Watsco (WSO) Fell Amid Weak Equipment Volume

SouthernSun Asset Management, an investment management firm, released its “SMID Cap Strategy” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. During the third quarter of 2025, the SMID Cap Composite returned 8.15% on a gross basis (7.96% net) compared to the Russell 2500’s 9.00% return and the Russell 2500® Value index’s 8.17% gain, over the same period. Over the trailing twelve months, the composite returned 2.55% on a gross basis (1.86% net) compared to 10.16% and 9.00% returns for the indexes, respectively. The fund’s top 5 holdings are also listed in the letter, showing the firm’s main investment positions heading into 2025.

In its third-quarter 2025 investor letter, SouthernSun SMID Cap Strategy highlighted stocks such as Watsco, Inc. (NYSE:WSO). Watsco, Inc. (NYSE:WSO) engages in the distribution of air conditioning, heating, and refrigeration equipment, and related parts and supplies. The one-month return of Watsco, Inc. (NYSE:WSO) was -9.61%, and its shares lost 30.67% of their value over the last 52 weeks. On November 4, 2025, Watsco, Inc. (NYSE:WSO) stock closed at $358.33 per share, with a market capitalization of $14.573 billion.

SouthernSun SMID Cap Strategy stated the following regarding Watsco, Inc. (NYSE:WSO) in its third quarter 2025 investor letter:

“Watsco, Inc. (NYSE:WSO) was a detractor in the SMID Cap strategy in the third quarter. WSO is the largest distributor of air conditioning, heating, and refrigeration products in North America. While second-quarter results held up relatively well with revenue down 4% and operating income up 1%, equipment volumes have been weaker than expected, declining roughly 12% year to date. Management attributes this primarily to lower new construction activity and a consumer shift from replacement to repair, noting that Watsco’s market share remains stable. We view these headwinds as temporary and continue to believe WSO’s competitive position within the HVAC/R distribution market remains strong. With no debt and $293 million in cash and short-term investments, the company is well positioned to pursue acquisitions across the highly fragmented $74 billion North American HVAC/R distribution landscape. We remain confident in Watsco’s long runway for both organic and inorganic growth, its owner-oriented culture, and its competitive advantages that increase with scale.”

In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.