ワトスコ（WSO）2026年第3四半期決算説明会：過去最高の売上高とHVAC需要の回復

主なポイント

• Watscoの2026年第3四半期の売上高は、既存店売上高の4%増を含め、前年同期比7%増の22億2,000万ドルと過去最高を記録しました。住宅用HVAC（空調）機器の売上高は、販売数量の増加と価格引き上げに支えられ7%増加しました。
• 売上総利益は過去最高の5億8,600万ドルに達し、売上総利益率は26.4%となりました。経営陣は利益率の変動要因として、顧客および製品ミックス、Jackson Supplyの新規連結、ならびに前年の冷媒関連による高水準な比較対照を挙げました。
• 営業利益は2億2,500万ドル、営業利益率は10.1%、1株当たり利益（EPS）は3.77ドルでした。
• 年初来の営業キャッシュフローは79%増の3億400万ドルとなりました。Watscoの当四半期末時点の現金残高は6億4,900万ドルで、無有利子負債経営を維持しています。
• デジタル化の進展が拡大し続けています。年初来のEC売上高は12%増加し、直近12か月間の売上高の37%を占めました。一部の市場では浸透率が60%〜70%に達しています。
• Watscoは買収を通じて事業を拡大しました。6月1日に買収したJackson Supplyは当四半期中に16%成長し、買収が完了したGranite Groupにより、約5億ドルの年商と北東部の82拠点があらたに加わりました。

主要財務データ

事業およびオペレーションの業績

規制やサプライチェーンの複雑化が緩和されたことで、需要の改善が続いています。経営陣によると、事業のモメンタムは5月以降毎月強化されています。10月の業績は9月を上回り、買収を含めた10月の総売上高は2桁の伸びを記録しました。

住宅用HVAC機器が最大の成長ドライバーとなりました。機器売上高は前年同期の7%減少に対し、5%増加しました。追加・買い替え需要は1桁台前半の伸びに改善し、住宅新築向けおよび集合住宅向け事業は10%台前半の増加となりました。

経営陣によると、買い替え数量は2年前の水準を依然として10%〜15%下回っており、市場は正常なトレンドラインに近づきつつあるものの、まだ達していないことを示しています。また、地域別の買い替え状況も北部、南部、西部で異なっています。

年初来のEC売上高は12%増加し、直近12か月間の売上高の37%を占めました。Watscoのモバイルアプリの月間アクティブユーザー数（MAU）は7万3,000人を超えました。過去1年間で約35万1,000件のデジタル見積提案を通じて20億ドルの流通取引総額（GMV）が創出され、前年同期比で14%増加しました。

6月1日に買収されたJackson Supplyは、第3四半期の業績に寄与しました。同事業は年商2億3,000万ドルで、サンベルト地域の25拠点から事業を展開しており、当四半期中に16%成長しました。

Granite Groupの買収により、年商約5億ドル、1万1,000社以上の顧客、および北東部82拠点を持つ事業が新たに加わりました。Graniteは、WatscoにとってHVACと配管工事請負業者の両方にサービスを提供する4つ目の買収事業となります。Watscoは現在、両製品カテゴリーを取り扱う拠点を112カ所保有しています。

経営陣はまた、サイドディスチャージ（横吹き出し型）HVACシステムの導入拡大についても強調しました。同社はこれらの製品が市場の約8%〜10%を占めると推計しており、このカテゴリーではブランドや価格帯にわたって「グッド・ベター・ベスト（標準・上位・最上位）」の提案の幅が広がっていると述べています。

経営陣の見通し

経営陣は、A2L冷媒への移行による影響は2026年末までにほぼ終息すると見込んでいます。

Watscoは30%という長期的な売上総利益率の目標を再確認する一方で、その進展が直線的には進まないだろうと忠告しました。価格設定の最適化、ベンダーの集約と合理化、物流の共有、デジタル化の推進、ならびに部品・資材ミックスの向上が、長期的な利益率向上の潜在的なレバーとして挙げられました。

同社は、過去10年間の平均に基づき、第4四半期の売上総利益率が前の季節的期間から歴史的に約20〜30ベーシスポイント（bp）改善していると指摘しました。経営陣は、これを業績見通し（ガイダンス）ではなく過去のデータであると明言しました。

Watscoは、メーカーによる2027年の価格改定が、近年の異例なほど変動の激しかった値上げに比べ、早期かつ従来通りの手法で行われると予想しています。経営陣はまた、金属、鉄鋼、運賃コストの上昇に伴い、秋から2027年にかけて一部で値上げが行われると見込んでいますが、完成品メーカー（OEM）からの具体的な指示は限定的であるとしています。

同社は第4四半期に在庫が季節的に減少すると見込んでいます。JacksonおよびGraniteを除いた年末の在庫水準について、経営陣は前年とほぼ同水準になる可能性があると述べましたが、これはコミットメントではなく目指すべき機会であると強調しました。

リスクと注視すべき分野

売上総利益率は、顧客ミックス、機器と非機器の売上構成比、新築工事の動向、およびメーカーの価格設定に引き続き影響を受けやすい状況です。大手の請負業者顧客は一般的に売上総利益率が低めですが、サービスコストが低く、市場シェア拡大の機会をもたらす可能性があると経営陣は述べています。

Jackson Supplyの利益率構造はまだWatscoの約27%という水準に達しておらず、これが第3四半期の売上総利益率の重荷となりました。また、前年同期は冷媒不足による好影響を受けていたため、前年比較のハードルが高くなりました。

