Watsco, Inc. (WSO) Business Profile

What it does

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

The company sits between manufacturers and contractors. Manufacturers make the equipment and components; Watsco stocks them at its locations, provides product information and technical support, and makes them available for delivery or pickup. Contractors then install the products for homeowners, businesses and other end users.

Its equipment includes residential air conditioners and furnaces, ductless systems and commercial heating and cooling systems. It also sells replacement components such as motors and compressors, as well as supplies including thermostats, insulation, refrigerants, ductwork and tools. Commercial refrigeration products include compressors, evaporators, walk-in coolers and ice machines. A limited number of stores also sell plumbing and bathroom remodeling supplies.

Contractors use these products both to replace or repair existing systems and to equip new construction. Watsco also offers digital tools that let customers find products, check availability, order and arrange delivery or pickup. Its OnCall Air platform helps contractors present and sell systems to homeowners.

How it makes money

Watsco earns revenue by selling equipment, parts and supplies to contractors and other customers. Its HVAC/R distribution revenue was $7.2 billion in 2025. The company stocks products at warehouse locations and supplies them through pickup or delivery, using its own trucks or third-party logistics providers.

HVAC equipment accounted for 67% of revenue in 2025. Other HVAC products include the components and supplies contractors need alongside equipment or for repairs. Watsco also sells commercial refrigeration products and offers plumbing and bathroom remodeling supplies in a limited number of stores.

Demand comes from both replacement and new construction. Replacement work includes equipment that wears out and parts needed to repair existing systems; construction demand is tied in part to housing completions. Watsco estimates that replacement accounts for approximately 80%-90% of U.S. industry unit sales of residential air conditioning equipment. It expects that percentage to increase as older units wear out or become practical to replace with more efficient models.

Pricing varies across products and customers. Watsco uses pricing software to administer manufacturers’ price changes, and the company says an announced increase is generally not realized in full, partly because some customers have longer-term contracts. It has also taken pricing actions in response to supplier price changes and tariff pressures.

Digital ordering is another part of the sales process. Watsco says online sales carry a higher gross margin and lower cost to serve than offline sales. In the first quarter of 2026, e-commerce sales increased 16%, while customer sales through OnCall Air increased 20%.

Customers and how it sells

Watsco serves more than 130,000 active contractors working on replacement and new construction for residential and commercial heating, cooling and refrigeration systems. These contractors must be licensed because their work involves regulated products and requirements. No single customer represented more than 2% of consolidated revenue in 2025.

Customers can buy at a location, arrange delivery or use mobile applications and e-commerce. The digital channels let them search for products, check inventory and prices, place orders, schedule pickup or delivery, and make payments. Watsco also provides technical support by phone or on site. The company says many customers do not carry inventory because they do not know what they will need until they assess a job.

At December 31, 2025, Watsco operated from 695 locations across 43 U.S. States, Canada, Mexico and Puerto Rico. It also covered portions of Latin America and the Caribbean through exports. Most locations and sales are in the U.S. Sun Belt, with the highest concentration in Florida and Texas. The company had approximately 1,100 salespeople, averaging 11 years of HVAC/R distribution experience.

Suppliers and costs

Watsco buys products from manufacturers rather than manufacturing the equipment it distributes. Its equipment suppliers include Carrier, Rheem, Daikin, Mitsubishi, Pentair, Lennox and Bosch. It also buys parts and supplies from manufacturers including Resideo, Mueller, Copeland and Owens Corning.

Purchases are concentrated: the top ten suppliers accounted for 85% of purchases in 2025, including 62% from Carrier and 8% from Rheem. Watsco has distribution agreements with Carrier, Rheem, Mitsubishi and others that grant exclusive rights in specified territories. Some agreements restrict sales of competing brands at particular locations.

The company carries inventories at its warehouses and incurs costs to operate locations, deliver goods, employ salespeople and support technology. It says changes in product lines can require it to hold both existing and new inventory. Watsco expects better inventory turns as manufacturer lead times and delivery performance improve, while continuing to stock products for customers.

