Watsco Earnings: 2023 Was a Strong Year Despite Industry Softness but Gross Margin Slide Continues

Shares of Watsco traded lower on Feb. 13 after the narrow-moat-rated heating, ventilation, and air conditioning distributor reported fourth-quarter results that fell short of FactSet consensus expectations. Fourth-quarter revenue of $1.6 billion increased 1% year over year (down 2%, excluding acquisitions) but was about 3% shy of the consensus estimate, while EPS of $2.06 decreased 12% compared with the prior-year adjusted figure and was roughly 15% below consensus. Even so, 2023 was a strong year for Watsco considering residential HVAC demand in the United States significantly softened after two years of above-average demand. Indeed, according to the Air-Conditioning, Heating & Refrigeration Institute, industry shipments of air conditioners, heat pumps, and furnaces declined about 18% year over year in 2023, returning to prepandemic levels.