WESCO Reports Record Second Quarter Sales

WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, announces its 2014 second quarter results.

The following are results for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. A reconciliation of adjusted results is provided in the Non-GAAP Financial Measures section of this release.

• Net sales were $2,005.2 million for the second quarter of 2014, compared to $1,894.0 million for the second quarter of 2013, an increase of 5.9%. Organic sales increased 6.0%, acquisitions positively impacted sales by 1.6%, and foreign exchange negatively impacted sales by 1.7%. Sequentially, sales increased 10.7%, and organic sales increased 7.9%.
• Gross profit was $411.8 million, or 20.5% of sales, for the second quarter of 2014, compared to $392.6 million, or 20.7% of sales, for the second quarter of 2013.
• Selling, general & administrative (SG&A) expenses were $278.7 million, or 13.9% of sales, for the second quarter of 2014, compared to $265.5 million, or 14.0% of sales, for the second quarter of 2013.
• Operating profit was $115.9 million for the current quarter, compared to $109.9 million for the second quarter of 2013. Operating profit as a percentage of sales was 5.8% in 2014 and 2013.
• Interest expense for the second quarter of 2014 was $20.3 million, compared to $21.8 million for the second quarter of 2013. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the second quarter of 2014 and 2013 was $2.2 million and $2.1 million, respectively.
• The effective tax rate for the current quarter was 28.0%, compared to 25.8% for the prior year second quarter.
• Net income attributable to WESCO International, Inc. of $68.9 million for the current quarter was up 5.5% from $65.3 million for the prior year quarter.
• Earnings per diluted share for the second quarter of 2014 were $1.29 per share, based on 53.5 million diluted shares, compared to $1.25 per share in the second quarter of 2013, based on 52.3 million diluted shares. Earnings per diluted share in the second quarter of 2014 increased 3.2% from the corresponding prior year period.
• Free cash flow for the second quarter of 2014 was negative $2.7 million compared to $33.6 million for the second quarter of 2013. The net cash outflow was driven by working capital growth as a result of the strong sequential increase in sales during the quarter.

Mr. John J. Engel, WESCO’s Chairman and Chief Executive Officer, stated, “Our second quarter results reflect strong sales execution, along with improvement in our end markets and seasonal recovery from the severe winter weather conditions experienced earlier this year. Sales grew 6% organically, with growth in all four of our end markets. Sales in the U.S. were up 5%, sales in Canada were up 7% on a local currency basis, and sales for the rest of world were up over 13%. Sales growth in the U.S. was steady in the quarter at mid-single-digit rates while sales momentum in Canada accelerated through the quarter. July is off to a good start with sales growth rates trending in-line with second quarter levels. We continue to see favorable indicators with our customers, including further strengthening in non-residential construction, which we expect will result in ongoing growth in our key markets. With the improving sales momentum but a softer than anticipated start to the year, we are revising our full year outlook to 4% to 5% sales growth and $5.20 to $5.40 earnings per diluted share from our previous outlook of 3% to 6% sales growth and $5.30 to $5.70 earnings per diluted share.”

The following results are for the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

• Net sales were $3,816.0 million for the first six months of 2014, compared to $3,702.0 million for the first six months of 2013, an increase of 3.1%. Acquisitions positively impacted sales by 1.0%, organic sales increased 3.9%, and foreign exchange negatively impacted sales by 1.8%.
• Gross profit of $786.5 million, or 20.6% of sales, for the first six months of 2014 was down 30 basis points, compared to $773.6 million, or 20.9% of sales, for the first six months of 2013.
• SG&A expenses were $544.2 million, or 14.3% of sales, for the first six months of 2014 compared to $493.0 million, or 13.3% of sales, for the first six months of 2013. SG&A expenses for the first six months of 2013 include a $36.1 million favorable impact resulting from the recognition on a litigation matter. Excluding the impact of this favorable item, SG&A expenses were $529.1 million, or 14.3% of sales.
• Operating profit was $208.7 million for the first six months of 2014, down 15.4% from $246.7 million for the comparable 2013 period. Operating profit as a percentage of sales was 5.5% in 2014, down 120 basis points from 6.7% in 2013. Excluding the favorable impact resulting from the recognition of insurance coverage on a litigation matter, operating profit for the first six months of 2013 was $210.6 million, or 5.7% of sales.
• Interest expense for the first six months of 2014 was $41.0 million, compared to $43.7 million for the first six months of 2013. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the first six months of 2014 and 2013 was $4.7 million and $4.4 million, respectively.
• The effective six-month tax rate was 28.1% for 2014 compared to 26.4% for 2013.
• Net income attributable to WESCO International, Inc. of $120.7 million for the first six months of 2014 was down 19.2% from $149.3 million for the first six months of 2013. Excluding the favorable impact resulting from the recognition of insurance coverage on a litigation matter, net income for the first six months of 2013 was $123.8 million.
• Earnings per diluted share for the first six months of 2014 were down 20.7% to $2.26 per share, based on 53.4 million diluted shares, versus $2.85 per share for the first six months of 2013, based on 52.4 million diluted shares. Earnings per diluted share in the first six months of 2014 were $2.26, compared to $2.36 in the corresponding prior year period, excluding the impact of the recognition of insurance coverage on a litigation matter.
• Free cash flow for the six months of 2014 was $39.0 million compared to $108.0 million in the comparable prior year period.

Mr. Engel continued, “Accelerating our One WESCO value proposition is a strategic priority and our leadership team is sharply focused on improving our market position both organically and through acquisitions. We are now six months into the previously announced organizational changes that were focused on accelerating our One WESCO strategy, and we are making good progress as the new organization is taking action to drive above-market organic growth. Customers are responding favorably as we are seeing an increased number of opportunities across their MRO, OEM, and capital spending demand streams.”