Good morning. If your 2026 pricing quietly assumes another round of manufacturer increases to bail you out, the largest HVAC distributor in North America just told you it isn’t coming.
Top story — The tailwind is gone, and it’s measurable
Watsco reported second-quarter revenue up 2% to $2.10 billion — but gross profit down 4% to $579 million. Gross margin fell to 27.5% from 29.3% a year earlier. Operating income dropped 12% to $238 million, and earnings per share fell 12%, to $4.00 from $4.52 (Watsco Q2 2026 results).
The company was unusually blunt about why. Pricing actions by its primary manufacturers in 2025 “captured substantial inflation and tariffs, resulting in outsized benefits to last year’s gross margin.” For 2026, those pricing actions “have normalized, returning to levels more in line with historical trends.” Watsco put the comparative benefit sitting in last year’s number — 2025 pricing plus other A2L transition effects — at roughly 130 basis points (Watsco).
Translation for your shop: a chunk of what looked like margin improvement in 2025 was the tariff-and-transition price wave moving through the channel. It has passed. Watsco says the margins it is posting now are “more representative of underlying market conditions.”
Quick hits
Stabilizing, not booming. Excluding acquisitions, HVAC equipment sales rose 3% while other HVAC products fell 1%. Domestic residential HVAC equipment was up 5% — split evenly, 2% unit volume and 2% average selling price (Watsco).
Commercial refrigeration is the outlier. Up 19% in the quarter, though it is only 4% of sales (Watsco).
Digital buying is the default now. E-commerce reached $2.7 billion over the trailing twelve months — 37% of sales, with some regions above 70% (Watsco).
The Tip — Reprice off cost, not off last year’s pattern
Pull your ten most-installed models and compare today’s actual landed cost against what you paid in the same quarter last year. If you built this year’s price book by adding a percentage to last year’s — the way most shops do it when increases are predictable — you may have priced in an increase that never arrived, or missed one that did.
With OEM pricing back to historical patterns, your margin now has to come from your own labor rate, callback rate and overhead recovery. Nobody upstream is padding it for you this year.
Tool watch — [Not sponsored]
Watsco’s contractors ran $1.9 billion of quotes through its OnCallAir platform to about 342,000 households over the last twelve months, up 15% (Watsco). We have not tested that tool and have no view on it. The number is worth knowing for one reason: digital in-home quoting is now normal in your market, which means the homeowner comparing you against the next shop is likely seeing a cleaner presentation than a handwritten sheet.
That’s the callout. See you next time.
The Callout — the business brief for the trades. We label every commercial placement: [Sponsor], [Affiliate], or [Not sponsored]. Today’s Tool watch is our own honest read — no one paid for it. 231J Ramparts Road, Te Anau 9600, New Zealand · Unsubscribe anytime.
Sources: Watsco, Inc. — Watsco Second Quarter Results Reflect Further Industry Stabilization, Strong E-Commerce Sales Growth and Continued Operating Efficiency, 29 July 2026.