Watsco's First Quarter Performance: Strong Start and Future Opportunities
Watsco, a leading distributor of heating, ventilation, air conditioning (HVAC) equipment and other comfort products, has reported a strong first quarter in 2025. According to Chairman and CEO Albert Nahmad, the company's performance was driven by the transition of products in its new A2L system, which will ultimately impact around 55% of total sales.
The A2L system offers solutions that are more efficient and sustainable for homeowners and businesses, while also providing enhanced sales and profitability for both Watsco and its customers. In terms of trends, Watsco's core HVAC replacement business saw a strong start to the year, with sales and replacement systems increasing by 10% due to higher volumes.
Nahmad emphasized that the first quarter is the smallest and most seasonal quarter of the year, and while there were some early challenges in the selling season, recent sales and margin trends have improved. Looking forward, the company expects the benefits of the A2L products to become more pronounced over the remainder of the year, particularly during the second and third quarters.
Watsco's balance sheet remains in excellent condition, with $430 million in cash, no debt, and over $3 billion in equity. The company also raised its annual dividend 11% to $12 per share in April, marking its 51st consecutive year of paying dividends.
In terms of current events, Watsco is carefully monitoring the potential impact of proposed tariffs on its business. On the domestic front, which represents 91% of first quarter sales, the company is collaborating closely with its OEM partners on current and future pricing actions that may be required in response to tariffs. However, there is greater uncertainty for 9% of Watsco's sales, which are in Canada and Latin America.
Despite these challenges, Nahmad emphasized that Watsco has the scale, technology, and relationships to act quickly and efficiently to changing market conditions. The company remains confident in its ability to deliver long-term returns, citing its position as market leaders in a highly fragmented $74 billion distribution market.
Watsco's unique ownership culture, shared by over 4,000 employees, rewards and incentivizes long-term performance. As Nahmad noted, the products Watsco sells are a necessity, and the installed base continues to grow. The company also offers the broadest product variety and operates the largest network in its industry.
Overall, Watsco's first quarter performance is a positive indicator of the company's future prospects. With its strong balance sheet, commitment to innovation, and focus on long-term returns, Watsco is well-positioned to capitalize on opportunities in the HVAC distribution market.
