After last week’s announcement of a strong second quarter earnings report, WESCO held its earnings report conference call to explain how its merger with Anixter has kicked off, and how it sees its potential for the rest of this year and beyond.
“Results exceeded our expectations across the board,” CEO John Engel told reporters during the conference call. “That is for sales, operating margin, operating profit, EPS, and free cash flow. Business momentum improved through the quarter as we outperformed the market and built an all-time record backlog for the legacy WESCO business.”
WESCO reported industrial sales down 21% across the United States and 22% in Canada because of the COVID-19 crisis. Construction sales were down 16% in the United States and 21% in Canada. But on the positive side, bidding for projects and project activity is still strong, industrial markets are improving through April, May, and June, and a backlog of projects still exists. Right now, the backlog is up 17% from a year ago, meaning construction projects are being delayed but not cancelled.
WESCO is also continuing its cost-savings efforts. The distributor still believes it will hit the goal it set earlier this year. “We will maintain our cost discipline to meet or exceed the $50 million in cost savings generated by the actions that we took in April in response to COVID-19,” Engel announced. “We are planning to reinstate full compensation on October 1 for legacy WESCO employees that was temporarily reduced between 12% and 25% effective May 1.”
Since the merger with Anixter in mid-June, WESCO has launched the cost-synergy program created by the integration team before the deal was completed. Engel says the plan is to eliminate $200 million in expenses, and in the six weeks since the deal was completed, that program is off to a strong start. “With the combination of earnings growth and the realization of cost synergies, we expect the annual cash generation of the combined company will expand to over to over $600 million per year by year three,” Engel announced.
Engel also pointed out the Anixter merger means WESCO can now handle areas where it was deficient in the past, which includes wire sales. “I think this is something there where WESCO has had some deficiency historically, and I’ve been here for some time, as you know. We didn’t have anywhere near the wire and cable strength of Anixter. They were far well-beyond us in terms of capability. So we’re now, for the first time in my WESCO tenure, in a unique position to sell the entire electrical package with very strong capabilities in core wire and cable, that whole category.”
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