Wesco Reports Drop in Third-Quarter Income

PITTSBURGH, Pa. — WESCO International, Inc. announced its 2015 third quarter results.

The following are results for the three months ended September 30, 2015 compared to the three months ended September 30, 2014:

• Net sales were $1,923.9 million for the third quarter of 2015, compared to $2,078.2 million for the third quarter of 2014, a decrease of 7.4%. Normalized organic sales decreased 5.3%; foreign exchange rates negatively impacted sales by 4.1% and were partially offset by a 2.0% positive impact from acquisitions. Sequentially, net sales and normalized organic sales increased 0.4%.

• Gross profit was $380.8 million, or 19.8% of sales, for the third quarter of 2015, compared to $422.4 million, or 20.3% of sales, for the third quarter of 2014.

• Selling, general and administrative (“SG&A”) expenses were $258.2 million, or 13.4% of sales, for the third quarter of 2015, compared to $271.8 million, or 13.1% of sales, for the third quarter of 2014.

• Operating profit was $106.3 million for the current quarter, compared to $133.2 million for the third quarter of 2014. Operating profit as a percentage of sales was 5.5% in 2015, compared to 6.4% in 2014.

• Interest expense for the third quarter of 2015 was $20.4 million, compared to $20.8 million for the third quarter of 2014. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, amortization of deferred financing fees and accrued interest, for the third quarter of 2015 and 2014 was $4.6 million and $4.1 million, respectively.

• The effective tax rate for the current quarter was 27.4%, compared to 28.1% for the prior year third quarter.

• Net income attributable to WESCO International, Inc. of $63.5 million for the current quarter was down 21.4% from $80.8 million for the prior year quarter.

• Earnings per diluted share for the third quarter of 2015 was $1.28 per share, based on 49.7 million diluted shares, compared to$1.52 per share in the third quarter of 2014, based on 53.2 million diluted shares.

• Free cash flow for the third quarter of 2015 was $39.7 million compared to $84.7 million for the third quarter of 2014.

Mr. John J. Engel, WESCO’s Chairman and Chief Executive Officer, stated, “Our third quarter sales declined 7% reflecting continued foreign exchange headwinds and weakness in the industrial market and certain non-residential construction sectors. Organic sales momentum decelerated during the quarter in the U.S. and in Canada, down 4% and 10% year over year, respectively. While the top line remains pressured overall, our data communications and utility sales continued to grow. The benefits of ongoing cost reduction actions partially mitigated the impact of business mix and lower sales on earnings per share, which were lower than prior year. Free cash flow remains solid at 100% of net income on a year-to-date basis. We repurchased approximately 1.4 million shares in the third quarter bringing year-to-date repurchases to approximately 2.5 million shares, utilizing half of the $300 million share repurchase authorization, while maintaining our leverage ratio within our target range of 2.0 to 3.5 times EBITDA. Based on our third quarter results and a challenging market outlook, we now estimate full year earnings per diluted share of $4.15 to $4.30 on sales down 4% to 5% from the prior year, compared to our previous estimate of earnings per diluted share of $4.50 to $4.90 on sales flat to down 3%. In addition, based upon the strength of our year-to-date free cash flow, we are increasing our estimate of full year free cash flow to approximately equal to net income, above our previous estimate of greater than 80% of net income.”

The following results are for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014:

• Net sales were $5,656.9 million for the first nine months of 2015, compared to $5,894.1 million for the first nine months of 2014, a decrease of 4.0%. Normalized organic sales decreased 1.9%; foreign exchange rates and number of workdays negatively impacted sales by 3.2% and 0.5%, respectively, and were partially offset by a 1.6% positive impact from acquisitions.

• Gross profit of $1,130.1 million, or 20.0% of sales, for the first nine months of 2015 compared to $1,208.8 million, or 20.5% of sales, for the first nine months of 2014.

• Selling, general and administrative (“SG&A”) expenses were $798.0 million, or 14.1% of sales, for the first nine months of 2015, compared to $815.8 million, or 13.8% of sales, for the first nine months of 2014.

• Operating profit was $283.8 million for the first nine months of 2015 compared to $342.0 million for the first nine months of 2014. Operating profit as a percentage of sales was 5.0% in 2015 compared to 5.8% in 2014.

• Interest expense for the first nine months of 2015 was $59.9 million, compared to $61.8 million for the first nine months of 2014. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, amortization of deferred financing fees and accrued interest, for the first nine months of 2015 and 2014 was $11.6 million and $7.4 million, respectively.

• The effective tax rate was 28.6% for the nine months ended September 30, 2015, compared to 28.1% for the nine months ended September 30, 2014.

• Net income attributable to WESCO International, Inc. of $162.3 million for the nine months ended September 30, 2015 was down 19.5% from $201.5 million for the nine months ended September 30, 2014.

• Earnings per diluted share for the first nine months of 2015 was $3.16 per share, based on 51.3 million diluted shares, versus $3.78per share for the first nine months of 2014, based on 53.4 million diluted shares.

• Free cash flow for the nine months ended September 30, 2015 was $159.8 million, or 100% of net income, compared to free cash flow of $123.8 million, or 61% of net income for the nine months ended September 30, 2014.

Mr. Engel continued, “We expect reduced demand in commodity-driven end markets and foreign exchange headwinds to continue into 2016. The completion of cost reduction actions initiated in the second quarter are improving our second half profitability. We are continuing to simplify and streamline the business in the fourth quarter by reducing management structure and expect these changes to further improve our operational effectiveness while reducing costs in 2016. Our capital structure remains in good shape, and we will continue to take a disciplined approach to strengthening our electrical core and expanding our portfolio of products and services through acquisitions. As consolidation and outsourcing accelerate in our industry, customers are looking for a one-stop-shop to manage their global supply chain needs, and WESCO is well positioned to deliver on these expectations.”