Watsco, Inc. (WSO.B) Business Profile

What it does

Watsco distributes air conditioning, heating and refrigeration equipment and the parts and supplies needed to install and repair it. Its customers are primarily contractors who work on homes and commercial buildings. Watsco is headquartered in Miami, and Albert H. Nahmad is its chief executive officer. The company was incorporated in Florida in 1956.

The equipment it sells includes residential air conditioners and furnaces, commercial heating and cooling systems, and specialized equipment. Its parts and supplies range from compressors and coils to refrigerants, thermostats, ductwork and tools. It also sells products for commercial refrigeration, including coolers and ice machines, and carries plumbing and bathroom remodeling supplies in a limited number of stores.

Watsco buys products from manufacturers and makes them available through its distribution locations. Contractors can collect orders or have them delivered. The company maintains inventory locally because a contractor repairing a system may need the right equipment or part on short notice.

Its customers work in both the replacement and new construction markets. Watsco also provides technical support and digital tools that help contractors find products, check availability and manage orders. Its OnCall Air platform helps contractors present and sell options to homeowners.

How it makes money

Watsco earns revenue by selling equipment, replacement parts and supplies to contractors. Its HVAC/R distribution revenue was $7.2 billion in 2025. The company reported that sales in its U.S. markets increased 2% in the first quarter of 2026; a total for that quarter is not available here.

HVAC equipment accounted for 67% of 2025 revenue. Other HVAC products include parts and installation supplies, while commercial refrigeration products accounted for 4%. The company also carries plumbing and bathroom remodeling supplies at a limited number of stores.

Replacement work is an ongoing source of demand: contractors need equipment when existing systems wear out and parts and supplies for repairs. Watsco also sells products for new homes and commercial construction. It estimates that the replacement market for residential air conditioning equipment represents approximately 80%-90% of industry unit sales in the United States.

The company uses pricing software to manage prices across products and customers. Manufacturer price changes can affect many products, and Watsco says its tools help it implement changes quickly. It also says announced price increases are generally greater than the increases it realizes, partly because some customers have longer-term contracts.

Online ordering is another sales channel. Watsco says its online sales have a higher gross margin and lower cost to serve than offline sales. E-commerce sales increased 16% in the first quarter of 2026. Separately, customer sales through OnCall Air increased 20% in that quarter; those are contractor sales through the platform, not a reported total for Watsco’s own revenue.

Customers and how it sells

Watsco serves more than 130,000 active contractors working on residential and commercial heating, cooling and refrigeration systems. Those contractors serve both replacement and new construction customers. No single customer represented more than 2% of consolidated revenue in 2025.

At December 31, 2025, Watsco operated from 695 locations across 43 U.S. states, Canada, Mexico and Puerto Rico. It also served portions of Latin America and the Caribbean through exports. Most locations and sales were in the U.S. Sun Belt, with the highest concentration in Florida and Texas.

Contractors can pick up products at a nearby location or receive deliveries using Watsco’s trucks or third-party logistics providers. Salespeople and technical support staff assist customers with product selection and installation or repair needs.

Customers can also use mobile applications and e-commerce to search for products, check inventory and prices, place and track orders, arrange pickup or delivery, and make payments. Watsco says many customers do not carry their own inventory and instead obtain products from its stores after identifying the work needed at a home or building. Some customers do hold inventory, but Watsco does not have visibility into those quantities.

Suppliers and costs

Watsco distributes products made by equipment manufacturers including Carrier, Rheem, Daikin, Mitsubishi, Lennox and Bosch. It also buys non-equipment products from suppliers including Resideo, Mueller, Copeland, Owens Corning and Chemours. Watsco sources HVAC equipment from approximately 20 vendors and other HVAC products from more than 1,300 vendors.

Purchases are concentrated among a smaller group: the top ten suppliers accounted for 85% of purchases in 2025, including 62% from Carrier and 8% from Rheem. Joint ventures with Carrier represented 53% of Watsco’s revenue that year.

The company’s distribution model requires inventory, warehouse locations, delivery capacity, salespeople and technology. It expects to improve inventory turns and reduce average inventory as manufacturer lead times and delivery reliability improve, while continuing to stock products for customers.

Some manufacturers source components from China and Mexico or assemble products in Mexico. Watsco says tariffs and inflation can put pressure on suppliers’ costs. It has taken pricing actions in response, although it says increases announced by manufacturers do not always translate fully into realized increases.

Competitive position

Watsco competes with other distributors and with manufacturers that distribute some heating and cooling equipment through their own organizations. In larger markets it often faces both national and local distributors. Competition in a geographic market is based on product availability, customer service, price and quality.

The industry is fragmented. Watsco identifies manufacturers and suppliers by name, but does not name an individual company as a competitor. It holds distribution agreements with Carrier, Rheem, Mitsubishi and others that provide exclusive rights in specified territories; some agreements restrict sales of competing branded products at particular locations.

Watsco seeks to serve contractors with nearby locations, stocked inventory, technical expertise and a range of equipment and parts. It also invests in mobile applications, e-commerce and pricing tools. The company believes these resources help it compete with smaller distributors and, in some areas, factory-operated networks.

Our reading: Local inventory and branch density are a meaningful competitive advantage where contractors need products quickly, although maintaining that inventory requires capital. Our reading: Digital ordering and technical support can reinforce contractor relationships, but the market remains competitive on price and service.

Growth opportunities

Watsco’s growth strategy combines acquisitions with expansion at existing businesses. It seeks distributors that add to its presence in existing markets or establish it in new ones. After an acquisition, the company typically retains the business’s trade name, management and sales organization, while supporting it with capital and supplier relationships.

Within existing markets, Watsco seeks more customers, additional product lines and locations, and greater use of technology. It also pursues new or expanded distribution territories and offers private-label products at selected locations.

The company has agreed to acquire Jackson Supply, a Sun Belt distributor with $230 million in annual sales. Watsco expects the transaction to close in the second quarter of 2026 and says Jackson will add 25 locations and broaden its brands and products, particularly in parts and supplies.

Watsco has launched an initiative to grow in parts and supplies, a segment it says comprises almost 50% of the industry’s market share. It is also developing technology aimed at serving more large institutional customers.

Replacement demand is another focus. Watsco expects the replacement share of residential air conditioning unit sales to increase as older units wear out or are replaced with more efficient models. It also expects sales on OnCall Air to exceed $2 billion in 2026; that is the value of sales through the platform, not a forecast of Watsco revenue.

Structural risks

• Supplier concentration: Carrier and Rheem account for substantial portions of purchases. An interruption in manufacturing, procurement or delivery could disrupt subsidiaries, affect inventory and harm financial results.
• Seasonality and weather: Residential cooling and heating sales vary by season. Weather can affect profitability, and severe winter weather closed locations and caused lost business in northern markets in the first quarter of 2026.
• Pricing and trade policy: Tariffs or changes to trade agreements can raise product costs. Further price increases could reduce sales or lead to customer losses.
• Acquisitions: Watsco’s acquisition strategy depends on finding and completing suitable transactions. Acquisitions can also involve integration challenges, loss of employees or customer relationships, and assumed liabilities.
• Competition and technology: Competitive pressure can cause price erosion or loss of market acceptance. Interruptions to information technology systems and cyberattacks also pose risks.
• Class B ownership: Directors, executive officers and affiliated entities owned 90% of the outstanding Class B common stock at December 31, 2025.

Leadership

Watsco has Common stock and Class B common stock. At December 31, 2025, directors, executive officers and affiliated entities owned less than 1% of outstanding Common stock and 90% of outstanding Class B common stock.

Bottom line

Our reading

Watsco is a distributor built around getting equipment and parts to contractors when they need them, supported by local inventory and digital ordering. Its opportunity rests on replacement demand, acquisitions and broader sales to existing customers; its exposure includes concentrated suppliers, seasonal demand and the cost of carrying inventory. Exclusive territories and customer-service capabilities support its position, but competition remains local and price-sensitive.