Watsco Q3 2026: Record Revenue, but Shrinking Margins Tell the Real Story
As seen on the 24/7 Wall St. homepage on October 27, 2026.
Record quarterly revenue still was not enough: gross margin narrowed to 26.4% from 27.5% a year ago. The $730 million in annualized revenue bought through Jackson Supply and The Granite Group now has to prove it can carry profit.
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Watsco's record third quarter of 2026 revenue came with thinner profitability: diluted EPS of $3.77 came in missing expectations, even as the top line set a high.
Margins are compressing for structural reasons: a customer mix shift toward larger accounts, more replacement sales relative to new construction, and more modest pricing moves from original equipment manufacturers, with operating margin down to 10.1% from 11.4% a year ago.
Acquisitions are carrying the growth story, with the Jackson Supply and The Granite Group deals adding 107 new locations and roughly $730 million in annualized revenue. Those additions now need to demonstrate they can carry profit as well as scale.
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CEO Albert Nahmad pointed to improving residential unit volumes and said same-store sales momentum accelerated into early Q4 2026. He stated that long-range objectives for sales, margin, and cash flow generation remain fully intact, and framed the acquisitions as broadening Watsco's product mix and geographic reach. Whether the newly enlarged network can close the gap between revenue growth and earnings expectations is the question investors will be tracking in the quarters ahead.
The digital business is the offset investors are leaning on: e-commerce sales reached $2.75 billion on a trailing twelve-month basis, representing 37% of revenues. These technology-driven channels have been growing faster than the broader contractor base and anchor management's long-term margin thesis.
Mentioned: WSO