PITTSBURGH — WESCO International, Inc. today announced its results for the third quarter of 2019.
John J. Engel, WESCO’s Chairman, President and CEO, commented, “We achieved record third quarter sales due to improving results in the U.S. and strength in Industrial, Utility and Datacom. Despite an economic backdrop of increased headwinds, all of our end markets and geographies grew on a year-over-year basis as expected. Gross margin was down versus prior year primarily driven by business mix and the impact of supplier price increases, which we continue to aggressively work to pass through. Operating margin was within our expected range driven by effective cost management and EPS grew 8% versus prior year. Free cash flow generation was also very strong at over 180% of net income due to inventory reduction and strong collections in the quarter.”
The following are results for the three months ended September 30, 2019 compared to the three months ended September 30, 2018:
- Net sales were $2.1 billion for the third quarter of 2019, up 3.9% compared to the third quarter of 2018. Organic sales for the third quarter of 2019 grew by 3.4% as foreign exchange rates negatively impacted net sales by 0.4%, and acquisitions positively impacted net sales by 0.9%. Sequentially, there was no change in net sales; organic sales increased 1.2%.
- Cost of goods sold for the third quarter of 2019 and 2018 was $1.7 billion, and gross profit was $400.2 million and $397.2 million, respectively. As a percentage of net sales, gross profit was 18.6% and 19.2% for the third quarter of 2019 and 2018, respectively. Gross profit as a percentage of net sales for the third quarter of 2019 primarily reflects unfavorable business mix and the impact of supplier price increases.
- Selling, general and administrative expenses were $290.9 million, or 13.5% of net sales, for the third quarter of 2019, compared to $284.1 million, or 13.7% of net sales, for the third quarter of 2018.
- Operating profit was $93.7 million for the third quarter of 2019, compared to $97.5 million for the third quarter of 2018. Operating profit as a percentage of net sales was 4.4% for the current quarter, compared to 4.7% for the third quarter of the prior year.
- Net interest and other for the third quarter of 2019 was $13.5 million, compared to $17.1 million for the third quarter of 2018. The resolution of transfer pricing matters associated with the Canadian taxing authority resulted in non-cash interest income of $3.7 million for the third quarter of 2019.
- The effective tax rate for the third quarter of 2019 was 19.8%, compared to 17.2% for the third quarter of 2018. The higher effective tax rate in the current quarter is primarily due to the full application of the international provisions of U.S. tax reform, as well as taxes attributable to the undistributed earnings of operations in China that are expected to be remitted in the future.
- Net income attributable to WESCO International, Inc. was $64.5 million for the third quarter of 2019, compared to $66.8 million for the third quarter of 2018.
Earnings per diluted share for the third quarter of 2019 was $1.52, based on 42.4 million diluted shares, compared to $1.41 for the third quarter of 2018, based on 47.5 million diluted shares, an increase of 8%. - Operating cash flow for the third quarter of 2019 was $125.4 million, compared to $87.6 million for the third quarter of 2018. Free cash flow for the third quarter of 2019 was $116.5 million, or 181% of net income, compared to $80.3 million, or 120% of net income, for the third quarter of 2018.
The following are results for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018:
- Net sales were $6.3 billion for the first nine months of 2019, compared to $6.2 billion for the first nine months of 2018, an increase of 1.5%. Organic sales for the first nine months of 2019 grew by 2.1% as foreign exchange rates and the number of workdays negatively impacted net sales by 0.9% and 0.5%, respectively, and were partially offset by the positive 0.8% impact from acquisitions.
- Cost of goods sold for the first nine months of 2019 was $5.1 billion and gross profit was $1.2 billion, compared to $5.0 billion and $1.2 billion, respectively, for the first nine months of 2018. As a percentage of net sales, gross profit was 19.0% and 19.1% for the first nine months of 2019 and 2018, respectively.
- Selling, general and administrative expenses were $883.2 million, or 14.1% of net sales, for the first nine months of 2019, compared to $867.8 million, or 14.1% of net sales, for the first nine months of 2018.
- Operating profit was $262.4 million for the first nine months of 2019, compared to $262.0 million for the first nine months of 2018. Operating profit as a percentage of net sales was 4.2% for both the current and prior nine month periods.
- Net interest and other for the first nine months of 2019 was $47.9 million, compared to $54.6 million for the first nine months of 2018. The resolution of transfer pricing matters associated with the Canadian taxing authority resulted in non-cash interest income of $3.7 million for the first nine months of 2019. For the nine months ended September 30, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments of our then outstanding term loan facility.
- The effective tax rate for the first nine months of 2019 was 21.0%, compared to 19.3% for the first nine months of 2018. The higher effective tax rate in the current year is primarily due to the full application of the international provisions of U.S. tax reform, as well as taxes attributable to the undistributed earnings of operations in China that are expected to be remitted in the future.
- Net income attributable to WESCO International, Inc. was $170.3 million for the first nine months of 2019, compared to $169.2 million for the first nine months of 2018.
Earnings per diluted share for the first nine months of 2019 was $3.88, based on 43.9 million diluted shares, compared to $3.56 for the first nine months of 2018, based on 47.5 million diluted shares, an increase of 9%. - Operating cash flow for the first nine months of 2019 was $116.7 million, compared to $174.5 million for the first nine months of 2018. Free cash flow for the first nine months of 2019 was $86.3 million, or 51% of net income, compared to $150.7 million, or 90% of net income, for the first nine months of 2018. The Company repurchased $150.0 million of shares during the first nine months of 2019.
Engel continued, “We remain committed to delivering profitable growth in 2019 and beyond. Based on our year-to-date results and our view of the end markets, we have narrowed the range for our full-year expectations for sales, operating margin and EPS while maintaining our outlook for free cash flow generation of at least 90% of net income. As the economy slows and end markets become more challenging, the strong free cash flow generation capability of our business supports execution of our strategy and capital allocation priorities.”
Engel added, “Consistent with our past practice, we are providing our first end market outlook for 2020 today. Overall we expect our end markets to provide profitable growth opportunities for WESCO, while macroeconomic uncertainties could limit growth rates in the Industrial and Construction end markets. We expect to outperform the market by leveraging our full range of WESCO services and supply chain solutions, by making investments in our people and digital capabilities, and by maintaining our cash and cost management discipline. As a result, we expect sales growth in the range of flat to 4% for next year and will provide the balance of our 2020 outlook during our fourth quarter earnings call in January. Customers are seeking continuous improvement and supply chain stability in an increasingly complex and rapidly changing world. Our talented team of associates and our robust portfolio of products and value-added services continue to differentiate WESCO in providing our customers with complete solutions for their MRO, OEM and capital project needs.”
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