WESCO Posts Highest Sales Growth in Years

UPDATE:  WESCO held its earnings report conference call on Thursday, April 26.  Some of the highlights include:

Industrial Growth:  “Industrial sales were up 10% organically, including 9% growth in the U.S. and 17% growth in Canada in local currency. This represents our fifth consecutive quarter of year-over-year improvement,” David Schulz, Chief Financial Officer, announced.”During the quarter, we were awarded a multi-year contract to supply electrical MRO materials and support capital projects for a large chemical manufacturer in the U.S. and Canada. With our extensive portfolio of supply chain solutions, WESCO is helping our industrial customers reduce their costs, operate more efficiently, and better plan and manage their projects.”

Construction growth:  “We posted a third consecutive quarter of growth in construction with sales up 9% organically, including 10% growth in both the U.S. and Canada in local currency,” Schulz reported. “Backlog was up 14% year-over-year and up 4% sequentially, providing a positive set up for the balance of 2018.:

Utility growth:  “Utility business posted 18% organic sales growth, including 2 points of growth from storm and wildlife recovery efforts. Again this quarter, we drove above-market growth and gained market share by expanding our relationships with investor-owned utility and public power customers,” Schulz said.

Commercial growth: “We delivered 9% organic growth in the quarter with the U.S. up 3% and Canada up 5% in local currency.  We expect continued growth in LED lighting solutions including retrofits, along with fiber-to-the-x deployments, broadband build outs, and cyber and physical security for critical infrastructure protection,” Schulz announced.

PITTSBURGH — WESCO International, Inc. today announced its results for the first quarter of 2018.

John J. Engel, WESCO’s Chairman, President and CEO, commented, “We are seeing continued positive and broad-based momentum in our business. Sales grew 11% organically, our highest growth rate in seven years, with all end markets and geographies contributing. Sales growth was consistently strong throughout the quarter and backlog expanded to another all-time record level. Operating profit and EPS both grew on a double-digit percentage basis versus prior year, reflecting the positive pull through and operating leverage of our business. Free cash flow generation was also strong, exceeding 100% of net income.”

The following are results for the three months ended March 31, 2018 compared to the three months ended March 31, 2017:

• Net sales were $2.0 billion for the first quarter of 2018, compared to $1.8 billion for the first quarter of 2017, an increase of 12.5%. Organic sales for the first quarter of 2018 grew by 10.9% and foreign exchange rates positively impacted net sales by 1.6%.
• Cost of goods sold for the first quarter of 2018 was $1.6 billion and gross profit was $379.9 million, compared to cost of goods sold and gross profit of $1.4 billion and $350.0 million, respectively, for the first quarter of 2017. As a percentage of net sales, gross profit was 19.1% and 19.7% for the first quarter of 2018 and 2017, respectively. Over half of the decline in gross profit as a percentage of net sales versus the prior year was due to growth in International projects and a reclassification of certain labor costs from selling, general and administrative expenses.
• Selling, general and administrative expenses were $290.8 million, or 14.6% of net sales, for the first quarter of 2018, compared to $267.4 million, or 15.1% of net sales, for the first quarter of 2017.
• Operating profit was $73.2 million for the first quarter of 2018, compared to $66.6 million for the first quarter of 2017, an increase of 9.9%. Operating profit as a percentage of net sales was 3.7% for the current quarter, compared to 3.8% for the first quarter of the prior year.
• Net interest and other for the first quarter of 2018 was $19.8 million, compared to $16.2 million for the first quarter of 2017. For the three months ended March 31, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument.
• The effective tax rate for the first quarter of 2018 was 19.6%, compared to 25.0% for the first quarter of 2017. The lower effective tax rate in the current quarter is primarily due to the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018.
• Net income attributable to WESCO International, Inc. was $44.4 million and $37.7 million for the first quarter of 2018 and 2017, respectively.
• Earnings per diluted share for the first quarter of 2018 was $0.93, based on 47.6 million diluted shares, compared to $0.76 for the first quarter of 2017, based on 49.4 million diluted shares. Earnings per diluted share for the first quarter of 2018 increased 22.4% as compared to the first quarter of 2017.
• Operating cash flow for the first quarter of 2018 was $53.0 million, compared to $47.6 million for the first quarter of 2017. Free cash flow for the first quarter of 2018 was $45.3 million, or 105% of net income, compared to $43.1 million, or 114% of net income, for the first quarter of 2017.

Engel continued, “After returning to above-market sales growth in the second half of last year, our top priority was to return to profitable growth in 2018, and we are off to a good start in the first quarter. Sales growth momentum has continued in April, and we expect the favorable economic conditions and the positive growth in our end markets to continue this year. Our plan includes continued above-market performance, execution of our profitable growth initiatives, investments in our people and processes, and maintaining our cost and cash management discipline. Based on our first quarter results, we have increased our full year expectations for sales growth to be in the range of 5% to 8%, and EPS to be in the range of $4.50 to $5.00 per diluted share, while reaffirming our expectation for free cash flow generation of at least 90% of net income.”

Engel added, “Our customers and suppliers look to WESCO to provide leading supply chain solutions, supported by our broad portfolio of products, value-added services, and global footprint. I am confident in our team’s ability to provide outstanding customer service and deliver value to our customers’ operations and supply chains in 2018 and beyond.”