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Spotlight on sustainability: Watsco
Sashi Reddy discusses Watsco, the largest distributor of HVACR (heating, ventilation, air conditioning and refrigeration) products in North America.
As part of our Spotlight on sustainability series, Sashi Reddy introduces Watsco and discusses some of the things we like about the company.
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Company information as at 30 September 2023
More information available on our Portfolio Explorer tool.
- Company Information
- Sustainable Development Goals
- Climate Solutions
- Human Development Pillars
Company Profile
Air conditioning, heating and refrigeration equipment and related parts and supplies.
Stewardship
Entrepreneur. Founder chairman Alfred Nahmad is a controlling shareholder. The majority of the company is free float.
Areas for engagement
- Board gender diversity.
- Role of Distributor in the circular economy.
What we like
- Watsco is the largest distributor of air conditioning (AC), heating and refrigeration equipment in North America.
- The company is founder-stewarded with a long-term mindset at the heart of everything they do.
- Their performance based long-term remuneration in restricted stock that only vests on retirement.
- 70% of the demand for their products is from the replacement market, which is a key enabler of repair and maintenance.
Risks
We believe that the cyclical nature of their business and heavy working capital is a potential risk.
7. Affordable and clean energy
Sale of necessary and energy efficient products.
9. Industry Innovation and Infrastructure
Nearly half the energy used in a US home is for heating and cooling. By replacing older systems with more efficient Watsco HVAC systems, householders can reduce their CO2 emissions and pay less.
Refrigerant Management
Contribution Type
Enabling/Supporting Contribution
Alternative Refrigerants
Contribution Type
Enabling/Supporting Contribution
Description
Watsco is the largest distributor of air conditioning (AC), heating and refrigeration equipment in North America. There are an estimated 110m AC units installed in the US, 80% of which are over 10 years old and operating under old efficiency standards. Replacements of old units makes up 65-70% of Watsco's revenues (versus installing in a new build), and residential and commercial heating, ventilation, and air conditioning (HVAC) equipment account for 69% of Watsco's revenues. HVAC accounts for half of US household energy consumption. Sales of higher efficiency HVAC systems grew organically by 26% in 2021, outpacing overall growth of 17% for US residential HVAC. Roughly one-third of sales are now high-efficiency units.
In 2020 and 2021 over 10m metric tons of CO2e was averted through the sale of replacements. Watsco is transitioning it's HVAC equipment with alternative refrigerants in compliance with the Aim Act 2020. The act addresses the phasedown use of hydrochlorofluorocarbons (HFCs) and requires refrigerants to have less than 750 global warming potential, by January 2025. Watsco also offers a service whereby it recycles older air conditioners which contractors deposit for safe disposal.
Energy - Physical infrastructure
Contribution Type
Enabling/Supporting Contribution
Standard of living - Economic welfare
Contribution Type
Enabling/Supporting Contribution
Rationales
Heating, cooling and ventilation (HVAC) accounts for half of US household energy consumption. Watsco plays a leading role in enabling repair or replacement of HVAC equipment across the Americas. Watsco is the largest distributor of systems and parts in the US with c.65%-70% of revenues coming from replacements.
There are 110m units in the US which operate on older less efficient standards that will need replacing in the years ahead, providing cost savings for end users, along with lower energy and greenhouse gas emissions. Sales of higher efficiency HVAC systems grew organically by 26% in 2021, outpacing overall growth of 17% for US residential HVAC. Roughly one-third of sales are now high-efficiency units.
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Source: Stewart Investors investment team and company data. Securities mentioned are all investee companies* from representative Asia Pacific All Cap Strategy, Asia Pacific & Japan All Cap Strategy, Asia Pacific Leaders Strategy, European All Cap Strategy, European (ex UK) All Cap Strategy, Global Emerging Markets (ex China) Leaders Strategy, Global Emerging Markets Leaders Strategy, Global Emerging Markets All Cap Strategy, Indian Subcontinent All Cap Strategy, Worldwide All Cap Strategy and Worldwide Leaders Strategy accounts as at 31 March 2025. *Assets that the strategies may hold which an active decision has not been made, and sustainability assessment does not apply, include cash, cash equivalents, short-term holdings for the purpose of efficient portfolio management and holdings received as a result of mandatory corporate actions. Holdings of such assets will not appear on Portfolio Explorer.
The Stewart Investors supports the Sustainable Development Goals (SDGs). The full list of SDGs can be found on the United Nations website.
Source for Climate Solutions and impact figures: © 2014–2025 Project Drawdown (drawdown.org). Source for Human Development Pillars: Stewart Investors investment team.
Source for climate solutions and human development analysis and mapping: Stewart Investors investment team. Contributions are defined by the team as demonstrable contributions to any solution, either direct (directly attributable to products, services or practices provided by that company), or enabling (supported or made possible by products or technologies provided by that company).
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