PITTSBURGH — Wesco International announces its results for the first quarter of 2022.
“Our first quarter results speak volumes about the new Wesco’s foundation for accelerating growth and profitability,” said John Engel, Chairman, President and CEO. “After delivering an exceptional performance in fiscal 2021, we’re off to an even more impressive start in 2022. Once again, we achieved new company records for sales, backlog and profitability while continuing our rapid deleveraging which now stands at 3.6x adjusted EBITDA, compared to 5.7x when we closed the Anixter merger. With each quarter, the power of Wesco’s scale, expanded portfolio and industry-leading positions becomes more evident as we build momentum and deliver superior value to our customers.”
Mr. Engel continued, “The demonstrated strength of Wesco’s business model and the success of our almost two year integration effort is clearly apparent in the achievement of our three business units which all delivered double-digit sales and profit growth results in the quarter in spite of supply chain challenges in certain categories. Our exceptional financial results continue to support our investment in our digital transformation effort which when completed will raise Wesco to an even higher level of performance, operating efficiency and customer loyalty.”
Mr. Engel added, “As a result of our outstanding start to the year and the accelerating momentum across our business, we are substantially raising our outlook for 2022. We now expect sales for the year to increase 12% to 15% and adjusted EBITDA margin to expand to between 7.3% and 7.6%, equating to $1.54 billion of adjusted EBITDA at the midpoint of the outlook range. We are also increasing our outlook for adjusted EPS to a range of $14.00 to $15.00. Given this robust anticipated growth, we are adjusting our full year 2022 outlook for free cash flow to 80% of adjusted net income to reflect our continued strategic investment in inventory to support our record backlog. The new Wesco is proving to be an integral partner to our customers across each of our business segments. Our financial results continue to prove the extraordinary value of the Wesco and Anixter combination and point to a future of sustained growth and market outperformance.”
The following are results for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
- Net sales were $4.9 billion for the first quarter of 2022 compared to $4.0 billion for the first quarter of 2021, an increase of 22.0% reflecting continued strong demand, price inflation, expanded product and service offerings afforded by the combination of Wesco and Anixter, as well as secular growth trends in electrification, automation, communications and security. Organic sales for the first quarter of 2022 grew by 21.2% as the number of workdays positively impacted reported net sales by 1.6%, and foreign exchange rates and Canadian business divestitures negatively impacted reported net sales by 0.5% and 0.3%, respectively. Sequentially, net sales grew 1.7% and organic sales were flat. Backlog at the end of the first quarter of 2022 increased by more than 90% to a record level compared to the end of the first quarter of 2021. Sequentially, backlog grew approximately 25%, marking the fifth consecutive quarter of sequential growth.
- Cost of goods sold for the first quarter of 2022 was $3.9 billion compared to $3.2 billion for the first quarter of 2021, and gross profit was $1,049.1 million and $811.0 million, respectively. As a percentage of net sales, gross profit was 21.3% and 20.1% for the first quarter of 2022 and 2021, respectively. Gross profit as a percentage of net sales for the first quarter of 2022 reflects our focus on value-driven pricing and continued momentum of our gross margin improvement program, along with higher supplier volume rebate income. The first quarter of 2021 included a write-down to the carrying value of certain personal protective equipment inventories that unfavorably impacted gross profit as a percentage of net sales by 20 basis points. Sequentially, gross profit as a percentage of net sales increased 50 basis points from 20.8% for the fourth quarter of 2021.
- Selling, general and administrative (“SG&A”) expenses were $718.1 million, or 14.6% of net sales, for the first quarter of 2022, compared to $636.6 million, or 15.8% of net sales, for the first quarter of 2021. SG&A expenses for the first quarter of 2022 include merger-related and integration costs of $25.6 million. Adjusted for this amount, SG&A expenses were $692.5 million, or 14.0% of net sales, for the first quarter of 2022. SG&A expenses for the first quarter of 2022 reflect higher salaries and variable compensation expense, as well as volume-related costs driven by significant sales growth. In addition, digital transformation initiatives contributed to higher information technology expenses in the first quarter of 2022. The realization of integration cost synergies partially offset these increases. SG&A expenses for the first quarter of 2021 included $46.3 million of merger-related and integration costs, as well as a net gain of $8.9 million resulting from the divestiture of Wesco’s legacy utility and data communications businesses in Canada. Adjusted for these amounts, SG&A expenses were $599.2 million, or 14.8% of net sales, for the first quarter of 2021.