設置費用を含めたシステム価格が10,000〜15,000ドルに達することから、消費者の購買力が依然として制約要因となっています。経営陣はまた、消費者の先行き不透明感の継続や、標準的な効率水準の製品に偏った売上構成比を理由として挙げました。

投入コスト、特に金属、鉄鋼、運賃が上昇しています。OEMによる価格改定の時期や幅については、依然として不透明感が残っています。

在庫の前年比較は買収の影響を受けています。Jacksonは約6,000万〜7,000万ドルの在庫を追加し、GraniteはWatscoの貸借対照表に連結される前の9月末時点で、約1億4,000万〜1億5,000万ドルの在庫を保有していました。

アナリスト質疑応答の要点

売上総利益率：経営陣は、26.4%という結果は単一の構造的変化ではなく複数の要因を反映したものであると述べました。これらには、利益率の低い新築向け事業の好調、大口顧客ミックスの増加、Jackson Supplyの連結、ならびに前年の冷媒不足による好影響の消失が含まれます。同社は、価格設定の最適化とオペレーション上の施策が、長期目標である30%に向けた道筋を提供するとの見解を維持しました。

営業レバレッジ：年初来の固定費は1%増加した一方、業績好調な事業部門でコミッション、ボーナス、配送費用が増加したため、変動費は6%増加しました。経営陣は、テクノロジーへの投資を継続しつつ、固定費の規律維持を営業レバレッジの主要な指標と位置づけています。

顧客の集約化：経営陣は、集約された請負業者グループが市場の約7%〜8%を占めると推計しています。Watscoは、この傾向が売上総利益率をやや圧迫する可能性があるものの、販売数量とシェア拡大の機会も生み出すとしており、個々の影響は数パーセントポイント単位ではなく、通常10〜20ベーシスポイント（bp）程度として議論されると述べました。

買い替え需要：追加・買い替え需要は、第2四半期のほぼ横ばいから第3四半期には1桁台前半の伸びへと改善しました。経営陣は、パンデミック期の需要前倒しの影響が設置ベースで解消されるにつれ、さらなる回復が可能であると考えています。

買収戦略：Watscoは、JacksonやGraniteに対して従来のコスト削減によるシナジーを計画していません。同社のアプローチは、既存の経営陣、企業文化、インフラを維持しつつ、資金、テクノロジー、製品、および従業員株式を提供して成長を支援することです。

配管事業の拡大：経営陣は、配管事業を重要で新たな成長市場と位置づけています。配管の流通事業はHVACと根本的に異なる利益率構造を持っておらず、一方でテクノロジーの導入や請負業者の集約化はより初期の段階にあると述べました。

決算説明会文字起こし全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to the Watsco Third Quarter of 2026 Earnings Call. [Operator Instructions] Please be aware that today's call is being recorded.

I would now like to turn the call over to Albert Nahmad. Please go ahead.

Albert Nahmad

Good morning, everyone. Welcome to our third quarter earnings call. And this is Al Nahmad, Chairman and CEO. With me is A.J. Nahmad, President; Paul Johnston, Barry Logan and Rick Gomez.

Before we start, a cautionary statement, this conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements on the report.

I'm happy to report that Watsco's third quarter results reflect improving demand and simpler operating conditions in our industry and in our business. The last 6 years brought a pandemic, supply chain disruption, regulatory transitions and tariff volatility. Through it all, we stayed the course and invested in our business. Demand trends are now normalizing. Organic growth is improving and our digital system ecosystem is producing measurable results and driving growth. Our largest and most impactful product group, which is residential HVAC equipment, grew 7% during the quarter with gains on both unit volume and pricing. We expect the impact from the A2L transition will be largely over by the end of this year.

Third quarter reflects Jackson Supply, which was acquired on June 1 of this year. Jackson has $230 million in annual sales and operates from 25 Sunbelt locations. Jackson is performing well and grew 16% during the quarter. We're also pleased to have completed the acquisition of the Granite Group. Granite has annual sales of approximately $500 million and serves over 11,000 customers from 82 locations in the Northeast. Granite marks the fourth business acquired by Watsco that serves both HVAC and plumbing contractors. Today, Watsco has 112 locations that offer both HVAC and plumbing products.

Our M&A pipeline has always included companies that have historically distributed both HVAC and plumbing products, and we hope to have other similar businesses to join us. As is our culture, Granite will continue to independently operate and grow their business with our full support. They have big ambitions, and we will support their leadership in any way we can. Watsco is a more efficient company this year. We have made investments in technology, supply sync, BCR, hydros and other initiatives that will benefit growth in the years ahead. Excluding these investments, fixed costs have increased 1% so far in 2026.

In terms of our balance sheet, we ended the quarter with $649 million cash and no debt. Even after using a portion of our cash to fund the Granite transaction in October, we remain a positive net cash flow position and are committed to maintaining a pristine balance sheet, enabling investments in growth opportunities as they arise. Turning to the third quarter results. Sales increased 7% to a record $2.22 billion and 4% on a same-store basis. Gross profit was a record $586 million. Gross margins were 26.4%. SG&A increased 5%, excluding Jackson, primarily due to variable expenses. Operating income was $225 million with an operating margin of 10.1% and earnings per share came in at $3.77. Gross margins over the last 12 months has been in a narrow range and more in line with historical seasonality and current business conditions.

