WSO

Watsco is the dominant scaled distributor of HVAC equipment and parts, with high returns on capital and a long history of disciplined, acquisition-led growth. ROE of 17.9% on a conservatively capitalized balance sheet (long-term debt of just $246M against $2.78B equity) and a 28.0% gross margin reflect genuine competitive advantages in distribution density and exclusive territory rights with Carrier, Rheem and Mitsubishi. The 11.9% increase in dividends paid to $474M underscores management's confidence and shareholder-return orientation.

The near-term picture has softened, however. FY2025 revenue declined 5.0% to $7.24B and net income fell 7.3% to $497M, with diluted EPS down 7.9% to $12.25 — the first clear earnings step-down after the FY2022-2024 plateau around $7.3-7.6B in revenue. Operating cash flow dropped 26.3% to $570M, and cash fell 17.7% to $433M, partly reflecting a dividend ($474M) that now nearly consumes reported free cash flow. The decline tracks a normalization in HVAC demand after the post-pandemic boom and the transition to lower-GWP refrigerant systems.