Watsco to Report Q2 Earnings: What to Expect in This Season?

Watsco (WSO) is projected to report Q2 2025 earnings of $4.84 per share, a 7.8% year-over-year increase, on revenues of $2.21 billion, up 3.5%, driven by robust HVAC demand, the ongoing transition to A2L-compliant systems, and an expected 100 basis point improvement in gross margins to 28.1% from favorable pricing and product mix. This positive outlook follows a prior quarter where the company significantly missed both earnings (by 15.7%) and sales (by 7.6%) consensus estimates. Despite these operational tailwinds, the Zacks model does not conclusively predict an earnings beat for the upcoming quarter, holding a Zacks Rank #3 and a negative Earnings ESP.

Analysis

Watsco (WSO) presents a conflicting pre-earnings profile for its second quarter. On one hand, the company is poised for top-line and bottom-line growth, with consensus estimates pointing to a 3.5% year-over-year revenue increase to $2.21 billion and a 7.8% rise in EPS to $4.84. This optimism is underpinned by strong seasonal HVAC demand, a favorable product mix shift toward higher-value A2L-compliant systems, and anticipated gross margin expansion of 100 basis points to 28.1% driven by OEM price increases and technology-enabled pricing. However, this positive operational outlook is significantly tempered by a poor track record, including a 15.7% earnings miss in the prior quarter and negative surprises in three of the last four quarters. Compounding this concern, the Zacks model does not predict an earnings beat, highlighting a negative Earnings ESP of -2.14% and a neutral Zacks Rank #3. The consensus earnings estimate has also been revised downward in the last 30 days, suggesting analyst caution despite the fundamental tailwinds.

Key Decisions for Investors

• Given Watsco's recent history of significant earnings misses and a negative Earnings ESP of -2.14%, investors should be cautious of the elevated execution risk heading into the report.
• Monitor gross margin performance closely, as achieving the expected 100-basis-point expansion to 28.1% is a critical proof point for the company's pricing power and favorable mix thesis.
• The conflicting signals between positive operational drivers and negative quantitative indicators suggest a potential for significant post-earnings volatility, making this a high-risk, high-reward event.
• Look beyond the headline numbers to management's commentary on the stabilization of the commercial segment and any updates on the long-term 30% gross margin target, as these will be key to the post-earnings narrative.