Having said that, we remain focused on reaching our long-term goal of 30% and believe we have the right tools in place to get us there. Year-to-date, operating cash flow has improved 79% to $304 million, reflecting our continued vigilance towards managing our assets. Finally, I'm going to hand this call over to A.J. Nahmad, who is our President, to provide an update on Watsco's technology initiatives, and he will be joined by other leaders of Watsco. A.J.?

Aaron Nahmad

Thank you, and good morning to everyone. With the complexity of the last few years largely behind us, we believe our technology investments have made us a stronger company with higher growth prospects and a widening competitive moat. Our goals are ambitious and straightforward. First, leverage our industry-leading repository of data, product, market, customer, competitor pricing, you name it. This underpins and empowers the industry's most advanced technology platforms.

Second, revolutionize our customer experience so that contractors, installers and technicians love doing business and only want to do business with the Watsco companies. Next, transform our supply chain and distribution operations to better serve customers and gain operating efficiencies along the way. And finally, develop and launch technologies that help our customers grow their businesses. Importantly, we see contractor behavior evolving in ways that benefit the technology-enabled distributor long term. Our core technology platforms continue to scale and add value. E-commerce sales have grown 12% year-to-date while outpacing overall growth and broader industry metrics. E-commerce reached 37% of sales over the last 12 months with certain markets at 60% to 70% penetration.

Digital engagement with our mobile apps is strong at more than 73,000 active monthly users. And [Indiscernible] continues its growth trajectory. Over the last year, approximately 351,000 proposals represented a homeowners generating $2 billion of gross merchandise value, a 14% increase over the comparable period. .

Simply put, the contractors we serve digitally are growing faster, have greater loyalty, and we believe we can lower our cost to serve at scale over time. Just as exciting, the new initiatives announced late last year are making progress. [Indiscernible] our newest platform to serve the growing segment of large institutional customers launched earlier this year to great [Indiscernible]. We have launched the pilot program and are transacting the customers with a plan to scale it to more and more customers in the coming months. This is a growing channel with unique customer needs that provides incremental growth opportunity for Watsco. -- while leveraging our existing scale and infrastructure.

VCR, which stands for vendor consolidation and rationalization continues to expand across many of our non-equipment product categories. Relationships with our strategic vendor partners have strengthened, and in many cases, are at all-time highs. Hydro, which is our investment in share logistics and distribution has further matured and will continue to scale in 2027 and to more locations and more vendors. And the transformational use of AI continues to evolve throughout Watsco. I could spend the next few hours just on that subject. These investments, along with our scale, entrepreneurial culture and capacity to invest are unmatched in our industry. We view these technology investments as critical to growing our leadership position in the HVAC industry and attracted [Indiscernible] of companies like Jackson and Granite and many others before them to aid our M&A strategy of acquiring great businesses in our space. We invite you to visit us and learn more about what we consider to be our long-term competitive advantage.

In closing, a reminder of our fundamentals. Watsco is the market leader and the technology leader in what remains a highly fragmented HVAC distribution market. The products we sell are necessity and the installed base continues to expand. We have deep and collaborative relationships with industry-leading manufacturers and industry partners. We offer the broadest variety of products and operate a large and growing network to serve more and more customers, and our unique ownership culture shared by more than 8,200 employees rewards and incentivizes long-term performance.

With that, let's turn to Q&A.

Operator

[Operator Instructions] At this time, we will take our first question, which will come from Tommy Moll with Stephens.

質疑応答

Thomas Moll

Of course. So I want to start on gross margin, which I suspect will dominate this call. I'm going to go out on a limb here and try to summarize what we're seeing and then I would invite anyone to correct me where I'm wrong. But you threw out a lot of factors that drove the results this quarter, customer mix and market equipment versus non-equipment. But is it an oversimplification to say that you've taken some share in the new home construction market and that inherently you're dealing with larger customers and lower margin equipment products primarily it's kind of all one and the same factor here.

Albert Nahmad

I'm going to let Barry Logan and Rick Goldman deal with that compare on top of the data better than I.

Barry S. Logan

Thank you, Thomas, for the question. Yes, it's -- I would have worried there was the second question by the way. So [Indiscernible] the first question. There's a measure of still kind of comparison reality going on that this should be accounted for. It's not as simple. I want it to be as simple as what you said, but not quite. But it is becoming more simple. A year ago, new construction-related equipment sales were down double digits. This year, they're up double digits. And so that's a mix reality to margin as well. It's also a comparison discussion to last year. And it's also our participation in this year through some of the inference in your question is gaining some share, but there's still a bit of a comparison discussion in that.

When we talk about larger customers, that doesn't necessarily mean new construction, not at all. In fact, even in new construction, the builders themselves hire contractors to do the work. They're not necessarily all large contractors. In the case of we comment about large customers, it's really that more seasoned call it, multi-truck multi-market customers that I think have done well that are using our technology, our penetration of technology in that group is in excess of 50% e-commerce into that channel.

You can see our e-commerce revenues are up double digits this year. That tells you something about traction and the affinity of technology and those customers. And as you might suspect, the larger the customer, there is a more moderate margin but there's also more moderate cost with our manufacturers who support that activity. It's not just up to us to set the price. We jointly work with our manufacturers and our customers on total margin in that segment, and the cost to serve is not as great in that community as it is in, let's say, the small contractor community. So that's a component of it.

