Watsco (WSO) Down 9.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Watsco (WSO). Shares have lost about 9.9% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Watsco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.Watsco Q4 Earnings & Revenues Lag Estimates, Gross Margin Up Y/YWatsco reported lower-than-expected fourth-quarter 2025 results with earnings and revenues missing the Zacks Consensus Estimate and decreasing year over year.The quarterly results reflect reduced demand volumes for HVAC equipment and products, with the return of seasonality pulling back the numbers further. Also, a weaker consumer spending environment and a slowdown in housing activity are concerning.The bottom line was adversely impacted by reduced leverage from the top line, despite several pricing optimizations and reduced expenses.Inside WSO’s Q4 HeadlinesThe company reported earnings of $1.68 per share, missing the Zacks Consensus Estimate of $1.94 by 13.4% and declining 29.1% year over year from $2.37 per share.Revenues of $1.58 billion also missed the consensus mark of $1.61 billion by 1.9% and tumbled year over year by 10%.Segment-wise, HVAC equipment (67% of sales) fell 13%, and other HVAC products (29% of sales) declined 4%, somewhat offset by 5% growth in commercial refrigeration sales (4% of sales).Watsco’s Margins and ProfitabilityGross profit of $428.4 million was down from $468.1 million reported in the year-ago quarter. However, the gross margin expanded 40 basis points to 27.1%, driven by effective pricing and product mix optimization.Operating income declined 25.5% year over year to $101.5 million, with operating margin contracting 140 bps to 6.4%.Selling, general and administrative expenses inched down 1.7% to $332.6 million.WSO’s 2025 HighlightsDuring the year, revenues declined year over year by 5% to $7.24 billion, with earnings per share reducing 7.9% to $12.25.Gross profit decreased 1% to $2 billion, but gross margin expanded 120 bps to 28%. Operating income also declined 8% to $720 million from 2024, with the operating margin of 10% contracting 30 bps.WSO’s Balance Sheet and LiquidityAs of 2025, Watsco had $433.3 million in cash and cash equivalents, down from $526.3 million at the end of 2024. As of Dec. 31, 2025, net cash provided by operating activities was down to $569.6 million from $773.1 million as of Dec. 31, 2024. The company reported no long-term debt, underscoring its conservative capital structure.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in fresh estimates.The consensus estimate has shifted -7.23% due to these changes.VGM ScoresAt this time, Watsco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for value investors.Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.Quantum Computing Stocks Set To SoarArtificial intelligence has already reshaped the investment landscape, and its convergence with quantum computing could lead to the most significant wealth-building opportunities of our time.Today, you have a chance to position your portfolio at the forefront of this technological revolution. In our urgent special report, Beyond AI: The Quantum Leap in Computing Power, you'll discover the little-known stocks we believe will win the quantum computing race and deliver massive gains to early investors.Access the Report Free Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Watsco, Inc. (WSO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks