “We believe market share gains are continuing, and we are proud to have added three new companies to our family since the beginning of last year. Finally, and most gratifying, we further strengthened our balance sheet and generated record cash flow during a period that typically requires working capital investment ahead of the selling season.”
Miami-based Watsco is a heating, ventilation and air conditioning (HVAC) distributor with 670 locations and an ecommerce sales platform.
Watsco Q1 results
Despite growing revenue year over year, same-store sales declined 2% in Q1, Watsco said. Gross profit also declined to $430.6 million from $448.2 million in the year-ago period. Watsco reported an operating profit of $126.5 million, down from $164.7 million during the same quarter in 2023.
HVAC equipment composed 68% of sales, and declined 1% year over year. Those units are highly seasonally dependent and sales typically have the most variability in Q1, Nahmad told investors in an earnings call. Accordingly, there was also a 6% decline in other HVAC products, making up 28% of sales. Meanwhile, sales of commercial refrigeration products increased 2%. They made up the remaining 4% of sales.
“Although residential equipment unit demand remains low, our price realization, a richer sales mix of heat pumps as well as high-efficiency products and new locations contributed to record sales in the quarter,” Nahmad said in the call. Additionally, Watsco saw an industry-wide move towards ductless systems. “Sales of ductless systems, an increasingly important component of our business, grew and offset declines in the conventional ductless residential business,” he added.
Watsco also reduced its headcount across all stores in Q1, executive vice president Barry Logan said. He did not share specifics of how many employees were laid off, but noted that Watsco would see benefits from the cost reductions for the rest of the year.
Watsco ecommerce results
Ecommerce revenue outpaced total revenue growth in Q1, Watsco said. The HVAC distributor did not share specifics of how much ecommerce grew. However, it noted that the number of users with a linked ecommerce account grew 6% to 57,000 in the 12 months ended March 31. Ecommerce sales made up 33% of all sales in Q1, up from 32% in the previous quarter.
Watsco also continued to grow penetration of its digital sales platform, OnCallAir. The annualized gross merchandise value (GMV) of sales through the platform reached $1.3 billion in the quarter. In Q1, it gave price quotes to 61,000 households, a 15% year-over-year increase, and had a GMV of $269 million, a 22% increase.
The distributor shared plans to continue investing in technology to fuel further online growth. It cited findings that customers who actively use its technology platforms lead to stronger sales growth and show 50% less attrition.
“Our journey to drive technology adoption at scale has yielded terrific results, but we are even more excited at the opportunities that lay ahead,” Watsco president A.J. Nahman said in a written statement. “ These investments have driven higher market share and higher growth rates with technology-enabled customers. We believe we are just scratching the surface on the internal technology deployed to enhance margins and operating efficiencies. We remain committed to doing more and transform how our industry operates.”
Acquisitions
Watsco will also continue its “buy and build” strategy of acquisitions, it said. In the last five years, Watsco invested $350 million in acquiring nine new distribution companies. Most recently in Feb. 2024, it acquired Commercial Specialists, which generated 2023 revenue of about $13 million.
There’s still room for further expansion, Watsco said. The $64 billion HVAC industry in North America is “highly fragmented,” which represents an opportunity for more acquisitions down the line, the distributor said.
For the first quarter ended March 31, Watsco reported:
- Total revenue grew 1% year over year to $1.56 billion.
- Gross profit declined $430.6 million from $448.2 million in the year-ago period.
- Ecommerce accounted for 33% of total sales.
Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Watsco report.
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