Rick, anything -- anything else in there that that's important to discuss?

Rick Gomez

I would just add a couple of things, Tommy. First, First is that there's -- we had some -- this is part of the comparison reality that Barry described this time last year, there was a shortage of refrigerant in the market that helped last year's margin. And this year, we have Jackson Supply in our Q3 revenue mix. They're not quite yet at Watsco is 27% range. And so therefore, that weighed a little bit. So that will abate, obviously, and that's part of the comparison that Barry is describing.

I think the other thing that's worth pointing out, though, is that this -- if we look at margins sequentially, Q2 to Q3, this is the type of sequential margin change that we've seen in the last several years, as a result of tariff pricing and product transition and other realities of the marketplace. And so I would point -- I would -- you could go back and look at '25, '24, '23, '22, and you'll see I think, similar types of changes from Q2 to Q3 margin and not wholly unexpected.

Aaron Nahmad

Yes. This is A.J. I'll add. I zoom out to the big picture, which is, I guess, where I like to live most of the time is there's a lot of -- you have a lot of noise you have to look for the signal, especially since we're such a long-term focused company, right? Watsco and our [Indiscernible], we used to operate at 24%, 25% gross margins. that ran up to 29% gross margin with all the noise and Barry and Rick just described some of that. But we're a 27-plus now year-to-date, and our goal is 30% and we see a path there. And it will not be a straight line, there will be choppiness certainly quarter-to-quarter. But our job, what our focus is, is the long-term, the ARC maturity and getting from where we were 24%, 25% to where we are, 27-ish to 30-ish where we're heading.

Thomas Moll

And as a follow-up, I wanted to ask about SG&A. If we just look at the same store, it ran a little hot versus the sales growth this quarter, maybe about 1 point more growth in SG&A than sales. Although Al, you pointed out a lot of the increased expense was around some of these big initiatives that you highlighted as early as your Investor Day last year. But just help us parse the trends here. When -- how do we measure success on operating leverage? And with these investments, when is it reasonable to expect to see it on an all-in or a same-store basis?

Albert Nahmad

Barry, you can jump in.

Barry S. Logan

Yes, I'll take a shot at that. It's a good -- I'd like to phrase, Tommy, where you said, how do you measure success. And as a distributor, the most simple way to measure success is our fixed cost remaining efficient while growth is going on because then the incremental margin, every dollar that you sell drops to the bottom line. We wanted to make a lot of progress this year on fixed cost because we couldn't make a lot of progress in the prior years. And so year-to-date, if I isolate fixed costs, they're up 1% this year. Year-to-date, I'll address the quarter in a second.

And year-to-date variable costs are up 6%, and which is some measure of business units that are doing well, that are growing, that are growing earnings. They're paying commissions [Indiscernible] recruiting bonuses. And little bit of freight and fuel and delivery cost inflation in that number, which is to be expected. But overall, on a same-store basis, SG&A is up 2%. And technology spending, by the way, year-to-date is up about 13% or $6 million. And those are some of the new initiatives that are in those numbers.

Thomas Moll

[Indiscernible] ease the word investments, but that's the right word for those dollars.

Barry S. Logan

That's correct. And so that's the big picture for the year-to-date is to become more efficient, fixed costs and make them as neutral as possible, battle inflation through other initiatives to save. And again, year-to-date, fixed expenses are up 1%. For the quarter, it's 3%. And again, there is some inflation in that for rent and facilities and things like that. But in relative terms, it's kind of in line with inflation. And during the quarter, variable expenses were up around 10%. Again, as we see some acceleration, certainly in some business units that are outgrowing what we report there are accruals and variable type expenses that go with that and some outsized inflation and delivery costs for the quarter, which is I consider that a short-term thing. But it's a good question about how do you measure success? And I would say this year's progress, not optimized, but good progress.

Operator

Our next question will come from David Manthey with Baird.

David Manthey

I'll go back to gross margin, of course, here. And if we're looking at normal seasonality, into the fourth quarter, I guess the implication is probably something in the 27% range, which I think would put you somewhere in the low 27% for the full year. I believe that you said in the past that excluding the abnormal second quarter in 2025, you would have been somewhere in the 27.5% range. So 27.5% to 27 low 27s, I'm not asking for any guidance here, but I'm just trying to think through -- as you think about from where we are in '26, looking ahead to '27, what are the key levers we should be thinking about moving here in terms of whether that's customer mix or equipment, non-equipment, pricing, price optimization that you're doing internally? What are the factors we should be thinking about to move the needle one way or the other?

Albert Nahmad

Anyone want to pick it up in there?

Barry S. Logan

That's a pretty good [Indiscernible]. It is a lot of those things. It's -- we are certainly still early days in our pricing optimization efforts. I think there is a huge runway there. There is certainly the influence and the impact of the mix of equipment versus non-equipment, what equipment is sold when it is sold of the customers that are showing up and buying every day. So it's all those things, and we can't predict or control all of those things. But back to where we're investing, we feel very good about what's in flight, right? We feel good about the technology. We know that the -- more that customers use more of our technology, the better customers they are, not only in gross margin, but also in sales and stickiness or lack of attrition.

