Wesco Reports “Below Expectations” Earnings

PITTSBURGH — Wesco International announces its results for the second quarter of 2024.

“Our second quarter results were somewhat below our expectations for a low single-digit decline in reported sales against a continued mixed and multi-speed economic environment. Results improved as we moved through the quarter with a return to organic sales growth in June along with sequential margin expansion. We continued to benefit from the increase in AI-driven data center growth with sales in our Wesco Data Center Solutions business up double-digits. This was more than offset by a significant slowdown in purchases by our utility customers. While we remain confident in the long-term growth of our Utility and Broadband Solutions business, the customer destocking and delay of capital projects clearly impacted our results in the quarter,” said John Engel, Chairman, President and CEO.

Engel added, “As planned, we executed our capital allocation strategies and repurchased $300 million of our Wesco stock in the second quarter and closed on two small but important software-based acquisitions, entroCim and Storeroom Logix. With our record $500 million of free cash flow generation in the first half, we are on track to deliver our full year free cash flow outlook of $800 million to $1 billion and will continue to execute our capital allocation strategies.”

Engel concluded, “We expect the mixed economic environment and customer purchasing delays in utility and broadband to continue through the second half of 2024. Quoting, bid activity levels, and our backlog remain healthy, supporting our view for sales growth in the second half against an easier year-over-year comparable, but at a more modest rate than our previous outlook. As a result, we are reducing our full-year outlook and now expect organic sales growth of (1.5)% to 0.5% versus prior year and adjusted EBITDA margin of 7.0% to 7.3%. We plan to build on our improving sequential momentum in the second half as we continue to benefit from our global capabilities, leading scale and expanded portfolio.”

The following are results for the three months ended June 30, 2024 compared to the three months ended June 30, 2023:

• Net sales were $5.5 billion for the second quarter of 2024 compared to $5.7 billion for the second quarter of 2023, a decrease of 4.6%. On an organic basis, which removes the impact of the WIS divestiture and differences in foreign exchange rates, sales for the second quarter of 2024 declined by 0.8%. The decrease in organic sales reflects volume declines in the EES and UBS segments, partially offset by a volume increase in the CSS segment and price inflation in the EES and UBS segments.
• Backlog at the end of the second quarter of 2024 declined by 10% compared to the end of the second quarter of 2023. Sequentially, backlog declined by approximately 2% in the quarter.
• Cost of goods sold for the second quarter of 2024 was $4.3 billion compared to $4.5 billion for the second quarter of 2023, and gross profit was $1.2 billion for the second quarter of 2024 and 2023. As a percentage of net sales, gross profit was 21.9% and 21.6% for the second quarter of 2024 and 2023, respectively. The increase in gross profit as a percentage of net sales for the second quarter of 2024 primarily reflects the impact of the divestiture of the WIS business. Sequentially, gross profit as a percentage of net sales increased 60 basis points from 21.3% in the first quarter of 2024.
• Selling, general and administrative (“SG&A”) expenses were $828.4 million, or 15.1% of net sales, for the second quarter of 2024, compared to $831.7 million, or 14.5% of net sales, for the second quarter of 2023. SG&A expenses for the second quarter of 2024 include a $17.8 million loss on abandonment of assets, $6.1 million of digital transformation costs, and $0.9 million of restructuring costs. SG&A expenses for the second quarter of 2023 include $9.8 million of restructuring costs, $7.3 million of digital transformation costs, and $3.6 million of merger-related and integration costs. Adjusted for these costs, SG&A expenses were $803.6 million, or 14.7% of net sales, for the second quarter of 2024 and $811.0 million, or 14.1% of net sales, for the second quarter of 2023. Adjusted SG&A expenses for the second quarter of 2024 reflect the impact of the divestiture of the WIS business and lower payroll-related expenses, partially offset by higher costs to operate our facilities.
• Depreciation and amortization for the second quarter of 2024 was $46.1 million compared to $46.9 million for the second quarter of 2023, a decrease of $0.8 million.
• Operating profit was $323.5 million for the second quarter of 2024 compared to $363.8 million for the second quarter of 2023, a decrease of $40.3 million, or 11.1%. Operating profit as a percentage of net sales was 5.9% for the current quarter compared to 6.3% for the second quarter of the prior year. Adjusted for the loss on abandonment of assets, digital transformation costs, and restructuring costs described above, operating profit was $348.3 million, or 6.4% of net sales, for the second quarter of 2024. Adjusted for restructuring costs, digital transformation costs, merger-related and integration costs, and accelerated trademark amortization expense described above, operating profit was $385.3 million, or 6.7% of net sales, for the second quarter of 2023.
• Net interest expense for the second quarter of 2024 and 2023 was $98.8 million.
• Other non-operating income for the second quarter of 2024 was $95.9 million compared to expense of $0.8 million for the second quarter of 2023. In the second quarter of 2024, we completed the divestiture of our WIS business and recognized a gain from the sale of $102.9 million. Additionally, in the second quarter of 2024, we recognized a $3.8 million loss on the termination of a business arrangement. Adjusted for the gain on the divestiture of our WIS business and the loss on termination of business arrangement, other non-operating expense was $3.2 millionfor the second quarter of 2024.
• The effective tax rate for the second quarter of 2024 was 27.4% compared to 27.2% for the second quarter of 2023.
• Net income attributable to common stockholders was $217.7 million for the second quarter of 2024 compared to $178.7 million for the second quarter of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, the gain recognized on the divestiture of the WIS business, the loss on termination of business arrangement, and the related income tax effects, net income attributable to common stockholders was $163.5 million for the second quarter of 2024. Adjusted for restructuring costs, digital transformation costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $194.3 million for the second quarter of 2023. Adjusted net income attributable to common stockholders decreased 15.9% year-over-year.
• Earnings per diluted share for the second quarter of 2024 was $4.28, based on 50.9 million diluted shares, compared to $3.41 for the second quarter of 2023, based on 52.4 million diluted shares. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, the gain recognized on the divestiture of our WIS business, the loss on termination of business arrangement, and the related income tax effects, earnings per diluted share for the second quarter of 2024 was $3.21. Adjusted for restructuring costs, digital transformation costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the second quarter of 2023 was $3.71. Adjusted earnings per diluted share decreased 13.5% year-over-year.
• Operating cash flow for the second quarter of 2024 was an outflow of $223.8 million compared to an inflow of $317.6 million for the second quarter of 2023. The net cash outflow in the second quarter of 2024 was primarily driven by changes in net working capital, partially offset by net income of $232.8 million. Fluctuations in accounts payable resulted in a cash out flow of $279.0 million for the second quarter of 2024, primarily due to the timing of inventory purchases and payments to suppliers. An increase in trade accounts receivable resulted in a use of cash of $142.7 million due to the timing of receipts from customers.

