Based on the provided text, the title of the article is likely "10-Q".

Watsco’s Resilient Performance Amid Challenging Conditions

Watsco, Inc., the largest distributor of air conditioning, heating, and refrigeration equipment in North America, has reported its financial results for the first quarter of 2025. Despite facing headwinds from macroeconomic factors, the company has demonstrated resilience and a focus on driving sustainability through its product offerings.

Company Overview Watsco was incorporated in 1956 and operates from 693 locations across 43 U.S. states, Canada, Mexico, and Puerto Rico, with additional export coverage in Latin America and the Caribbean. The company’s primary revenue sources are the sale of HVAC equipment, parts, and supplies. Selling, general, and administrative expenses are largely variable, consisting of salaries, commissions, and marketing expenses.

The HVAC industry is highly seasonal, with peak demand in the second and third quarters for residential cooling and the first and fourth quarters for heating equipment. Demand in the new construction sector is more evenly distributed throughout the year.

Tariffs and Trade Tensions The company has been navigating the impact of tariffs and trade tensions, which have disrupted markets and increased the risk of an economic slowdown. Many HVAC equipment and component manufacturers source parts from China and Mexico or assemble products in Mexico. In response to these uncertainties, Watsco’s OEM partners and suppliers have announced pricing actions, which the company has passed on to its customers.

Climate Change and Emissions Reduction Watsco believes its business plays a significant role in the drive to lower CO2 emissions. The company has focused on selling high-efficiency HVAC systems, which can help homeowners and businesses reduce their energy consumption and carbon footprints. Regulatory changes, such as the American Innovation and Manufacturing Act of 2020, have mandated the phasedown of high-global-warming-potential refrigerants, leading Watsco to transition its inventory to lower-GWP systems.

The passage of the U.S. Inflation Reduction Act of 2022 is expected to further drive demand for high-efficiency heat pump systems through enhanced tax credits and rebate programs. However, the availability of these incentives beyond 2025 remains uncertain.

Financial Performance In the first quarter of 2025, Watsco’s revenues decreased by 2% to $1.53 billion, compared to $1.57 billion in the same period of 2024. This decline was partially offset by $2.6 million in revenues from new locations acquired and $5.9 million from other locations opened during the preceding 12 months, but was offset by $5.3 million from locations closed.

On a same-store basis, revenues decreased by 2% year-over-year, with a 1% decline in HVAC equipment sales, a 3% decline in other HVAC products, and a 5% decline in commercial refrigeration products.

Gross profit margin increased by 60 basis points to 28.1%, primarily due to the impact of pricing and sales mix for HVAC equipment. However, selling, general, and administrative expenses increased by 4% on a same-store basis, rising to 21.1% of revenues, compared to 19.8% in the prior-year period, primarily due to increases in facility costs.

Net income attributable to Watsco decreased by 8% to $80.6 million, compared to $87.5 million in the first quarter of 2024. This was primarily driven by the higher selling, general, and administrative expenses, partially offset by higher interest income and a decrease in net income attributable to the non-controlling interest.

Liquidity and Capital Resources Watsco relies on cash flows from operations and its revolving credit facility to fund seasonal working capital needs and other general corporate purposes. As of March 31, 2025, the company had $431.8 million in cash and cash equivalents, of which $131.7 million was held by foreign subsidiaries.

The company’s working capital increased to $2.11 billion at the end of the first quarter, up from $2.10 billion at the end of 2024. Net cash used in operating activities was higher in 2025 compared to 2024, primarily due to the timing of vendor payments and higher inventory balances.

Watsco maintains a $600 million unsecured revolving credit facility, which can be used for funding seasonal working capital needs, acquisitions, dividends, capital expenditures, and other general corporate purposes. At the end of the first quarter, there was no outstanding balance under the revolving credit agreement.

The company also has an “at-the-market” (ATM) offering program, which enables it to issue and sell shares of common stock. In 2024, Watsco issued and sold $298.5 million of common stock under the previous 2021 ATM Program. The company has a new 2024 ATM Program in place, with $400 million available for sale as of March 31, 2025.

Acquisitions and Investments Watsco continues to evaluate potential acquisitions and joint ventures to expand its business. In 2025, the company acquired Southern Ice Equipment Distributors, Inc., a distributor of food service and ice machine equipment, and Hawkins HVAC Distributors, Inc., a distributor of residential HVAC equipment and supplies.

In 2025, Carrier Enterprise I, one of Watsco’s joint ventures with Carrier, acquired W.L. Lashley & Associates, Inc., a distributor of commercial HVAC supplies. In 2024, Watsco acquired Commercial Specialists, Inc., a distributor of HVAC products.

Watsco also has a 38.4% ownership interest in Russell Sigler, Inc. (RSI), an HVAC distributor, through its Carrier Enterprise I joint venture. The company believes its operating cash flows, available borrowings, and funds from the ATM program would be sufficient to purchase any additional ownership interests in RSI, if necessary.

Dividends and Share Repurchases Watsco paid cash dividends of $2.70 per share on common stock during the first quarter of 2025, up from $2.45 per share in the same period of 2024. The company’s Board of Directors has declared a regular quarterly cash dividend of $3.00 per share, payable on April 30, 2025.

In addition, Watsco implemented a Dividend Reinvestment Plan in 2024, allowing existing shareholders to acquire up to 300,000 shares of each class of common stock by reinvesting their cash dividends.

The company also has a share repurchase program, with 1,129,087 shares remaining authorized for repurchase at the end of the first quarter of 2025. However, Watsco has not repurchased any shares under this program since 2008.

Outlook and Challenges Watsco faces a range of challenges, including the ongoing impact of tariffs and trade tensions, the uncertainty surrounding federal tax credits and state incentives for energy-efficient HVAC systems, and the potential for further macroeconomic disruptions.

However, the company’s focus on the HVAC replacement market, its investment in high-efficiency systems, and its strong liquidity position provide a solid foundation for navigating these challenges. Watsco’s role in supporting the transition to lower-emission HVAC systems also positions the company to benefit from regulatory and consumer trends favoring sustainability.

As Watsco continues to evaluate acquisition opportunities and invest in its long-term operating and technology strategies, its ability to leverage its financial resources and market-leading position will be crucial in maintaining its competitive edge and delivering value to shareholders.