- Depreciation and amortization for the first quarter of 2022 was $47.0 million compared to $41.2 million for the first quarter of 2021, an increase of $5.8 million. In connection with an integration initiative to review the Company’s brand strategy, certain legacy trademarks are migrating to a master brand architecture, which resulted in $5.3 million of accelerated amortization expense for the first quarter of 2022.
- Operating profit was $284.0 million for the first quarter of 2022 compared to $133.3 million for the first quarter of 2021, an increase of $150.8 million, or 113.2%. Operating profit as a percentage of net sales was 5.8% for the current quarter, compared to 3.3% for the first quarter of the prior year. Operating profit for the first quarter of 2022 includes the merger-related and integration costs, and accelerated trademark amortization described above. Adjusted for these amounts, operating profit was $314.9 million, or 6.4% of net sales. For the first quarter of 2021, operating profit was $170.6 million, or 4.2% of net sales, adjusted for merger-related and integration costs of $46.3 million, and the net gain on the Canadian divestitures of $8.9 million. Adjusted operating margin was up 220 basis points compared to the prior year.
- Net interest expense for the first quarter of 2022 was $63.6 million compared to $70.4 million for the first quarter of 2021. The decrease reflects the repayment of fixed rate debt with variable debt that has lower borrowing rates.
- The effective tax rate for the first quarter of 2022 was 17.2% compared to 9.9% for the first quarter of 2021. For the three months ended March 31, 2022 and 2021, the effective tax rates reflect discrete income tax benefits of $13.4 million and $8.3 million, respectively, resulting from reductions to the valuation allowance recorded against foreign tax credit carryforwards, as well as deductible stock-based compensation. These discrete income tax benefits reduced the estimated annual effective tax rate by approximately 8.7 and 14.4 percentage points, respectively.
- Net income attributable to common stockholders was $166.9 million for the first quarter of 2022 compared to $44.8 million for the first quarter of 2021. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $189.8 million for the first quarter of 2022. Adjusted for merger-related and integration costs, the net gain on the Canadian divestitures, and the related income tax effects, net income attributable to common stockholders was $74.1 million for the first quarter of 2021. Adjusted net income attributable to common stockholders increased 156.2% year-over-year.
- Earnings per diluted share for the first quarter of 2022 was $3.19, based on 52.2 million diluted shares, compared to $0.87 for the first quarter of 2021, based on 51.7 million diluted shares. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first quarter of 2022 was $3.63. Adjusted for merger-related and integration costs, net gain on Canadian divestitures, and the related income tax effects, earnings per diluted share for the first quarter of 2021 was $1.43. Adjusted earnings per diluted share increased 153.8% year-over-year.
- Operating cash flow for the first quarter of 2022 was an outflow of $171.9 million, compared to an inflow of $120.5 million for the first quarter of 2021. The net cash outflow in the first quarter of 2022 was primarily driven by changes in working capital, including an increase in trade accounts receivable of $324.6 million resulting from higher sales in the latter part of the quarter. An increase in inventories of $214.2 million also contributed to the net cash outflow due to investments over the last several months to both address supply chain challenges and support our strong sales growth opportunities, partially offset by a corresponding increase in accounts payable of $200.0 million. Net working capital days as of March 31, 2022, calculated on a trailing twelve month basis using the preceding four quarter income statements and the average of the preceding five quarter-end balance sheets, improved more than five days from the end of the first quarter of 2021.
Segment Results
The Company has operating segments that are comprised of three strategic business units consisting of Electrical & Electronic Solutions (“EES”), Communications & Security Solutions (“CSS”) and Utility & Broadband Solutions (“UBS”).
Corporate primarily incurs costs related to treasury, tax, information technology, legal and other centralized functions. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are either not allocated to the segments or reviewed on a segment basis. Corporate expenses not directly identifiable with our reportable segments are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.
