By Jack Keough
WESCO, the giant electrical/MRO distributor, eliminated another 100 positions in the first quarter, bringing the total to 550 over the past year. The company has also closed or consolidated 25 branches since the beginning of 2015.
WESCO recently posted a 4.3 percent decline in sales for Q1 compared to the previous quarter and reaffirmed its sales for the year would be flat to down 5 percent. Sales for Q1 were down 2.2 percent compared to the same period last year.
“Our direct oil and gas sales declined 25 percent this quarter on top of a 10 percent decrease in the first quarter of 2015, ” said CFO Ken Parks in a quarterly conference earnings call.
“Because of this downturn and our efforts to expand our customer base, direct oil and gas sales are now approximately 7 percent of our total business as compared to 10 percent where we started at the beginning of 2015,” Parks said. “Our reduced demand outlook, still weak global commodity prices and a strong U.S. dollar continue to negatively impact the manufacturing sector.”
However, Parks said because of the diversification of its customer base, WESCO’s drop in the oil and gas markets was partially offset with growth in segments such as data centers, broadband communications, retrofits and renewable energies, particularly solar.
Parks, who has been WESCO’s CFO for four years, has resigned effective May 31 to become the CFO of Mylan Pharmaceuticals.
While WESCO, like many distributors, is facing headwinds caused by the severe drop off in the energy sector and manufacturing, it is optimistic because of recent acquisitions and the winning of several new large contracts.
WESCO was recently awarded a contract to supply and install materials for a new medical center being built in Ecuador and another one to provide high-voltage materials for a wind farm substation for a large energy developer. WESCO also received a contract from a large national telecommunications provider to supply infrastructure materials to multiple U.S. locations in support of their fiber optic network build-out.
John Engel, chairman, president and CEO of WESCO, told analysts the company would continue to tightly manage its costs and streamline its organization to help mitigate any impact on profitability.
He said he could not describe the downturn in some markets as hitting bottom but rather “bouncing along the bottom.”
Engel noted there had been a significant decline in the industrial sector and while there is potential for improvement added, “overall I would say we’re not seeing a positive uptick yet in sentiment or spend.”
He said expectations for segments of the non-residential construction market, including commercial, educational and healthcare, remain modestly positive.
In addition, WESCO is seeing strong bid activity in the industrial sector for global accounts and integrated supply.
WESCO said it is benefiting from three recent acquisitions that are focused on strengthening its core electrical business. The three companies, Hill Country Electric Supply, Needham Electric Supply and most recently Atlanta Electrical Distributors (AED), have a substantial focus on electrical and construction.
Hill Country was acquired last May while Needham was purchased in November and Wesco’s most recent acquisition, Atlanta Electrical Distributors (AED) was made this past March.
The three companies have combined sales of more than $340 million.
Hill Country is up high single-digits sales growth in Q1 compared to the previous year; Needham Electric is up double digits and AED is up even stronger than Needham, Engel said. The acquisitions will also help drive WESCO’s non-residential construction business in the commercial and institutional sectors.
“They’re off to a fabulous start,” Engel said.
But equally important for WESCO, Engel said, is consolidation taking place in the utility industry.
“As our customers consolidate, they take a look at their supply chain and it opens up the opportunity for us to provide our complete value proposition to them. And that has benefited us to a large degree over the last five years and that’s continuing,” he said.
“I would say for the overall utility industry, we’re still seeing our growth driven by increasing our scope of supply with our current customers, category expansion, and project wins.”
WESCO expects second quarter sales to be down 1 percent to 3 percent, with the same number of workdays as last year.
The company says it will continue to watch its discretionary costs, branch footprint and employment levels closely, and will take action as necessary depending on economic conditions.
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