We love the VCR initiative where we're finding ways to buy smarter and help our vendor partners at the same time. So it's a win-win to them. We love Hydros, which is helping our business units carry more products on the parts and supply side and expand our offering, and we love [Indiscernible] has got so much opportunity underneath it, and we keep learning about or thinking about new ideas with new partners. But what that should ultimately mean is a lot more sales and a lot more sales of parts and supplies as it matures. So your list is good. I like what -- we like what's in flight, when does it all show up in every quarter's financials, I can't tell you.

Yes. And just it would be helpful, Dave. I think just doing the math, just being objective and just using data in simple math, you're right, the fourth quarter generally is a better margin than the seasonality that preceded it. And if I look at the math over a 10-year average, it's about 20, 30 basis points of improvement. So that's just something to consider. I'm not -- again, as you said, I'm not giving guidance, but that's the math over at least a 10-year period.

I think it's important to remind everyone for the sake of looking forward that the OEM pricing actions that are taken either the amount of those actions or the timing of those actions certainly plays a role in the equation over, let's say, the next 12 months. And the expectation is that they will come early and more conventional and kind of more ordinary, if you will, than what we've seen in the last 4 or 5 years, which is different amounts, different by vendor, different timing with and without tariffs, with and without mega inflation -- and that volatility is part of what we've had -- what we've had to explain in the last 4 or 5 years. And I can't predict the future, but the expectation is that going into the next 12 months, that will be a more ordinary and conventional feeling than some of the volatility we've seen.

Albert Nahmad

Yes, sorry. it's Rick, sorry.

Rick Gomez

Yes. I was just going to add 1 item to that, which is I think what underappreciated in all of this right now is the fact that we are being a rebound and stabilization of industry volumes. That's important to any distributor. At the end of the day, if you're going to have incremental -- and this goes back to Tommy's question a little bit, if you're going to have incrementals that are good and healthy.

And so if I step back in time, if we go to this call a year ago, same-store sales were down. Now they're up. Add-on replacement was down. Now it's up. R&D was down more than 10%. Now it's up more than 10%. Equipment sales were down 7% last Q3, now they're up 5%. I know, by the way, we're a 10% bigger company having made 2 great acquisitions in the last 120 days. So I do think that the -- my point in saying that is that there has to be some base level of industry health and stability in volumes, and we're starting to see that now, that hasn't been the case over the last 3 or 4 quarters.

David Manthey

Yes, that's helpful. So then all of the things we just went through, those all sound like positive needle movers with the one exception being the large customer mix that you cited this quarter, is that a cyclical or a secular thing in terms of larger customers? And certainly, with all of the things we talked about it's not enough customer mix being towards larger customers. That would not be enough to overwhelm all of the other goodness that you're working on. Is that correct?

Barry S. Logan

[Indiscernible] No, I'll just take a shot at it. I think the word affordability is in lexicon now a great deal of the fact that the products are $10,000, $15,000 or whatever to install. And I've always said from my career, we've said for our careers and people know [Indiscernible] these things. So you have immense product change, you have a higher price tag. You have a trickier economy. You have a more tricky consumer, therefore, and yet e-commerce sales grew 10%, 12% this year. And I would say, higher efficiency systems grew 10%, 15% this year-to-date. So does that make sense?

And I think, again, the larger customer, the one that is using technology that's appliable and going to the home and selling that wants to move on from the [Indiscernible] product that wants to get their business, marketing and financing and so on directed toward the opportunity and helping us helping empower them to do that is where we see the benefit from it, Dave. And again, the cost to serve in those customers is lower than, let's say, 50 smaller customers that may do as much volume as 5 that are considered large customers.

So I think it's really part of the transition, part of the maturation in [Indiscernible] products is those customers have done a good job of it. And then our job is how do we help our customers plug along and move along the transition and maturity as well. That would be some observations, I think without data, but some good observations, I think.

Albert Nahmad

Yes, I'll double down on that, Barry, which is just to be clear, large customers is not a bad thing, right? We have tools and technology and systems and processes and programs, and we welcome that customer base. Our mission and our goal is to make sure that we are the supply house of choice for all those customers and that we can do so at a profitable level and sell them the full suite of products that we have and with the services that we provide. But we don't exclusively cater to that segment of customers either. I mean the small guys with 1 truck or 3 trucks, we've got wonderful pricing and programs in technology and systems and processes for those guys as well, including helping them go from small to big because when they do, when they drag us long in their growth and they're very loyal.

So like Barry said, our job is to cater to all the customers and these investments that we keep talking about, certainly focus not just on one group but all groups.

Unknown Executive

If you look at the market that we've got out there right now, the market is up. but it hasn't recovered yet back to what it was. And I think at that point, you're going to see the smaller customer becomes -- he's going to become a better customer than what he was this year. This year, the small customers probably suffered more than the large customers. They don't advertise. They don't promote and they have an issue where everything has to go by word of mouth. So I think as the market recovers, I think you're going to see the smaller customer recover with them. .

Operator

Our next question will come from Ryan Merkel with William Blair.

Ryan Merkel

Can you comment on October trends quarter-to-date? I think you mentioned further momentum, and then I'm curious on the complexion, are you seeing the new construction recover further comment on commercial, if that's getting better and then aftermarket replace if you're seeing a pickup there?

Albert Nahmad

That's good news. [Indiscernible] do you want to share that?

Unknown Executive

Yes. I don't have the data in front of me though. So if Rick or Barry, you want to be more explicit.

