Watsco Reports Mixed Q3 Results Amid Market Challenges

Watsco, Inc. (NYSE:WSO) reported mixed performance for the third quarter of 2025, with revenue and earnings per share (EPS) falling short of analysts’ expectations. According to the investor letter from Qualivian Investment Partners, which focuses on long-only public equities, Watsco’s revenue decreased by 4% year-over-year, while EPS declined by 6%. These results were attributed to challenging market conditions and reduced equipment unit volumes.

In its analysis, Qualivian noted that Watsco’s stock showed a modest one-month return of 1.01%. However, the broader trend over the past year has been less favorable, with shares plummeting by 29.63%. As of December 23, 2025, Watsco’s stock closed at $345.76, resulting in a market capitalization of $14.062 billion.

Management at Watsco highlighted a positive aspect of their performance: the company achieved a record gross profit margin of 27.5%. This was driven by pricing gains despite the overall decline in revenue. Additionally, Watsco reported record operating cash flow of $355 million while maintaining a debt-free balance sheet. The management team indicated that the substantial one-time costs associated with the industry’s transition to A2L refrigerants are largely complete, laying the groundwork for anticipated efficiency improvements in 2026.

Investor Day and Future Growth Prospects

Looking ahead, Watsco is set to host an Investor Day on December 13, 2025, where the company plans to discuss key growth initiatives aimed at reaccelerating growth in 2026. Despite the mixed results, Qualivian expressed a cautious stance regarding Watsco’s position in the market. While the company is not included in the list of the 30 most popular stocks among hedge funds, data indicated that 34 hedge fund portfolios held Watsco at the end of the third quarter, consistent with the previous quarter.

Qualivian’s investor letter emphasized a focus on other sectors, noting that certain artificial intelligence stocks may present greater potential for higher returns in a shorter timeframe. The firm continues to monitor Watsco’s performance while exploring more promising investment opportunities.

Watsco’s ongoing adaptation to market changes and its strategic focus on long-term growth will be crucial as it navigates a competitive landscape. Investors keen on the company’s future prospects will be looking closely at the developments shared during the upcoming Investor Day.

For further insights into hedge fund strategies and investment opportunities, interested parties can refer to Qualivian’s Q3 2025 hedge fund investor letters.