The country's biggest HVAC distributor says homeowners are buying systems again, and paying a little more for them. Watsco, the company behind Carrier Enterprise and a long list of regional supply houses, said its residential HVAC equipment sales rose 7% in the third quarter, on about 5% more units and roughly 2% higher average selling prices (via Watsco).
That's a turnaround from the slow, uneven stretch the industry went through during the switch to A2L refrigerants. Watsco CEO Albert Nahmad said the company was "encouraged to see residential unit volumes return to growth and steadily improve throughout the season." On the company's Oct. 27 earnings call, he said he expects the impact of the A2L transition to be "largely over by the end of this year."
Not everything is moving up. Watsco's commercial HVAC equipment sales fell 5% for the quarter. Commercial refrigeration, a smaller slice of the business, was up 10%.
The more useful detail for contractors came out on the call, according to a transcript published by The Motley Fool. Executives said residential new construction and multifamily were up by low double digits in the third quarter and drove most of the unit growth, while add-on and replacement work was up only low single digits. Executive Rick Gomez said new construction had swung from down more than 10% to up more than 10%.
On pricing, Watsco executive Paul Johnston said, "we expect to have some price increases this fall going into next year," pointing to metal and freight costs. He added that manufacturers haven't yet given much signal on direction. Watsco's Barry Logan said he expects the timing of manufacturer price moves over the next 12 months to be "early and more conventional," and noted pricing varies by vendor, with and without tariffs.
Early fourth-quarter trends look better too, but with a caveat. Albert Nahmad said quarter-to-date revenue is up double digits, but that figure includes acquisitions. Logan said acquired revenue adds more than 10% on top of organic growth, and that October is running better than September. Watsco has added 107 locations through acquisitions this year, including The Granite Group's 82 branches, bringing it to 804 locations.
Replacement demand still has room to run, according to management. Johnston said there's "still a lot of room to grow in replacement" as units installed during the pandemic age. Gomez estimated replacement units are still 10% to 15% below where they were two years ago, with consumers "uncertain and unsure about the state of things." Logan called the consumer "more tricky" with system costs higher.
Why it matters for Contractors
If you install HVAC, plan on equipment costs creeping up again. A 2% bump in average selling price isn't dramatic, but Watsco is signaling more increases this fall and into 2027. If you're quoting jobs that won't be installed for a few months, especially on new construction, put a price-validity window on your proposals or build in some cushion.
For builders, the news is mostly about availability. The worst of the A2L changeover appears to be behind distributors, and Watsco's numbers suggest new-construction demand is picking back up. That's a good time to lock in equipment selections and pricing with your HVAC sub early in the schedule.
For small service and replacement shops, the picture is mixed. Replacement volumes are still below where they were a couple of years ago, and homeowners are price-sensitive. Financing options and clear good-better-best quotes may matter more than usual this winter.