WESCO Achieves Record 2Q Sales

PITTSBURGH — WESCO International, Inc. today announced its results for the second quarter of 2019.

John J. Engel, WESCO’s Chairman, President and CEO, commented, “As expected, all of our end markets grew on both a year-over-year and sequential basis. We achieved record sales in the second quarter due to the continued strength in Canada, Utility and Datacom offset by slower growth than anticipated in the U.S. After a slow start in April and May in the U.S., our sales growth strengthened in June but was impacted by increasing headwinds in the economy and in our end markets. Operating margin expanded 30 basis points, in-line with expectations, driven by continued effective cost management and strong operating profit pull through. EPS grew 19% versus prior year and we repurchased $150 million of our common stock, above our share repurchase forecast for the second quarter.”

The following are results for the three months ended June 30, 2019 compared to the three months ended June 30, 2018:

• Net sales were $2.2 billion for the second quarter of 2019, compared to $2.1 billion for the second quarter of 2018, an increase of 2.2%. Organic sales for the second quarter of 2019 grew by 1.9% as foreign exchange rates negatively impacted net sales by 1.0%, while acquisitions positively impacted net sales by 1.3%. Sequentially, net sales increased 9.6% and organic sales increased 7.2%.
• Cost of goods sold for the second quarter of 2019 and 2018 was $1.7 billion, and gross profit was $409.0 million and $399.9 million, respectively. As a percentage of net sales, gross profit was 19.0% for the second quarter of 2019 and 2018. Gross profit as a percentage of net sales for the second quarter of 2019 reflects the positive impact from the SLS acquisition offset by business mix.
• Selling, general and administrative expenses were $295.9 million, or 13.8% of net sales, for the second quarter of 2019, compared to $292.9 million, or 13.9% of net sales, for the second quarter of 2018.
• Operating profit was $97.9 million for the second quarter of 2019, compared to $91.2 million for the second quarter of 2018, an increase of 7.3%. Operating profit as a percentage of net sales was 4.6% for the current quarter, compared to 4.3% for the second quarter of the prior year.
• Net interest and other for the second quarter of 2019 was $17.3 million, compared to $17.7 million for the second quarter of 2018.
• The effective tax rate for the second quarter of 2019 was 21.6%, compared to 21.5% for the second quarter of 2018.
• Net income attributable to WESCO International, Inc. was $63.5 million for the second quarter of 2019, compared to $58.0 million for the second quarter of 2018, an increase of 9.5%.
• Earnings per diluted share for the second quarter of 2019 was $1.45, based on 43.8 million diluted shares, compared to $1.22 for the second quarter of 2018, based on 47.6 million diluted shares, an increase of 18.9%.
• Operating cash flow for the second quarter of 2019 was an outflow of $37.7 million, compared to an inflow of $33.8 million for the second quarter of 2018. Free cash flow for the second quarter of 2018 was $25.1 million. The net cash outflow in the second quarter of 2019 was primarily driven by working capital growth as a result of higher sales in the latter part of the quarter. Additionally, the Company repurchased $150 million of shares in the second quarter of 2019.

The following are results for the six months ended June 30, 2019 compared to the six months ended June 30, 2018:

• Net sales were $4.1 billion for the first six months of 2019 and 2018. Organic sales for the first six months of 2019 grew by 1.5% as foreign exchange rates and the number of workdays negatively impacted net sales by 1.2% and 0.8%, respectively, while acquisitions positively impacted net sales by 0.8%.
• Cost of goods sold for the first six months of 2019 and 2018 was $3.3 billion, and gross profit was $791.5 million and $779.8 million, respectively. As a percentage of net sales, gross profit was 19.3% and 19.0% for the first six months of 2019 and 2018, respectively.
• Selling, general and administrative expenses were $592.4 million, or 14.4% of net sales, for the first six months of 2019, compared to $583.7 million, or 14.2% of net sales, for the first six months of 2018.
• Operating profit was $168.7 million for the first six months of 2019, compared to $164.4 million for the first six months of 2018, an increase of 2.6%. Operating profit as a percentage of net sales was 4.1% for the current six month period, compared to 4.0% for the prior six month period.
• Net interest and other for the first six months of 2019 was $34.4 million, compared to $37.5 million for the first six months of 2018. For the six months ended June 30, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments on our then outstanding term loan facility.
• The effective tax rate for the first six months of 2019 was 21.7%, compared to 20.7% for the first six months of 2018. The higher effective tax rate in the current year is primarily due to the full application of the international provisions of U.S. tax reform.
• Net income attributable to WESCO International, Inc. was $105.8 million for the first six months of 2019, compared to $102.3 million for the first six months of 2018, an increase of 3.4%.
• Earnings per diluted share for the first six months of 2019 was $2.37, based on 44.7 million diluted shares, compared to $2.15 for the first six months of 2018, based on 47.6 million diluted shares, an increase of 10.2%.
• Operating cash flow for the first six months of 2019 was an outflow of $8.7 million, compared to an inflow of $86.8 million for the first six months of 2018. Free cash flow for the first six months of 2018 was $70.4 million. The net cash outflow in the first six months of 2019 was primarily driven by changes in working capital to support sales growth.

Engel continued, “As a result of lower market growth rate expectations in our end markets, we are revising our 2019 full year outlook for sales growth of 1% to 4%, operating margin of 4.2% to 4.5%, tax rate of 21% to 23%, and EPS of $5.00 to $5.60. We reaffirm our full year free cash flow generation of at least 90% of net income. Our focus remains on executing our 2019 plan priorities of sales growth, margin improvement, investments in our people and processes, and maintaining our cost and cash management discipline. Despite the slowing momentum and increased uncertainties in our end markets, customers continue to seek improvement in their operations and supply chains. Our talented team of associates and our robust portfolio of products and value-added services differentiate WESCO by providing our customers with complete solutions for their MRO, OEM and capital project needs.”