Watsco (WSO) 2026 年第三季財報電話會議：營收創新高與 HVAC 需求復甦

重點摘要

• Watsco 2026 財年第三季銷售額成長 7%，達到創紀錄的 22.2 億美元，其中包括 4% 的同店銷售額成長。在出貨量與價格提升的支撐下，住宅 HVAC（暖通空調）設備銷售額成長 7%。
• 毛利達到創紀錄的 5.86 億美元，毛利率為 26.4%。管理層指出，客戶與產品組合、併入 Jackson Supply，以及基期受冷媒因素影響較高，是影響毛利率的主因。
• 營業利潤為 2.25 億美元，營業利益率為 10.1%，每股盈餘 (EPS) 為 3.77 美元。
• 今年迄今的營業現金流成長 79% 至 3.04 億美元。Watsco 本季結束時擁有 6.49 億美元現金，且無任何債務。
• 數位化應用持續擴大。今年迄今電子商務銷售額成長 12%，占過去 12 個月銷售額的 37%，在特定市場的滲透率達到 60% 至 70%。
• Watsco 透過併購進行擴展。6 月 1 日收購的 Jackson Supply 本季成長 16%，而已完成的 Granite Group 收購案則增加了約 5 億美元的年銷售額及東北部的 82 個據點。

關鍵財務數據

業務與營運表現

隨著監管與供應鏈複雜性放緩，需求持續改善。管理層表示，自 5 月以來業務動能逐月強勁。10 月表現優於 9 月，包含併購在內的 10 月總營收呈雙位數成長。

住宅 HVAC 設備是最大的成長驅動力。設備銷售額成長 5%，相較於去年同期下降 7%。追加更換需求改善至低個位數成長，而住宅新建案與多戶住宅需求則呈現低雙位數成長。

管理層指出，更換量仍比兩年前低 10% 至 15%，顯示市場已更接近——但尚未達到——正常化的趨勢線。北部、南部和西部的區域更換情況也有所不同。

今年迄今電子商務銷售額成長 12%，占過去 12 個月銷售額的 37%。Watsco 的行動應用程式擁有超過 7.3 萬名月活躍使用者。過去一年約 35.1 萬份數位提案創造了 20 億美元的商品總額 (GMV)，較去年同期成長 14%。

Jackson Supply 自 6 月 1 日被收購後對第三季業績有所貢獻。該業務年銷售額為 2.3 億美元，在陽光地帶擁有 25 個據點，本季成長 16%。

收購 Granite Group 增加了一家年銷售額約 5 億美元、擁有超過 11,000 名客戶及東北部 82 個據點的業務。Granite 是 Watsco 收購的第四家同時服務 HVAC 與水暖承包商的公司。Watsco 目前擁有 112 個同時提供這兩種產品類別的據點。

管理層還強調側出風 HVAC 系統採用率持續上升。該公司估計這些產品約占市場的 8% 至 10%，並表示該類別正跨品牌與價位開發更廣泛的高中低階系列產品。

管理層展望

管理層預計 A2L 冷媒轉型的影響將在 2026 年底前基本結束。

Watsco 重申其 30% 的長期毛利率目標，同時提醒進展不會是一條直線。價格最佳化、供應商整合與合理化、共享物流、數位化應用，以及提高零件與用品占比，被視為拉升長期毛利率的潛在槓桿。

該公司指出，根據 10 年平均值，第四季毛利率歷史上比前一季節性期間改善約 20 至 30 個基點。管理層明確表示，這是歷史數據而非業績展望。

Watsco 預計製造商 2027 年的定價舉措將比近年異常波動的漲價更早且更符合常規。管理層也預計，由於金屬、鋼鐵和運費成本上升，秋季至 2027 年將會出現部分漲價，不過從原始設備製造商 (OEM) 獲得的具體指導仍相當有限。

公司預計第四季庫存將出現季節性下降。管理層表示，若扣除 Jackson 和 Granite，年底庫存有可能大致與去年持平，但強調這是一個機會而非承諾。

風險與關注領域

毛利率對客戶組合、設備與非設備銷售占比、新建案活動及製造商定價仍具敏感性。規模較大的承包商客戶通常毛利率較平庸，但管理層表示其服務成本也較低，並能創造擴大市占率的機會。

Jackson Supply 的利潤率尚未達到 Watsco 約 27% 的水準，這拖累了第三季毛利率。此外，去年同期受惠於冷媒短缺，導致基期相對較高。

消費者負擔能力仍是限制因素，因為安裝系統的費用可能高達 10,000 至 15,000 美元。管理層還提到消費者不確定性持續存在，且購買組合集中於基礎效能等級。

投入成本正在上升，特別是金屬、鋼鐵與運費。OEM 定價舉措的時間與幅度仍具不確定性。

庫存基期比較受到併購影響。Jackson 增加了約 6,000 萬至 7,000 萬美元的庫存，而 Granite 在納入 Watsco 資產負債表前，截至 9 月底擁有約 1.4 億至 1.5 億美元的庫存。

分析師問答重點

毛利率：管理層表示，26.4% 的結果反映了多項因素，而非單一的結構性變化。這些因素包括毛利率較低的新建案活動強勁、大型客戶占比提升、併入 Jackson Supply，以及缺乏去年同期冷媒短缺的效益。公司堅持認為，價格最佳化與營運舉措為實現 30% 的長期目標提供了途徑。

營運槓桿：今年迄今固定成本成長 1%，而變動成本成長 6%，主因表現較佳的業務單位產生了更高的佣金、獎金和配送費用。管理層將固定成本紀律視為衡量營運槓桿的主要標準，同時持續投資於科技。

客戶整合：管理層估計，整合後的承包商集團約占市場的 7% 至 8%。Watsco 表示，這種趨勢可能會對毛利率帶來些微壓力，但也創造了銷量與市占率的機會，個別影響通常在 10 至 20 個基點之間，而非整數個百分點。

更換需求：追加更換需求已從第二季的持平改善至第三季的低個位數成長。管理層認為，隨著疫情期間提前拉動的需求逐漸在安裝基數中被消化，進一步復甦是可能的。

併購策略：Watsco 未計劃對 Jackson 或 Granite 進行傳統的削減成本協同效應。其方法是留任現有的管理層、文化和基礎設施，同時提供資金、技術、產品和員工股權以支持成長。

水暖業務擴張：管理層將水暖業務描述為重要的額外成長市場。管理層表示，水暖分銷的利潤率特性與 HVAC 沒有本質上的不同，而技術應用與承包商整合似乎處於較早期階段。

完整法說會逐字稿

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完整財報電話會議逐字稿

管理層陳述

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.

分析師問答

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.