PITTSBURGH — Wesco International announces its results for the first quarter of 2024.
“Our first quarter sales met our expectations and were consistent with the outlook we provided during the quarter. Our performance, compared against the strong first quarter a year ago, was in line with our typical seasonal pattern and our full year outlook. Quoting, bid activity levels, and our backlog remain healthy and support our view for sequential growth as the year progresses. Our free cash flow generation, something we are acutely focused on, was a record $731 million in the first quarter and more than $1.4 billion over the trailing twelve months. As a result, our financial leverage now stands at 2.6x EBITDA and near our target range of 1.5 to 2.5x. In addition to our strong cash flow performance, the after-tax proceeds of approximately $300 million from the sale of our Wesco Integrated Supply business will allow us to pursue our capital allocation strategies more aggressively while we continue to pursue accretive acquisitions,” said John Engel, Chairman, President and CEO.
Engel added, “We are maintaining our previous full-year outlook for organic sales growth and adjusted EBITDA margin, and our outlook for the year has been updated to reflect the divestiture of our Wesco Integrated Supply business on April 1. We are also maintaining our full-year outlook for adjusted earnings per share as we expect to upsize our share repurchase activity using the proceeds received from the divestiture. Given the record cash performance in the first quarter, we are increasing our full-year free cash flow outlook to $800 million to $1 billion. We are focused on continual improvement and making the internal investments to improve our performance and capabilities in the future. And I remain confident that the long-term, secular growth trends are opportunities that will sustain Wesco’s long-term sales growth rate and also allow us to increase our share because of our unique global capabilities and scale.”
The following are results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023:
- Net sales were $5.4 billion for the first quarter of 2024 compared to $5.5 billion for the first quarter of 2023, a decrease of 3.1%. Organic sales for the first quarter of 2024 declined by 3.2%, as fluctuations in foreign exchange rates positively impacted reported net sales by 0.1%. The decrease in organic sales reflects volume declines in all three segments, partially offset by price inflation.
- Backlog at the end of the first quarter of 2024 declined by 10% compared to the end of the first quarter of 2023. Sequentially, backlog increased by approximately 1% in the quarter.
- Cost of goods sold for the first quarter of 2024 was $4.2 billion compared to $4.3 billion for the first quarter of 2023, and gross profit was $1.1 billion for the first quarter of 2024 compared to $1.2 billion for the first quarter of 2023. As a percentage of net sales, gross profit was 21.3% and 21.9% for the first quarter of 2024 and 2023, respectively. The decline in gross profit as a percentage of net sales for the first quarter of 2024 primarily reflects a shift in sales mix and lower supplier volume rebates, as well as the impact of unfavorable inventory adjustments. Sequentially, gross profit as a percentage of net sales declined 10 basis points from 21.4% in the fourth quarter of 2023.
- Selling, general and administrative (“SG&A”) expenses were $829.4 million, or 15.5% of net sales, for the first quarter of 2024, compared to $817.7 million, or 14.8% of net sales, for the first quarter of 2023. SG&A expenses for the first quarter of 2024 include $8.0 million of restructuring costs, primarily consisting of severance costs related to headcount reduction actions taken in March, $6.1 million of digital transformation costs, and $4.8 million of excise taxes on excess pension plan assets. SG&A expenses for the first quarter of 2023 include merger-related and integration costs of $11.2 million and digital transformation costs of $8.3 million. Adjusted for these costs, SG&A expenses were $810.5 million, or 15.1% of net sales, for the first quarter of 2024 and $798.2 million, or 14.5% of net sales, for the first quarter of 2023. Adjusted SG&A expenses for the first quarter of 2024 reflect higher salaries due to wage inflation, partially offset by the impact of headcount reductions taken at the end of the second quarter of 2023. Increased costs to operate our facilities also contributed to higher SG&A expenses. These increases were partially offset by decreases in professional service and consulting fees and transportation costs.
- Depreciation and amortization for the first quarter of 2024 was $45.5 million compared to $44.4 million for the first quarter of 2023, an increase of $1.1 million.
