Watsco Inc reports results on Tuesday 27 October, before the market opens. The analysts’ average EPS estimate for the quarter is $4.18, while the average revenue estimate stands at $2.2 billion. This report will test whether the recent improvement in growth momentum continues against a backdrop of shrinking top-line figures.
What analysts expect
The analysts’ average estimate for full-year EPS is $12.14, which would be down 0.9% on last year based on 10 analysts. This target has slipped 4.4% over the past 90 days, reflecting a downward shift in expectations. Sentiment among the group leans toward caution, with 3 positive recommendations, 10 neutral and 1 negative.
Track record
The company has struggled to meet these lowered bars recently. Watsco reported EPS above the analysts’ average estimate in only 1 of the last 4 quarters. In the most recent period, actual EPS of $4.00 came in below the estimate of $4.39 by 8.8%.
The trends going in
Revenue over the twelve months to Q2 2026 was $7.3 billion, which fell 3.0% on the year before. Profitability metrics tell a mixed story. The trailing gross margin stood at 27.5%, while the operating margin fell to 9.4%, down 0.9 percentage points from a year earlier. Net income over the twelve months was $475.7 million, which fell 10.5% on the year before.
Cash generation has become the standout feature of the financial picture. Operating cash flow over the twelve months was $733.3 million, up 71.9% on the year before. With capital spending at just $36.1 million, or 0.5% of revenue, free cash flow reached $697.1 million, up 76.8% on the year before. This efficiency has lifted the free-cash-flow margin to 9.6%, an increase of 4.3 percentage points from a year earlier.
These current levels place Watsco in favorable historical territory relative to its own past performance. Today’s free-cash-flow margin of 9.6% is higher than 91% of the company’s own past quarterly readings, which have ranged from −0.5% to 10.6%. Similarly, today’s operating margin of 9.4% is higher than 71% of past readings, which spanned from 4.1% to 11.4%. In contrast, the current twelve-month revenue growth rate of −3.0% remains low in historical context, sitting above only 3% of past readings that ranged from −5.0% to 29.2%.
Questions this report will answer
The upcoming release must clarify whether the pick-up in revenue growth continues beyond the initial quarter-over-quarter improvement. It will also determine whether results land above or below the analysts’ expectations set out above, given the recent miss.
What it means for value
Our model shows high sensitivity to future growth assumptions. In our model, growth 5 percentage points lower would lower the value by 26.3%, and 5 percentage points higher would raise it by 34.6%. Cash efficiency also carries weight; a free-cash-flow margin 1 percentage point lower would lower the valuation by 10.9%.
