Comfort Systems USA reported a sharp contraction in sales alongside a surge in profitability. Revenue over the twelve months to Q3 2026 was $5.27 billion, which fell 36.6% on the year before. Despite this decline, the growth rate improved by 11.9 percentage points compared to the rate a quarter earlier.

What stands out

Reported profit and cash generation are moving at different speeds. Net income rose 94.8% over the year while free cash flow rose 205.6%.

Capital spending is consuming a larger share of generated cash. Capital spending rose 336.7%, faster than operating cash flow’s 223.9%. Consequently, less of the cash generated was left over.

The company is earning more on less revenue. Revenue fell 36.6% yet the operating margin rose 5.4 percentage points.

Growth and profit

The trailing gross margin was 26.8%. The trailing operating margin was 18.8%, up 5.4 percentage points from a year earlier. The trailing net margin was 30.9%. Net income over the twelve months was $1.63 billion, which rose 94.8% on the year before.

Cash flow

Operating cash flow over the twelve months was $3.01 billion, up 223.9% on the year before. Capital spending was $565.5 million, or 10.7% of revenue. Free cash flow, operating cash flow less capital spending, was $2.44 billion, up 205.6% on the year before. Free cash flow was 46.3% of revenue (the free-cash-flow margin), up 36.7 percentage points from a year earlier. The average diluted share count fell 0.7% over the year.

In context

Today’s free-cash-flow margin of 46.3% is higher than 95% of the company’s own past quarterly readings, which have ranged from 0.9% to 56.3%. Today’s operating margin of 18.8% is higher than 98% of the company’s own past quarterly readings, which have ranged from −3.5% to 18.8%. Today’s twelve-month revenue growth rate of −36.6% is higher than 5% of the company’s own past quarterly readings, which have ranged from −73.9% to 35.0%.

What it means for value

In our model, growth 5 percentage points lower would lower the value by 23.9%, and 5 percentage points higher would raise it by 31.5%. A free-cash-flow margin 1 percentage point lower would lower it by 2.0%.

What to watch

The next filing will show whether the recent improvement in growth rates continues. It will reveal if the operating margin expansion persists despite the revenue decline. It will indicate how capital spending trends affect the free cash flow margin.