NYSE:WSO
WATSCO INC
A premier North American distributor of roofing and exterior building materials driving revenue growth through extensive market reach and operational efficiency.
Key Metrics
Investment Thesis
Bull Case
Investors may favor WATSCO due to its dominant market position in the essential roofing and building materials sector, which offers defensive characteristics against economic downturns. The company's consistent ability to generate significant operating cash flow provides a solid foundation for dividend payments and strategic acquisitions to expand market share.
Bear Case
Concerns regarding potential deceleration in housing starts and commercial construction could weigh heavily on future revenue growth if the macroeconomic environment softens. With net profit declining over the last five years from $703.7M in 2022, investors must assess whether current margins can be sustained amidst inflationary pressures and competitive bidding.
About WATSCO INC
WATSCO Inc. is a leading North American distributor of roofing materials, insulation, and exterior building products serving residential contractors, commercial builders, and home improvement retailers. The company operates through a vast network of distribution centers and branches, providing essential supply chain solutions for the construction industry.
Analysis
Management Discussion
Management reported a slight decline in net profit to $587.6M in 2025 compared to $635.7M in 2024, while revenue remained relatively stable at $7.24B after a peak of $7.62B the previous year. Despite this, operating cash flow remains robust at $569.6M, indicating strong liquidity generation capabilities even as earnings face margin pressure from rising input costs and inventory adjustments.
Industry Overview
The North American building materials distribution industry is characterized by high volume, low margin operations heavily reliant on the health of the residential and commercial construction cycles. Success in this sector requires significant scale to negotiate with suppliers and maintain a logistics network capable of meeting the urgent needs of contractors during peak construction seasons.
Financial Statements
Income Statement
Balance Sheet
Cash Flow
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Revenue | $7.27B | $7.28B | $7.62B | $7.24B |
| Cost of Revenue | $5.24B | $5.29B | $5.57B | $5.21B |
| Gross Profit | $2.03B | $1.99B | $2.04B | $2.03B |
| Operating Expenses | $1.20B | $1.20B | $1.26B | $1.31B |
| Operating Income | $831.6M | $794.8M | $781.8M | $720.3M |
| G&A | $1.22B | $1.22B | $1.29B | $1.34B |
| Stock-Based Comp | $28.8M | $30.0M | $35.0M | $35.3M |
| D&A | $31.7M | $35.1M | $40.8M | $43.8M |
| Amortization | $4.7M | $4.3M | $5.4M | $5.3M |
| Other OpEx | $-22.7M | $-26.2M | $-30.5M | $-27.8M |
| Non-Operating Income | $-2.2M | $-4.9M | $20.9M | $17.3M |
| Pre-Tax Income | $829.4M | $789.9M | $802.6M | $737.7M |
| Income Tax | $125.7M | $155.8M | $166.9M | $150.1M |
| Continuing Ops | $703.7M | $634.1M | $635.7M | $587.6M |
| Discontinued Ops | $0 | $0 | $0 | $0 |
| Net Income | $703.7M | $634.1M | $635.7M | $587.6M |
| Minority Interest | $102.5M | $97.8M | $99.5M | $90.6M |
| Net to Common | $601.2M | $536.3M | $536.3M | $497.0M |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Current Assets | $2.30B | $2.39B | $3.08B | $2.95B |
| Cash & Equivalents | $147.5M | $210.1M | $526.3M | $433.3M |
| Marketable Securities | — | — | $255.7M | $300.0M |
| Accounts Receivable | $747.1M | $797.8M | $877.9M | $796.2M |
| Inventory | $1.37B | $1.35B | $1.39B | $1.39B |
| Other Current Assets | $34.0M | $36.7M | $34.7M | $38.7M |
| Long-Term Assets | $1.19B | $1.34B | $1.40B | $1.46B |
| PP&E (Net) | $125.4M | $136.2M | $140.5M | $136.0M |
| Intangibles | $175.2M | $218.1M | $208.5M | $210.4M |
| Goodwill | $430.7M | $457.1M | $451.9M | $462.5M |
| Operating Leases | $317.3M | $368.7M | $419.1M | $452.5M |
| Other LT Assets | $8.0M | $10.7M | $10.9M | $13.6M |
| Total Assets | $3.49B | $3.73B | $4.48B | $4.41B |
| Current Liabilities | $906.5M | $712.0M | $983.9M | $717.7M |
| Accounts Payable | $456.1M | $369.4M | $490.9M | $350.4M |
| Current Leases | $87.1M | $95.6M | $104.0M | $112.3M |
| Other Current Liab | $59.9M | $4.7M | $6.3M | $4.9M |
| Long-Term Liabilities | $333.4M | $401.0M | $431.4M | $475.0M |
| LT Operating Leases | $232.1M | $276.9M | $321.7M | $350.6M |
| Other LT Liab | $44.9M | $124.1M | $109.7M | $124.4M |
| Total Liabilities | $1.24B | $1.11B | $1.42B | $1.19B |
| Shareholders' Equity | $2.25B | $2.62B | $3.06B | $3.22B |
| Retained Earnings | $1.03B | $1.18B | $1.30B | $1.32B |
| AOCI | $-47.7M | $-42.3M | $-59.9M | $-50.3M |
| Treasury Stock | $87.4M | $86.6M | $73.5M | $73.2M |
| Total L&E | $3.49B | $3.73B | $4.48B | $4.41B |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Net Income (CFO) | $703.7M | $634.1M | $635.7M | $587.6M |
| Non-Cash Adjustments | $-572.4M | $132.1M | $-179.9M | $286.0M |
| Working Capital Changes | $440.7M | $-204.3M | $317.3M | $-304.0M |
| Cash from Operations | $572.0M | $562.0M | $773.1M | $569.6M |
| Capital Expenditures | $35.7M | $35.5M | $30.1M | $34.5M |
| Cash from Investing | $-33.8M | $-41.3M | $-290.7M | $-98.1M |
| Dividends Paid | $332.4M | $382.6M | $423.5M | $473.8M |
| Cash from Financing | $-504.0M | $-460.1M | $-158.5M | $-568.1M |
| FX Effect | $-4.9M | $2.1M | $-7.7M | $3.6M |
| Net Change in Cash | $29.2M | $62.6M | $316.2M | $-93.0M |
| Beginning Cash | $118.3M | $147.5M | $210.1M | $526.3M |
| Ending Cash | $147.5M | $210.1M | $526.3M | $433.3M |
Frequently Asked Questions
How does WATSCO INC make money?
The company's revenue is primarily driven by its core distribution business supplying roofing shingles, underlayment, insulation, and flashing products to residential contractors, commercial builders, and home improvement retailers. Additional streams include the sale of siding, windows, doors, and related accessories, supported by a robust logistics network that ensures rapid delivery to job sites.
What are the main risks for WSO?
Fluctuations in construction activity and housing starts directly impact revenue stability and volume growth prospects. Rising freight costs, fuel prices, and supply chain disruptions can erode gross margins and increase operating expenses despite the company's scale. Currency exchange rate volatility affects international sourcing costs and foreign-denominated debt or revenue, impacting net income.
What is WSO's competitive advantage?
WATSCO leverages one of the largest and most efficient distribution networks in North America, offering superior product availability and speed-to-site for contractors. The company benefits from strong relationships with major manufacturers allowing it to secure competitive pricing and exclusive product lines that differentiate it from smaller competitors.
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Not financial advice. All content is for informational purposes only. Data may contain errors. Consult a qualified financial advisor before making investment decisions.