Rick Gomez

October [Indiscernible] is looking healthy to date, and continuing the momentum that you've been alluding to, and we hope and expect to carry through the end of the year, but hard to say on the R&C details, I don't know, Barry or Rick, if you have that or if you want to share it?

Albert Nahmad

Well, in revenues, we're up double digits so far in this quarter in revenues.

Ryan Merkel

Got it. Is that total company revenues? Or is that organic?

Albert Nahmad

[Indiscernible] I mean it includes the acquisitions that we've made.

Ryan Merkel

Got it. Yes, I was just -- yes, okay. So [Indiscernible] would you say is recovery?

Barry S. Logan

Just to say it this way, Ryan. I think less to say it this way, so it's careful. So -- we said in the press release that since May, we've seen improvement every month, month over month in terms of progression and momentum in October is no different. October was better than September. And if you add acquisitions on top of that, that's where you get into the 10% plus on acquired revenue on top of what we're seeing organically. .

Ryan Merkel

Okay. Got it. That's helpful. And then I wanted to ask on the side discharge, which is becoming a big topic. I'm curious for you, are you seeing progress on that product? How big is it? And if you know, can you comment on the ASPs versus their traditional condensers?

Unknown Executive

Yes. [Indiscernible] has been a good growth market for us over the last 2 years. And what we're seeing is it's probably in the 8% to 10% range of the total market today. It's going to continue to grow. It's got a lot of benefits that you don't have with the top discharge. It's variable speed. So it's -- it's got a lot of efficiency and the cost of the product is relative to the top discharge. So we're -- we feel like we're outperforming. We want to continue to outperform in the side discharge. Side discharges, we think is going to be the future of our markets. So it's important to us.

Albert Nahmad

Yes, we are leaning in besides this charge. We are excited about innovation on the products.

Barry S. Logan

And obviously, the manufacturing community that supports us, it's very -- it's as diverse as our typical ducted units. I mean they are branded products. There are more affordable products. There are private label products. In our case, as Watsco, our job is to have the broadest diversity and spectrum of good, better, best across all the products we sell on side discharge would be the same. So it's really, to me, not a discounted cheaper product strategy. It's not. It's an ultra-high efficiency play with a new product that has a lot of diversity in brands and price across the spectrum and all of our partners that are supporting that we're growing with, and it's -- it's kind of -- it's fun to sell a new product.

And as Paul said, it's not necessarily new, but I would say contractor acceptance is where we're seeing traction. And as their supplier, we're supporting it.

Albert Nahmad

And I think you said [Indiscernible] but just I would say that the -- that segment of the market is maturing, where now it has evolved into a good, better, best offering where it's not just the best anymore and it's not just the value line anymore. There is room and the market size for that stratification.

Unknown Executive

And it's a proven product. Basically, what you've done is you've taken the ductless product and you put [Indiscernible] as opposed to just having a high wall or a cassette on the inside. So it's a proven product, and it's going to be a great product for us in the future.

Operator

Our next question will come from Steve Volkmann with Jefferies.

Stephen Volkmann

It's funny timing. I have 2 side discharge units in there also. [Indiscernible] end of the call...

Albert Nahmad

Special price...

Stephen Volkmann

So can we talk a little bit about pricing. I think pricing was up about 2%. I think you said in the quarter. Sorry, I have a lot of calls going on today. But just curious if you've heard any sort of directionally what we should be thinking going forward, how the OEs are thinking about price for '27?

Paul Johnston

We're seeing a lot of metal prices are going up. A lot of steel prices are going up right now. And so we're seeing price increases on those. We've only had -- we really don't have a lot of indication yet from the OEMs, what direction they're going to be going -- but obviously, with the cost of freight, with the cost of metal, which is what these products are made of, we expect to have some price increases this fall going into next year.

Stephen Volkmann

Okay. All right. Fair enough. And then maybe just switching, I'm curious how you're thinking about inventory. I think last quarter, you said you thought it had sort of peaked, but I see it's up a little bit. I assume that includes the acquisitions. Just how are inventory levels? How should we be thinking about that going into '27 as well?

Albert Nahmad

Barry, we were just talking about it so you go ahead.

Barry S. Logan

Yes. Well, first, you're right. Our balance sheet in September this year includes Jackson $60 million, $70 million inventory that was not in the prior year comparison. And last year, at this time, we were as [Indiscernible] said, a giant [Indiscernible] sound was going on in terms of unit declines. And this year, we're seeing unit increases. So a year later, I think inventory [Indiscernible] in sales, yes.

So as we entered -- as we close this quarter, inventory is reflective of that is reflective of an increasing demand environment. And as we -- but as we close the year, this is usually and historically, our season of reaping cash flow and reducing inventory. And there's an opportunity. I'm not saying it will happen, but an opportunity to get inventory more or less equal to last year at the year-end, excluding the 2 acquisitions we've made. So historically, I think sequentially, we have very little reduction in inventory sequentially, second to third quarter, much of it comes in the fourth quarter. And I would say that's how it looks this year.

Operator

Our next question will come from Mitch Moore with KeyBanc.

Mitchell Moore

Maybe just to build on some of the questions around customer mix. I guess my question is how much, if any, of the customer mix headwinds reflects existing contractors kind of consolidating into larger accounts? Or is it just because larger customers are outgrowing their smaller peers?

Paul Johnston

I think the answer is yes. We're seeing a lot of consolidation. I mean it's just natural. There's a consolidation going industry and it's probably 7% to 8% of the market right now. That's going to continue. So it's not the big guys. We're already there. It's the growth of the [Indiscernible] start growing with private equity.

