Shares of Watsco (NYSE: WSO), the largest distributor of heating, air conditioning, and refrigeration products, plunged 5.12% in pre-market trading on Wednesday following the release of its second-quarter earnings report. The company's financial results fell short of analyst expectations, primarily due to challenges associated with the industry-wide transition to new A2L refrigerants.

Watsco reported quarterly revenue of $2.06 billion, missing the consensus estimate of $2.23 billion and marking a 3.6% decrease from the same period last year. Earnings per share (EPS) came in at $4.52, falling short of the expected $4.83. Despite the revenue decline, the company achieved a record gross profit of $603 million, up 4% year-over-year, demonstrating improved margins amid challenging market conditions.

The company attributed the sales decline to several factors, including the ongoing transition to A2L refrigerants, which impacted sales volumes. Additionally, more temperate weather conditions and lower homebuilding activity contributed to reduced unit volumes. Albert H. Nahmad, Chairman and CEO of Watsco, acknowledged the challenging environment but highlighted the company's ability to improve gross margins and generate earnings growth despite the headwinds. As the market fully converts to the new A2L products over the second half of the year, Watsco expects these transitional impacts to diminish, potentially setting the stage for improved performance in the coming quarters.