Watsco reported quarterly earnings of $4.52 per share, falling short of the expected $4.84 per share. This compares to earnings of $4.49 per share from the previous year. Adjustments were made for non-recurring items.
The company experienced an earnings surprise of -6.61% this time, following a -15.72% surprise in the previous quarter. Watsco has exceeded consensus EPS estimates only once in the past four quarters.
The company generated revenues of $2.06 billion for the quarter ended June 2025, missing the expected $2.21 billion. Revenues were $2.14 billion in the same quarter last year, surpassing consensus revenue estimates just once in four quarters.
Watsco’s stock price has dropped about 1.9% since the start of the year, while the S&P 500 increased by 8.3%. Future stock performance is likely to be influenced by management’s remarks during their earnings call.
The upcoming consensus EPS estimate stands at $4.81 with anticipated revenues of $2.28 billion for the next quarter. For the current fiscal year, the forecast is $14.16 EPS on $7.83 billion in revenues. The Building Products – Air Conditioner and Heating industry ranks in the top 37% of Zacks’ industries.
Watsco’s repeated failure to meet earnings and revenue forecasts suggests a strong bearish sentiment for the stock. This underperformance is not new, as we saw a similar, larger miss in the prior quarter. For traders, this pattern points towards potential further downside in the stock’s price in the weeks ahead.
We believe purchasing put options is a direct way to position for a potential decline. Given the stock has already fallen 1.9% since January against a rising S&P 500, momentum appears to be negative. Traders might consider strike prices below the current level, anticipating that the weak results will continue to weigh on the stock before the next earnings cycle.
This view is supported by recent macroeconomic data. The National Association of Realtors reported last week that existing home sales in June 2025 slowed for the third consecutive month, a trend that directly impacts HVAC replacement cycles. These persistent high interest rates through mid-2025 are likely suppressing demand for big-ticket home improvements.
Implied volatility likely decreased after the earnings announcement, making options relatively cheaper. This environment could be favorable for establishing bear put spreads, which would lower the cost of entry while still profiting from a moderate drop in the share price. We can look back at the period of 2022-2023, where rising rates similarly cooled the housing market, leading to volatility in related building-supply stocks.
Despite the company’s struggles, its industry remains strong, ranking in the top 37% of its peers. This suggests the issues could be specific to Watsco, making the management discussion on the earnings call a critical event for traders. Any surprisingly positive guidance on cost controls or market share could quickly reverse the current sentiment.