- Operating profit was $263.0 million for the first quarter of 2024 compared to $346.4 million for the first quarter of 2023, a decrease of $83.4 million, or 24.1%. Operating profit as a percentage of net sales was 4.9% for the current quarter compared to 6.3% for the first quarter of the prior year. Adjusted for restructuring costs, digital transformation costs, and excise taxes on excess pension plan assets, operating profit was $281.9 million, or 5.3% of net sales, for the first quarter of 2024. Adjusted for merger-related and integration costs and digital transformation costs, operating profit was $365.9 million, or 6.6% of net sales, for the first quarter of 2023.
- Net interest expense for the first quarter of 2024 was $94.4 million compared to $95.0 million for the first quarter of 2023.
- Other non-operating expense for the first quarter of 2024 was $21.6 million compared to $10.1 million for the first quarter of 2023. Due to fluctuations in the U.S. dollar against certain foreign currencies, we recognized a net foreign currency exchange loss of $17.4 million for the first quarter of 2024 compared to a net loss of $9.5 million for the first quarter of 2023. We recognized net costs of $5.9 million and net benefits $0.3 million associated with the non-service cost components of net periodic pension cost (benefit) for the three months ended March 31, 2024 and 2023, respectively. Net costs associated with the non-service cost components of net periodic pension cost (benefit) for the first quarter of 2024 includes pension settlement cost of $5.5 million to recognize unrealized losses previously reported as a component of other comprehensive income (loss) related to the benefit obligation of the Anixter Inc. Pension Plan as a result of the final settlement of the plan. Adjusted for this amount, other non-operating expense was $16.1 million for the first quarter of 2024.
- The effective tax rate for the first quarter of 2024 was 21.0% compared to 18.3% for the first quarter of 2023. The effective tax rate for the quarter ended March 31, 2024 was higher than the comparable period due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year period.
- Net income attributable to common stockholders was $101.4 million for the first quarter of 2024 compared to $182.7 million for the first quarter of 2023. Adjusted for restructuring costs, digital transformation costs, excise taxes on excess pension plan assets, and the related income tax effects, net income attributable to common stockholders was $119.2 million for the first quarter of 2024. Adjusted for merger-related and integration costs, digital transformation costs, and the related income tax effects, net income attributable to common stockholders was $196.9 million for the first quarter of 2023.
- Earnings per diluted share for the first quarter of 2024 was $1.95, based on 51.9 million diluted shares, compared to $3.48 for the first quarter of 2023, based on 52.5 million diluted shares. Adjusted for restructuring costs, digital transformation costs, excise taxes on excess pension plan assets, pension settlement cost, and the related income tax effects, earnings per diluted share for the first quarter of 2024 was $2.30. Adjusted for merger-related and integration costs, digital transformation costs, and the related income tax effects, earnings per diluted share for the first quarter of 2023 was $3.75.
- Operating cash flow for the first quarter of 2024 was an inflow of $746.3 million compared to an outflow of $255.4 million for the first quarter of 2023. Free cash flow for the first quarter of 2024 was $731.4 million, or 546% of adjusted net income. The net cash inflow in the first quarter of 2024 was primarily driven by net income of $116.1 million and changes in net working capital. Fluctuations in accounts payable resulted in a source of cash of $620.9 million for the first quarter of 2024 compared to a use of cash of $319.7 million for the year ended December 31, 2023. The increase for the first quarter of 2024 was driven primarily by the impact of a system conversion, the timing of inventory purchases, and a bank holiday at the end of the quarter that delayed payments. An increase in trade accounts receivable resulted in a use of cash of $116.1 million due to the timing of receipts from customers. Additionally, a decrease in other accounts receivable of $78.9 million, due primarily to the collection of supplier volume rebates earned in 2023 in excess of income accrued during the current period, partially offset by an increase in sales tax and value-added tax receivables, and an increase in other current and noncurrent liabilities of $75.0 million, due to increases in accrued interest payable and deferred revenue, partially offset by a decrease in federal taxes payable, contributed to the net operating cash inflow.