Barry S. Logan

And can I just maybe attempt to, I think, reframe the narrative around this a little bit as others have tried. We does it have an implication in margin? Yes. Is it a headwind to the business? No, not necessarily. I mean when this happens, Mitch, when you have customer A buying customer C, usually there's a market share pickup opportunity also, right? So it's not just axiomatic risk. It's both risk and opportunity when this happens. And I also -- I think we should ground ourselves in the fact that this is a $75 billion industry. 2,000 distributors comprise the landscape. We are, by far, the best positioned to capitalize on this trend relative to that fragmented distribution network that exists.

And so I -- is it an irritation in margin? Yes. Can we count it in basis points? Yes -- even nowhere near full percentage points, basis points. I think what's -- and by the way, we're doing this as [Indiscernible] is launching right? So we're not even yet to market with the product and the platform that we think is going to be game-changing in this space. So we're not in any way thinking about this defensively or [Indiscernible] what's it going to do to margin next quarter? We're thinking about this more as an opportunity for growing with customers, growing volumes and growing share at the end of the day. Yes. The industry is dynamic, and we're dynamic.

Mr. Operator, our Chairman fell off the call. Could you please get him back on the line.

Unknown Executive

I mean I just want to add at a data point to the question because I like to -- I want it to be abstract. We said this in our Investor Day when we're developing the technology for supply sync. The consolidated community today is about a $400 million or $500 million business for us. if that grows -- there's outgrowth, let's say, 10% in that community, either because they're giving us more business or there's more of them, that's a growth opportunity, obviously, becomes at a lower margin. I don't think that's particularly material to the big picture analysis of Watsco's gross margin.

It's a headwind, okay. It's also a growth opportunity to Rick's point. And overall, I think where we kind of segment out margin impacts in our press release and in this conversation today, we're talking 10, 20 basis points in each one of the discussion items. This is not like a revolution or an evolution that I think has a lot of volatility to it. It's really explaining some of the nuance that we're managing. And as I said very carefully, cost to serve is different, meaning SG&A is different in those products -- in those customer segments also, which means EBIT margin is not necessarily proportionately affected by it.

So I just think it's -- we're giving a lot of color today on these nuances, but I don't think anyone should run with it too far when it's 10, 15, 20 basis point discussion items.

Mitchell Moore

Great. That was a lot of color. And I guess just my next question, I think residential units were up 5%. Could you just help us parse out how much of that growth was replacement versus new construction?

Unknown Executive

We have don't disclose that. We've seen the AOR trends get better as the year has progressed, Mitch, and it was flat around flat in the second quarter. It was up low single digits in the third quarter, what we consider to be the add-on replacement universe. And where your volatility good or bad can come is in that residential new construction multifamily side of the market, that was up low double digits for us in the third quarter, and that's how you get to a 5%.

Operator

Our next question will come from Jeffrey Sprague with Vertical Research Partners.

Jeffrey Sprague

We covered a lot of ground. I did want to just touch on replacement a little bit more. Thanks for the comment a moment ago. So obviously, with the replacement comps are a little bit easier, but you just kind of stand back here and look at things at an absolute level. Have we gotten to what you would call some semblance of just normality between repair and replacement?

Albert Nahmad

Good question. I think there's still a lot of room to grow in replacement. I mean you had a pull forward that occurred during the pandemic. And I think -- as those units mature, I think you're going to see the replacement market return to what we call normal.

Paul Johnston

Regionally, it's unique. You have a different replacement market in the north than you do in the South and in the West. And we've seen the replacement market change based upon where in the marketplace, the change is occurring.

Unknown Executive

Yes, I agree just all in -- just quick data points there, Jeff, to maybe help you. One is we're -- I look at just units, we're still about -- I would characterize it as we're closer to a trend line, but we're not quite at the trend line. units are still, call it, 10% to 15% below where they were 2 years ago. AHRI, which you should never anchor on in any given month, but you can look at longer picture trends with AHRI. Those volumes today are where they were around mid-2018. That was a while ago. And so -- and I think more importantly, we're still dealing with the consumer that's uncertain and I'm sure about the state of things and all of that points to -- we're closer to trend line, not fully to Paul's point, at some level of normality yet with replacement.

Jeffrey Sprague

And then just I want to make sure I've dialed correctly on this inventory for year-end. I think Barry gave us the Jackson inventory. How much comes in for Granite?

Barry S. Logan

It's coming in, in October. And yes, Rick, maybe handle that.

Rick Gomez

There was about Jeff, I'll say about $140 million, $150 million of inventory. Now there's going to be some seasonality to that for granted, but that's what it was, let's say, the end September, which was not on our balance sheet.

Jeffrey Sprague

And then maybe just one other quick one. Just plumbing is becoming a little bit more of a strategic focus imperative. Does that fundamentally have a different margin profile than your kind of core legacy HVAC business?

Rick Gomez

I was going to say not necessarily. I think what's true in the plumbing space is if you saw a lot of equipment there, you're going to have 1 margin profile if you sell a lot of non-equipment, you're going to have a different margin profile. The same is true there in HVAC, by the way. We see that within our portfolio of businesses too. I wouldn't call it structurally different or radically different.

