PITTSBURGH — Wesco International announces its results for the first quarter of 2025.
“After returning to growth in the fourth quarter of 2024, we are pleased to build on our positive sales momentum to start the year with 6% organic growth in the first quarter. This performance was sparked by 70% growth in total data center sales and high single digit growth in both our Broadband and OEM businesses. Consistent with the fourth quarter, our first quarter sales growth was partially offset by continued weakness in our utility business, as expected. With that said, our positive momentum is building to start the second quarter with preliminary April sales per workday up 7% versus prior year. Our opportunity pipeline continues at a record level, bid activity levels remain very strong, and backlog is growing. Gross margin was relatively stable on a sequential basis versus the fourth quarter, and we’ve begun to see an initial improvement in Communication and Security Solutions as expected,” said John Engel, Chairman, President, and CEO.
Engel continued, “With our continued focus on effective working capital management, free cash flow generation was better than expected in the first quarter. Our increased inventory will help manage the potential supply chain impact of global tariffs on our customers. We also issued $800 million of notes to redeem our preferred stock in June. This will strengthen our balance sheet and improve both our cash flow and earnings per share run-rates. Following this redemption, we have no significant debt maturities until 2028 and have strong liquidity to execute our capital allocation priorities. As we outlined in our last Investor Day, over 75% of our free cash flow generation provides optionality and is focused on our capital allocation priorities of stock buybacks, debt reduction and acquisitions.”
Engel concluded, “We are maintaining our full year outlook based upon our current positive momentum to start 2025. Against a backdrop of increased uncertainty and volatility, we remain sharply focused on what we can control – our cross-selling activities, our enterprise-wide margin improvement program, and operational improvements resulting from our tech-enabled business transformation. We recognize that current economic uncertainty is impacting our customers and are committed to providing the products, services, and solutions that they need for their operations and supply chains. I remain confident that Wesco will outperform our markets this year as the secular growth trends of AI-driven data centers, increased power generation, electrification, automation, and reshoring endure.”
Key Financial Highlights
Net Sales
- On an organic basis, which removes the impact of the Wesco Integrated Supply (“WIS”) divestiture and Ascent, LLC (“Ascent”) acquisition, differences in foreign exchange rates, and the impact from the number of workdays, sales for the first quarter of 2025 grew by 5.6%. The increase in organic sales reflects volume growth in the CSS segment, partially offset by a volume decline in the UBS segment, and also reflects price inflation in the EES segment.
Gross Profit
- The slight decrease in gross margin for the first quarter of 2025 primarily reflects a decrease in CSS and EES gross margins, partially offset by the impact of the divestiture of the WIS business.
Selling, General, and Administrative (“SG&A”) Expenses
- The increase in SG&A expenses for the first quarter of 2025 is driven by higher costs to operate our facilities and higher transportation costs, partially offset by lower commissions, incentives, and benefits. SG&A expenses for the first quarter of 2025 include $7.3 million of digital transformation and restructuring costs. SG&A expenses for the first quarter of 2024 include $14.1 million of digital transformation and restructuring costs, and $4.8 million of excise taxes on excess pension plan assets. Adjusted for these costs, SG&A expenses were 15.5% and 15.1% of net sales for the first quarter of 2025 and 2024, respectively.
Adjusted EBITDA
- The decrease in Adjusted EBITDA primarily reflects a $6.9 million increase in SG&A expenses primarily driven by higher facilities and transportation costs partially offset by lower payroll expense, a $6.3 million decrease in net sales, and a $6.0 million increase in cost of goods sold related to increased large project sales to customers.
Effective Tax Rate
- The higher effective tax rate for the first quarter of 2025 is due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year period.
Adjusted Earnings Per Diluted Share
- The decrease in adjusted earnings per diluted share primarily reflects the decline in gross profit and increase in SG&A expenses discussed above, partially offset by an $8.1 million decrease in interest expense primarily due to lower borrowings and lower interest rates and a $16.2 million decrease in adjusted other expense primarily due to the impact of fluctuations in the U.S. dollar against certain foreign currencies in the first quarter of 2024 compared to an immaterial impact in the first quarter of 2025. Additionally, there was a positive impact from the reduction in outstanding shares during the first quarter of 2025 as compared to the first quarter of 2024.
Operating Cash Flow
- The net cash inflow in the first quarter of 2025 was primarily driven by net income of $118.3 million. This inflow was partially offset by changes in working capital consisting of an increase in inventories resulting in a use of cash of $227.4 million, and an increase in trade accounts receivable of $188.7 million primarily due to the timing of receipts from customers, partially offset by changes in accounts payable resulting in a cash inflow of $343.8 million, primarily due to the timing of payments to suppliers as well as inventory purchases. The inflow from net income was also partially offset by a $77.1 million outflow from accrued payroll and benefits costs, primarily due to the payment of management incentive compensation earned in 2024, and a decrease in accrued sales incentives.