Watsco, Inc. Q1 FY2026 earnings call

• Announced acquisition of Jackson Supply, a Sunbelt distributor with $230M annual sales, to expand sub-bill presence and provide brand/product diversification, expected to close in second quarter. - Continues to build and expand technology platforms, with e-commerce sales up 16%, On-call air customer sales up 20% with expectation of gross merchandise value exceeding $2B this year. - In existing business, sales increased 2% in U.S. markets, unit volume stabilized, gross margins intact, STNA flat, balance sheet strong and debt-free. - Investing in innovation and technology, developing new innovations for large institutional customers launching in second quarter, using pricing optimization tools, launching initiative in parts and supply segment, harnessing AI for customer experience, operating efficiency expected to further improve. - Jackson team will operate and grow with full support, collaborating and learning from the community.

Sales increased 2% in U.S. markets. E-commerce sales increased 16% during the quarter. On-call air customer sales increased 20%. Gross margins remained largely intact. STNA remained flat. Jackson Supply acquisition is a legendary market-leading Sunbelt distributor with $230 million in annual sales, expanding sub-bill presence by 25 locations and providing brand and product diversification. Non-equipment had broad-based growth, with parts being a minority.

• Expect a more simplified business environment this year. - Anticipate closing Jackson Supply acquisition in second quarter. - Expect e-commerce sales growth to continue, On-call air gross merchandise value to exceed $2B this year. - Hopeful for growth in 2026, but cautious as still early in summer season. - Expect inventory turns to increase and contribute to cash flow for rest of the year. - Aiming for 30% gross profit margin with plan involving pricing technology and procurement consolidation.

• Uncertainty around tariff dynamics and other market dynamics. - Potential for realized price increases to be less than announced price increases due to diverse market segments and customer contracts. - Historical differences between announced and realized price increases. - Impact of weather on regional performance, such as northern markets being disrupted by severe winter, affecting performance. - Uncertainty around channel dynamics and customer inventory visibility.

Q: Ryan Merkel asked about improved stability heading into summer, April growth, and industry normalization.

A: Barry Logan said first quarter showed full maturity of A2L product transition, units still a bit down but improved as quarter progressed, March up high single digits same day, April has sustained momentum, industry has had chaotic past few years with many challenges, now looking to normalized 2026. Barry also mentioned e-commerce sales bloom, contractor credit good, increase in higher efficiency systems sold.

Q: David Mante asked about Jackson Supply acquisition, mix, margins, growth.

A: Al Namid said it's a long-standing relationship, Jackson has right leadership and strategy, resonates in Texas HVAC market.

Q: Tommy Mall asked about resi equipment volumes in March and April, how long since flat.

A: Rick Gomez said not to spice it thinly for three weeks in April, not yet in full selling season, prior year volumes degraded, price actions last year, mix of A2L products changed, ultimate comparison vs prior years needed.

Q: Jeff Hammett asked about Section 232 update, pricing, repair vs replace.

A: Al Namid expected price increases due to duties, Paul Johnson said non-equipment has broad-based growth, parts less than 10% of non-equipment.

Q: Nigel Cole asked about inventory turns, initial reaction on inventory build.

A: Al Namid said inventory dollars down from prior year, selling A2L product requires more indoor units for new refrigerant, Paul Johnson said inventory turn expected to improve due to more stable supply chain, e-commerce helps with pricing administration.

Q: Stephen Folkman asked about difference between announced and realized price increases, impact of e-commerce on gross margin target.

A: Paul Johnson said announced price increase not always apply to all segments, software helps with pricing administration, e-commerce has higher gross margin, lower cost to serve, adoption rate expected to continue.

Q: Chris Snyder asked about Q1 inventory, channel dynamics.

A: Al Namid said inventory dollars down from prior year, selling A2L product requires more indoor units for new refrigerant, Paul Johnson said not buying ahead of 232 tariff price increases, customers don't hold much inventory, no visibility into customer inventory.

Q: Patrick Bowman asked about unit sell-through, regional disparity, Home Depot's acquisition impact.

A: Al Namid said feels better today, but time will tell, northern markets had disruption due to winter, Sun Belt outperformed North, not threatened by Home Depot's acquisition, focus on mutual trust and respect for acquisitions.

Q: Jeff Hammond asked about gross margins, commercial HVAC equipment, margin trend.

A: Al Namid said commercial and residential traveled close together, historically second and third quarters have modest margin retreat due to seasonality, will see what 2026 brings with new info on OEMs