On July 26, HVAC distributor Watsco released its quarterly earnings report, displaying record operating results for the second quarter and six-month periods ended June 30. 

Watsco reported a profit margin of 27.9% from 2Q sales of $2.13 billion compared to last year’s $1.85 billion. Operating income was $287 million, and net income was $225 million. The company also shared notes on observed sales trends: 

• 13% increase in HVAC equipment (70% of sales), including 15% growth in U.S. residential HVAC equipment
• 15% increase in other HVAC products (26% of sales)
• 26% increase in commercial refrigeration products (4% of sales)

Watsco said the HVAC/R industry has experienced above average demand since 2020 driven by broad consumer strength, renewed investment in the home and an ever-growing installed base of 110+ million HVAC systems in the U.S., all of which require continuous service, repair and replacement. Inflation also plays a role in these trends, as it causes OEMs and suppliers to raise their prices, which in turn has aided Watsco’s sales and profitability. 

The company said investments that Watsco has made during 2Q have been impactful to these reports, including investments in new locations, more field personnel and increased technology spending to enable future market share development. Watsco also pointed out that the investments coincided with significant increase in SG&A due to pandemic-related business challenges, sharp increases in variable operating expenses, including company-wide, performance-based compensation, excessive logistics and freight costs caused by supply chain disruptions and other inflationary impacts on costs. 

“Our technology platforms are making an impact as evidenced by our growing market share and financial performance,”: said Albert Nahmad, Watsco chairman and CEO. “We are encouraged by current trends even as end markets return to more historical levels of demand. While inflation generally benefits distribution models, Watsco’s performance is also a result of intentional investments in technology and other tools to capture more growth and operate a more profitable business going forward. While these investments are still maturing, they provide a solid foundation for future growth.”