What is, I think, different is that their customer curve, if you will, is probably at a different state of maturity than the HVAC contractor, which is to say there's likely less consolidation going on there. Those customers are slightly less technology-enabled today than as compared to the HVAC contractor. And so we think that there's the same kind of maturity and sophistication curve that we've seen with our HVAC contractor base over the last 5 or 10 years and how they've adopted technology in their business, we think that it's in the very early innings as it relates to the plumbing contractor which is all opportunity in the long term.

Barry S. Logan

I wanted to say this too, Jeff. I think we get a lot of questions about entering plumbing. And what we've actually entered is acquiring businesses that have done both HVAC and plumbing well for decades. [Indiscernible] been around for over 50 years doing both HVAC and plumbing well for that period of time, gateway a few years ago, same thing. In fact, if you look at the top 50 plumbing distributors in the country, of them, 20 of the 50 also sell HVAC and are on the top 50 list of HVAC companies in the industry.

So it's not a new thing or a novel thing. It's an ordinary thing. And we've known these families for a long time. It's taken us this long to do 4 of them. But that's the approach. And to answer your question again, we don't see a big profile difference in terms of margins because, again, they do both well and have the better companies have a higher margin. And have figured out how to coexist in those markets with those products.

Unknown Executive

And I also just want to say, I got to say publicly, Bill and Chris and Amir and the whole Granite team are just world-class and as good as it gets. So we can't be more excited to have them finally part of this family. Like Barry said, we've known the family for a long time. but it took us this long as we talked about it with them to get to the starting line. But now they're part of the family, and it's all upside from here and let the fund begin.

Albert Nahmad

And I would add to that, on a big picture that Watsco is now taking out and committed. Can you hear me?

Jeffrey Sprague

Yes. Yes.

Albert Nahmad

I would say that the big picture for Watsco that we should explain is that we're now committed to growing in the plumbing market, which means that we have enormous opportunity in that distribution business of planning as well as the HVAC market. So we've got 2 industries that we can play and play hard and get size. The plumbing on we're just beginning, and it's pretty healthy stuff. We have 2 other business units before this one that showed us, plumbing can add profitability to the business as they already have over the last several years. So that's a huge ability now for us to take share in the plumbing market where we just have a few hundred million dollars worth of sales in a much larger market. Big opportunity is what I'm trying to say, in.

Operator

Our next question will come from [Indiscernible] Singh with UBS.

Unknown Analyst

Yes. So we continue to hear about customers trading down more towards lower efficiency levels -- but it feels like the scope for further mix down could be limited. So can you give your views on what you are seeing and like some sense of portfolio impact for you?

Paul Johnston

Yes, we are seeing -- when you say low efficiency today, it means that the efficiency is high efficiency compared to what it was 5 or 10 years ago. So as they trade down to the baseline efficiency that we have in the marketplace, that is occurring. And that's why we get very excited about the opportunity to be able to sell the side discharge. So I think the side discharge will be a breakthrough where customers will start going back to high efficiency once they see the opportunity.

Unknown Executive

Right. And just one perspective. I mean this is the entry-level as the industry has been in quite a long time, Paul, you've got some great data around that. But if it's 80% to 85% entry level today, I think the thrust of your question is right, which is it's there's more likely a mix-up opportunity over time, particularly now that you have a side discharge product that competes very well from a price perspective and get you all the efficiency on the high end -- so it does allow a contractor to deliver more value to that homeowner versus just entry-level and traditional top discharge high efficiency, there's now something that can help broaden the industry beyond where it is today.

Paul Johnston

Every time there's been an efficiency change, we've seen a compression to the low end and then it spreads back up. So it's not something new that we haven't experienced before.

Unknown Analyst

That's very helpful. And just on the margin side, like you are integrating a couple of big recent acquisitions. Now should we expect that to be a headwind to margin in the near term, but with the potential for improvement in the medium term as you scale margins within those businesses? And can you also help size those impact.

Barry S. Logan

Again, I'd just be careful with this. So when we acquire a company like Granite or Jackson, we're keeping the people, we're keeping the culture we're keeping the infrastructure. We're keeping the what's made them successful for 50 years. And the question is, how do we help them build on that success and build on their networks? And adding capital or products or technology, whatever it might be. So the word synergy does not exist in our mindset. How do we take cost out, how do we tweak margins. That's not a concept for Watsco. We built a very successful company supporting great companies that became part of our family. And that the intent is identical to that theory for Jackson and Granite.

So in terms of your question, I don't think there's anything any risk or short-term kind of trigger or anything that needs to be kind of worried about. The question is, will they be successful as part of the Watsco family? And the only scorecard I can show you and Jackson is up 16% in its first quarter as part of Watsco. So I want to impute that in the future, of course. But just know that there's no like sudden move or sudden synergy or sudden anything relative to these kind of opportunities. It's really how do we build on the great success of these good companies that have been around forever.

Paul Johnston

How do we provide them the technology, the financial resources so they can grow faster. That's the opportunity, and that's the only synergy we have.

Albert Nahmad

Another important aspect we create an equity culture, we provide equity throughout the organizations that we acquire, which means that they have a stake in the whole company, win or lose. And I think that's very important in terms of our culture, providing equity to people that sell us their business. They're leaders so that they act as owners and be great conscious of that.

Operator

This concludes our question-and-answer session. I'd like to [Indiscernible].

Albert Nahmad

[Indiscernible] we'll talk again in 3 months or sooner. Bye-bye.