Many equipment and component manufacturers source parts from China and Mexico or assemble products in Mexico. Suppliers have taken price actions in response to tariff and inflationary pressures, and Watsco has adjusted its own pricing.

Competitive position

Watsco competes with other distributors and with equipment manufacturers that distribute products through their own organizations in certain markets. Competition in each geographic market depends on product availability, customer service, price and quality. The HVAC/R distribution industry is fragmented. No individual competing distributor is named in the company’s competition description.

Watsco seeks to serve contractors who need equipment and supplies on short notice. It maintains inventories across its warehouse network, offers technical expertise and carries products at different price points. It also has exclusive distribution rights for certain brands in specified territories. The company believes its locations, inventory and product range can be advantages over smaller distributors and, in some areas, factory-operated networks.

Our reading: The location and inventory network is a meaningful competitive advantage because contractors often need products immediately and many do not carry their own stock. Maintaining that availability also requires Watsco to invest in inventory.

Its digital tools support product searches, ordering and pricing. Watsco says customers using e-commerce have lower costs to serve and generate higher gross margins than offline customers. Our reading: Digital tools can reinforce customer relationships and improve economics, although customers can still choose among distributors on price, service and availability.

Growth opportunities

Watsco’s growth strategy combines acquisitions with expansion inside its existing businesses. It looks for companies that complement its presence in current markets or establish it in new ones. After an acquisition, it typically retains the business’s trade name, management and sales organization while adding access to capital, vendor relationships and technology.

In the first quarter of 2026, Watsco announced an agreement to acquire Jackson Supply, a Sun Belt distributor with $230 million in annual sales. The company expected the transaction to close in the second quarter and said Jackson would add 25 locations and broaden its brands and products, particularly in parts and supplies. Jackson’s leadership was expected to remain with the business.

In existing markets, Watsco seeks to add customers and locations, expand product lines and use technology to improve service. It has launched an initiative to grow sales in parts and supplies. It is also developing tools intended to reach more large institutional customers.

Replacement demand is another focus. Watsco expects the replacement share of residential air conditioning unit sales to rise as installed systems age or are replaced with more energy-efficient models. It also expects its OnCall Air platform to exceed $2 billion in gross merchandise value in 2026 as contractor adoption progresses. This is the value of sales through the platform, not Watsco’s reported revenue.

Structural risks

• Supplier concentration: Carrier and Rheem account for substantial portions of purchases. Interruptions in manufacturing, procurement or delivery could disrupt subsidiaries, affect inventory and hurt financial results. Changes to distribution agreements could also affect results.
• Competition and pricing: National and local distributors, as well as manufacturer-owned networks, compete on availability, service, price and quality. Competitive pressure could cause products or services to lose acceptance or lead to price erosion.
• Seasonality and weather: Residential cooling demand is typically highest in the second and third quarters, while heating demand is usually highest in the first and fourth quarters. Weather can affect profitability; severe winter weather closed locations and caused lost business in northern markets in the first quarter of 2026.
• Trade and regulation: Tariffs and changes to trade agreements can raise product costs. Further price increases could reduce sales or cause customer losses. Changing refrigerant and efficiency rules can also require inventory and business-practice changes.
• Acquisitions and systems: Acquisitions carry risks involving integration, retention of employees and customers, internal controls and management attention. Cyberattacks and interruptions to information technology systems can also disrupt operations.

Leadership

Watsco has both Common stock and Class B common stock. At December 31, 2025, directors, executive officers and their affiliates owned 90% of the outstanding Class B shares and less than 1% of the outstanding Common shares.

Bottom line

Our reading

Watsco is a distributor built around getting equipment and supplies to contractors when they need them, supported by local inventories and digital ordering. Its acquisition strategy and replacement-market focus provide routes to growth, while its economics remain exposed to supplier concentration, inventory requirements and competitive pricing. The Carrier relationship is important to both product supply and the joint-venture network.