Watsco: 3 Key Takeaways for Long-Term Investors

On its third-quarter 2026 earnings call, held on Oct. 27, 2026, Watsco (NYSE:WSO) reported a 7% increase in total sales to $2.22 billion alongside accelerating organic growth across its heating, ventilation, and air conditioning (HVAC) business. For long-term shareholders, the distributor is leveraging its balance sheet and proprietary software to expand market share while diversifying into adjacent categories.

Three things management said stand out.

1. Watsco Is Expanding Commitment Beyond Traditional HVAC Into Plumbing Distribution

Adding plumbing products expands the addressable market while offering structural growth beyond standard replacement cycles. Recent acquisitions strengthen distribution coverage across 112 dual-offering locations.

I say that the big picture for Watsco that we should explain is that we are now committed to growing in the plumbing market, which means that we have enormous opportunities in that distribution business of plumbing as well as the HVAC market.
-- Albert Nahmad, Chairman and Chief Executive Officer

2. Proprietary Technology Drives Higher Contractor Loyalty and Lower Operating Costs

Digital tools create structural switching costs for contractors who integrate ordering platforms into daily operations. E-commerce platforms reached 37% of sales over the last 12 months, boosting overall customer retention.

Simply put, the contractors we serve digitally are growing faster, have greater loyalty, and we believe we can lower our cost to serve at scale over time.
-- A.J. Nahmad, President

3. Management Targets a 30% Gross Margin Through Operational Efficiency

Pricing optimization tools, vendor consolidation, and logistics initiatives provide structural tailwinds to profitability. Management views temporary quarter-to-quarter margin fluctuations as minor noise within a multiyear upward trajectory.

Having said that, we remain focused on reaching our long-term goal of 30% and believe we have the right tools in place to get us there.
-- Albert Nahmad, Chairman and Chief Executive Officer

Looking Ahead

Industry demand is normalizing following multiyear supply disruptions, and management is not hiding its satisfaction with expanding unit volume. Watsco holds structural advantages through its pristine balance sheet with zero debt, scale in data repository, and expanding dual-category footprint. Management is watching pricing discipline and fixed-cost efficiency while scaling platforms like SupplySync, a digital order platform for large institutional accounts.

Demand trends are now normalizing, organic growth is improving, and our digital ecosystem is producing measurable results in driving growth.
-- Albert Nahmad, Chairman and Chief Executive Officer

Strategic mergers and acquisitions (M&A) remain a core driver of market expansion alongside internal digital innovation. The combination of scale, software platforms, and debt-free liquidity positions the distributor to compound market share over the next three to five years.

We view these technology investments as critical to growing our leadership position in the HVAC industry and attractive to the entrepreneurs of companies like Jackson and Granite and many others before them to aid our M&A strategy of acquiring great businesses in our space.
-- A.J. Nahmad, President

The Motley Fool has positions in and recommends Watsco. The Motley Fool has a disclosure policy.