Watsco reported Q4 revenue of $1.58 billion, a 10% year-on-year decline and 1.9% short of consensus, while adjusted EPS came in at $1.68, missing estimates by 11.1%. Adjusted EBITDA reached $112.6 million with a 7.1% margin, down 12.6% versus expectations, and operating margin fell to 6.4% from 7.8% last year.

Management attributed the 17% drop in unit volumes to the industry-wide shift to next-generation A2L refrigerant equipment, citing a challenging comparison after a 20% growth rate in the prior year. Executives emphasized ongoing contractor training and channel stabilization efforts to support adoption of the new systems.

Gross margin expanded by 40 basis points to 27.1% through double-digit pricing gains on A2L products, and SG&A expenses were reduced by 2% despite integrating new locations. The finance team highlighted strong cash flow and a debt-free balance sheet as justification for maintaining an increased dividend above current profit levels.

Analysts probed key operational areas: channel readiness for A2L products, rationale for dividend hikes, early 2026 sales trends showing mid-single-digit declines, sustainability of margin gains via pricing and product mix, and the impact of mandatory system replacements on consumer buying patterns.