Watsco sales fall on A2L volatility

Watsco, America’s largest HVAC distributor, operating over 650 locations nationwide, on Wednesday reported a slight third-quarter revenue dip, with executives weighing in on today’s market. 

What’s happening: Watsco’s U.S. sales fell three percent year-over-year during the quarter, and the company experienced a decline in unit volume, though it didn’t specify an exact figure. 

• The A2L transition “has created volatility in sales, industry shipments, [and] distributor inventories,” which has been “further compounded by overall weaker consumer spending and slower housing-related activities,” Watsco said in a statement. 

Zoom in: Despite its popularity, Executive Vice President Paul Johnston argued that the question of whether the industry is in a ‘repair or replacement’ environment is too black and white. “It’s repair and replace,” and varies by contractor, he noted on the company’s earnings call. 

• “Also, there’s a geographic spread. If you’re in Pennsylvania and you’ve got an 11-year-old unit in your house, you’re generally going to repair it. It’s got a 20-year life,” he said.
• “In Florida, Texas, where you’ve got a shorter life, I think generally you’re going to replace it,” he added. “It’s really difficult to put your finger exactly on where and who is creating a repair versus replace market.”

Yes, but: When asked whether Watsco has noticed consumers trading down to lower-efficiency products, “Yeah, that’s been occurring,” Johnston said. “All year long.”

Zoom out: While manufacturer shipments fell between 20 and 30 percent year-over-year from June through August (the latest available data), there’s an important caveat, Johnston explained. 

• “You’ve got to remember that the shipment data that you’re seeing was up last year, as a lot of the OEMs were shipping all that R-410A in,” he said. 
• (In August 2024, for instance, manufacturers shipped more combined ACs and heat pumps than in any August since at least 2010, per AHRI.)

Between the lines: Watsco execs pushed back on the idea that A2L-driven price increases are the sole factor impacting the residential segment of the industry. 

• “If it’s a $12,000 installation, the amount of product that we’re selling is going to be in the $3,000 to $4,000 range,” Johnston said. “If [prices] go up, pick a number, $100, it’s not going to be a major transaction halt to the consumer.”

“I think that’s much more about close-to-record lows in consumer confidence, record lows in the trading of homes and building of new homes, and tariffs creating uncertainty for many homeowners,” added President Aaron Nahmad.  

• “It’s true that there’s more price in the machines; I just don’t believe it’s that clear of an elasticity conversation. I think many more macro influences are having an impact.”

Looking ahead: The fourth quarter will be “exposed” to a tough comparison, according to Nahmad, who noted that Watsco’s unit volume grew 20 percent year-over-year in the fourth quarter of 2024. 

• “There’s obviously noise in the fourth quarter this year,” he said, “but it doesn’t really bear a resemblance as we go forward into next year as a consequential trend.”