The following are results by segment for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
- EES reported net sales of $2.1 billion for the first quarter of 2022 compared to $1.7 billion for the first quarter of 2021, an increase of 21.5%. Organic sales for the first quarter of 2022 grew by 20.8% as the number of workdays positively impacted reported net sales by 1.6%, and foreign exchange rates and the Canadian divestitures described above negatively impacted reported net sales by 0.4% and 0.5%, respectively. Sequentially, reported net sales grew 4.8% and organic sales increased 3.4%, reflecting continued strong demand. The increase compared to the prior year quarter reflects double-digit sales growth in our construction, original equipment manufacturer, and industrial businesses, reflecting business expansion, price inflation, as well as the benefits of cross selling and secular growth trends in electrification and automation. Operating profit was $178.8 million for the first quarter of 2022 compared to $100.1 million for the first quarter of 2021, an increase of $78.7 million, or 78.6%. The increase primarily reflects the factors impacting the overall business, as described above. Additionally, operating profit for the first quarter of 2022 was negatively impacted by accelerated trademark amortization expense of $2.2 million. EBITDA, adjusted for other non-operating income and non-cash stock-based compensation expense, was $192.4 million for the first quarter of 2022, or 9.2% of net sales, compared to $112.0 million for the first quarter of 2021, or 6.5% of net sales. Adjusted EBITDA increased $80.4 million, or 71.8% year-over-year.
- CSS reported net sales of $1.4 billion for the first quarter of 2022 compared to $1.3 billion for the first quarter of 2021, an increase of 14.7%. Organic sales for the first quarter of 2022 grew by 13.9% as the number of workdays positively impacted reported net sales by 1.6% and foreign exchange rates negatively impacted reported net sales by 0.8%. Sequentially, reported net sales declined 5.3% and organic sales decreased 6.7%, which primarily reflects the effect of supply chain constraints. The increase compared to the prior year quarter reflects double-digit growth in our network infrastructure business led by global hyper-scale data center customers and an increase in structured cabling driven by accelerating return-to-work activities, as well as growth in our security solutions business driven by IP-based surveillance and the adoption of cloud-based technologies. Operating profit was $104.0 million for the first quarter of 2022 compared to $74.0 million for the first quarter of 2021, an increase of $30.0 million, or 40.6%. The increase primarily reflects the factors impacting the overall business, as described above, as well as the absence of the personal protective equipment inventory value write-down described in the Company’s overall results above. Additionally, operating profit for the first quarter of 2022 was negatively impacted by accelerated trademark amortization expense of $2.6 million. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $123.0 million for the first quarter of 2022, or 8.6% of net sales, compared to $90.7 million for the first quarter of 2021, or 7.3% of net sales. Adjusted EBITDA increased $32.3 million, or 35.6% year-over-year.
- UBS reported net sales of $1.4 billion for the first quarter of 2022 compared to $1.1 billion for the first quarter of 2021, an increase of 31.6%. Organic sales for the first quarter of 2022 grew by 30.4% as the number of workdays positively impacted reported net sales by 1.6% and the Canadian divestitures described above negatively impacted reported net sales by 0.4%. Sequentially, reported net sales grew 4.9% and organic sales increased 3.4%. The increase compared to the prior year quarter, as well as sequentially, reflects broad-based growth driven by investments in grid modernization, connectivity demand and rural broadband development, as well as expansion in our integrated supply business. Operating profit was $129.9 million for the first quarter of 2022 compared to $87.0 million for the first quarter of 2021, an increase of $42.9 million, or 49.3%. The increase primarily reflects the factors impacting the overall business, as described above, offset by the benefit in the corresponding prior year quarter from the net gain on the Canadian divestitures. EBITDA, adjusted for other non-operating income, non-cash stock-based compensation expense, and the net gain on the Canadian divestitures in the first quarter of 2021 was $136.4 million for the three months ended March 31, 2022, or 9.7% of net sales, compared to $83.7 million for the three months ended March 31, 2021, or 7.8% of net sales. Adjusted EBITDA increased $52.7 million, or 63.0% year-over-year.