The following are results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

• Net sales were $10.8 billion for the first six months of 2024 compared to $11.3 billion for the first six months of 2023, a decrease of 3.9%. Organic sales for the first six months of 2024 declined by 2.0%, as the divestiture of the WIS business and fluctuations in foreign exchange rates negatively impacted reported net sales by 1.8% and 0.1%, respectively. The decrease in organic sales reflects volume declines in all three segments, partially offset by price inflation.
• Cost of goods sold for the first six months of 2024 was $8.5 billion compared to $8.8 billion for the first six months of 2023, and gross profit was $2.3 billion and $2.5 billion, respectively. As a percentage of net sales, gross profit was 21.6% and 21.8% for the first six months of 2024 and 2023, respectively. The unfavorable decrease of 20 basis points reflects a shift in sales mix, lower supplier volume rebates, higher inventory adjustments, and lower cash discounts.
• SG&A expenses were $1,657.8 million, or 15.3% of net sales, for the first six months of 2024, compared to $1,649.4 million, or 14.6% of net sales, for the first six months of 2023. SG&A expenses for the first six months of 2024 include a $17.8 million loss on abandonment of assets, $12.1 million of digital transformation costs, $9.0 million of restructuring costs, and $4.8 million of excise taxes on excess pension plan assets. SG&A expenses for first six months of 2023 include $15.6 million of digital transformation costs, $14.8 million of merger-related and integration costs, and $9.8 million of restructuring costs. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets, SG&A expenses were $1,614.1 million, or 14.9% of net sales, for the first six months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, and restructuring costs, SG&A expenses were $1,609.2 million, or 14.3% of net sales for the first six months of 2023. The increase in adjusted SG&A expenses for the first six months of 2024 compared to the first six months of 2023 reflects higher costs to operate our facilities, an increase in IT costs, and an increase in taxes. These increases were partially offset by a decrease in transportation costs and lower payroll related expenses.
• Depreciation and amortization for the first six months of 2024 was $91.6 million compared to $91.3 million for the first six months of 2023, an increase of $0.3 million.
• Operating profit was $586.5 million for the first six months of 2024 compared to $710.2 million for the first six months of 2023, a decrease of $123.7 million, or 17.4%. Operating profit as a percentage of net sales was 5.4% for the current six-month period compared to 6.3% for the first six months of the prior year. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets described above, operating profit was $630.2 million, or 5.8% of net sales, for the first six months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, and accelerated trademark amortization expense described above, operating profit was $751.2 million, or 6.7% of net sales, for the first six months of 2023.
• Net interest expense for the first six months of 2024 was $193.2 million compared to $193.8 million for the first six months of 2023.
• Other non-operating income for the first six months of 2024 was $74.3 million compared to expense of $10.9 million for the first six months of 2023. In the first six months of 2024, we completed the divestiture of our WIS business and recognized a gain from the sale of $102.9 million. Additionally, in the first six months of 2024, we recognized a $3.8 million loss on termination of business arrangement. Due to fluctuations in the U.S. dollar against certain foreign currencies, a net foreign currency exchange loss of $20.7 million was recognized for the first six months of 2024 compared to a net loss of $13.2 million for the first six months of 2023. Net costs of $5.5 million, comprising pension settlement cost, and net benefits of $0.7 million associated with the non-service cost components of net periodic pension (benefit) cost were recognized for the six months ended June 30, 2024 and 2023, respectively. Adjusted for the gain on divestiture of our WIS business, the loss on termination of business arrangement, and pension settlement cost described above, other non-operating expense was $19.3 million for the first six months of 2024.
• The effective tax rate for the first six months of 2024 was 25.4% compared to 22.9% for the first six months of 2023. The effective tax rate for the first six months of 2024 was higher than the comparable prior year 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 $319.2 million for the first six months of 2024 compared to $361.5 million for the first six months of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of the WIS business, the loss on termination of business arrangement, pension settlement cost, and the related income tax effects, net income attributable to common stockholders was $282.9 million for the first six months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders for the first six months of 2023 was $391.3 million. Adjusted net income attributable to common stockholders decreased 27.7% year-over-year.
• Earnings per diluted share for the first six months of 2024 was $6.22, based on 51.3 million diluted shares, compared to $6.90 for the first six months of 2023, based on 52.4 million diluted shares. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of the WIS business, the loss on termination of business arrangement, pension settlement cost, and the related income tax effects, earnings per diluted share for the first six months of 2024 was $5.51. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first six months of 2023 was $7.47. Adjusted earnings per diluted share decreased 26.2% year-over-year.
• Operating cash flow for the first six months of 2024 was an inflow of $522.5 million compared to $62.2 million for the first six months of 2023. Free cash flow for the first six months of 2024 was $497.3 million, or 159.1% of adjusted net income. The net cash inflow in the first six months of 2024 was primarily driven by net income of $348.9 million and non-cash adjustments to net income totaling $32.1 million. Operating cash flow was positively impacted by net changes in assets and liabilities of $141.6 million, which primarily comprised an increase in accounts payable of $341.9 million, primarily due to the timing of inventory purchases and payments to suppliers, and a decrease in inventories of $18.9 million, partially offset by an increase in trade accounts receivable of $258.8 million due to the timing of receipts from customers.

Webcast and Teleconference Access

Wesco will conduct a webcast and teleconference to discuss the second quarter of 2024 earnings as described in this News Release on Thursday, August 1, 2024, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company’s website at https://investors.wesco.com. The call will be archived on this internet site for seven days.