Watsco Inc., the largest HVAC distributor in North America, reported first-quarter 2026 revenue of $1.53 billion, flat year-over-year, as a 9% increase in average selling prices from a higher mix of A2L refrigerant equipment and higher-efficiency HVAC systems offset lower unit volumes — a result that beat analyst consensus estimates by 3.4% and reinforced management's characterization of the market as stabilizing after two years of post-spike turbulence.
Gross profit came in at approximately $428 million, with a gross margin of 27.9% — in line with prior-year levels. Operating margin held at 7.2%. Diluted earnings per share were $1.87, down 3% from $1.93 in the prior-year period, reflecting modestly lower unit volume even as average pricing improved. The company ended the quarter with $392.7 million in cash, $200 million in short-term cash investments, and no debt — maintaining the debt-free balance sheet that has defined Watsco's capital structure for several years. The company increased its annual dividend 10% to $13.20 per share, marking a continued commitment to returning capital to shareholders regardless of the soft volume environment.
The A2L Price Mix Story
The 9% average selling price increase in Q1 is the clearest financial signal yet of what the A2L refrigerant transition is doing to HVAC equipment pricing at the distribution level. New equipment using A2L refrigerants — primarily R-454B in residential cooling applications — carries a manufacturer-acknowledged price premium of approximately 10% over equivalent R-410A systems, driven by the redesigned components, updated controls, and safety-related engineering changes required by the new refrigerant's mildly flammable classification. As the proportion of A2L equipment flowing through the distribution channel continues to increase — AHRI reported that over 90% of new residential and light commercial equipment now uses next-generation refrigerants — average selling prices move structurally higher independent of list price changes.
For distributors, the A2L price mix effect operates as a durable revenue tailwind even in flat volume environments: the same number of units sold at a higher average price generates more distribution revenue and, if margins hold, more gross profit dollars. Watsco's Q1 result demonstrates that dynamic in practice — flat volumes, a 9% price mix lift, and stable gross margins producing revenue in line with analyst expectations despite the soft replacement demand environment. As the A2L transition deepens through 2026 and beyond, this price mix effect should continue to provide structural revenue support at the distribution level.
E-Commerce and Digital Platform Growth
E-commerce sales totaled approximately $2.6 billion on a trailing 12-month basis, representing 36% of Watsco's total sales — a meaningful share that reflects the company's sustained investment in digital ordering, contractor-facing mobile applications, and its OnCallAir homeowner quoting platform. Total authenticated users of the HVAC Pro+ mobile apps reached approximately 74,000, and the company added more than 10,000 new A2L-related SKUs to its digital catalog, including features, dimensions, capacities, consumer literature, technical information, bills of material, warranty data, and regulatory match-ups for the new refrigerant category.
OnCallAir — Watsco's digital platform that enables contractors to present and quote HVAC solutions directly to homeowners on a tablet or phone — saw gross merchandise value grow approximately 20% in Q1 2026 versus the prior year. OnCallAir is positioned as a contractor productivity and close-rate tool as much as a Watsco-specific platform: it allows the contractor to present multiple system options with financing terms at the kitchen table, shifting the customer conversation from price-focus to solution-focus. Watsco management has argued that contractors using OnCallAir close more business at higher average ticket values, and the 20% GMV growth suggests the contractor adoption base is broadening even in a subdued volume market.
Market Signals for Contractors and Competitors
Watsco CEO Albert Nahmad's prepared remarks framed the quarterly results as evidence of stabilizing markets — consistent with the recovery shape that major HVAC manufacturers set as their base case at the start of 2026: a soft first half, gradual improvement in the back half, and full-year growth in the low single digits. With the El Niño-driven warm summer forecast now in effect and cooling degree days trending above the depressed 2025 levels in most Watsco markets, Nahmad expressed optimism that second-half demand conditions will be more favorable than the first quarter's.
For smaller regional distributors and the independent operators that Watsco competes against across its 695 locations and 29 states, the Q1 results underscore two durable competitive dynamics: the A2L transition is raising the average transaction value across the entire distribution channel, benefiting distributors with broad A2L inventory and digital product data; and the technology gap between Watsco's $2.6 billion e-commerce infrastructure and most independent distributors' ordering systems continues to widen with each quarter of additional investment. The North American distribution landscape remains, in Watsco's own description, highly fragmented with more than 2,100 independent HVAC distributors — a consolidation opportunity the company has systematically pursued through 73 acquisitions since the mid-1990s.
