Every weekday in December, tED magazine is counting down the Top 20 Stories of 2016. Below, the #12 most-viewed story of the year, originally published on January 29, 2016.
By Jack Keough
Hampered by a downturn in oil and gas and a sluggish industrial economy, Wesco, the giant electrical/MRO distributor has reported net sales of $7.5 billion for 2015, compared to $7.9 billion for 2014, a decrease of 4.7 percent.
The sales numbers were in line with earlier projections by Wesco that sales would decline 4 to 5 percent for the year.
Normalized organic sales decreased 3.3 percent; foreign exchange rates negatively impacted sales by 3.4 percent and were partially offset by a positive impact from acquisitions of 2.0 percent.
For the fourth quarter, Wesco’s sales of $1.86 billion declined 7 percent year-over-year, while the company’s profit of $48.8 million decreased 35 percent from last year’s $74.5 million.
Organic sales decreased 7.6 percent in Q4, with foreign exchange negative impacting overall sales by 3.7 percent
It was a tough year for Wesco, and 2016 is also showing signs of sluggish sales. Wesco said its sales for January in the United States were down 9 percent while Canadian sales were down slightly more.
John J. Engel, chairman and CEO of Wesco, said he expects the second half of 2016 to be “slightly stronger” than the first half of the year.
The oil, gas and mining sectors in the U.S. and Canada have been off sharply. CapEX spending was also down markedly for a number of other industrial sectors.
Engel, in a conference call with analysts following release of its Q4 earnings report, noted that Wesco’s customers, primarily in the oil and gas business, were executing projects that were in the pipeline but were not starting any new ones.
“Our activities have been focused on supporting them in their smaller projects, providing them with MRO supplies and helping them with project upgrades. We want to take a greater spend of their lower spending levels.” he said.
Wesco took a number of steps in 2015 to reduce costs. Ken Parks, senior vice president and CFO, said his company eliminated nearly 460 positions and closed or consolidated 21 branches.
Engel said his executive team would be closely monitoring business conditions in 2016 and will undertake further cost-cutting measures such as branch closures and eliminating more positions depending on business conditions.
He noted that Wesco has tremendous diversification as to its end markets and covers some 15 different vertical segments. “Capital spending was clearly getting cut across the industrial base in 2015,” he said.
Engel pointed out that the company has been conducting “precision planning” from the local branches up to corporate to determine how to react to the changing business climate.
“We can’t control our end markets and headwinds, but we can control and focus on our execution,” he said.
Most industrial distributors like Wesco are facing those strong headwinds this year.
Engel said that a recent economic report by CIBC World Market forecast that GDP in Canada would drop from a projected 1.7 percent increase to 1.3 percent after adjusting for inflation, a substantial decrease. That forecast is based on the continuing drop-off in the oil, gas and mining businesses. It was the second time that the large Canadian bank had revised its projection downwards.
Engel said there are some bright signs, he said. Job losses in Alberta, Canada have stabilized, for example. “We’ll be watching that closely,” Engel said mentioning that business conditions there are expected to also improve in the second half.
“The question is, how long will we be bouncing along the bottom before we hit bottom?” he asked.
But Engel is still optimistic about the year. Its two recent acquisitions, Hill Country Electric Supply and Needham Electric Supply are “off to a terrific start” and opens up further business in the non-residential construction market. Hill Country Electric, for example, has seen an uptick in its construction business in Austin and San Antonio despite the oil drop off.
Engel also said bidding activity for RFPs had increased in every quarter of 2015 while sales to government customers have risen sharply after being down in 2014.
Non-residential spending in the health care and education are growing, and residential building is still increasing, he said.
But Engel pointed out that Wesco intends on getting a bigger piece of the customer pie by using its advantages such as its One WESCO program, its supply chain capabilities, expertise, and breadth of product line to capture business from its competitors.
“Customers are looking to consolidate their supplier base,” Engel said. “We, along with only a handful of others, have the scale, scope and geographical footprint to take advantage of that supplier consolidation.”
Engel also noted that Wesco will remain on the lookout for acquisition of competitors and has an active and robust pipeline. Those acquisitions would not be sought in Canada but in the U.S. and possibly “south of the border” in Mexico.
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