WESCO Talks About COVID-19, Anixter Deal During Earnings Call

While WESCO CEO John Engel said he has “successfully managed through every crisis we have faced over the last 25 years, and we will do so again,” about the distributor’s first quarter earnings report, this time it will be a little different, considering a merger with Anixter should be completed within the next 5 months.

First addressing the COVID-19 situation as it relates to the economy and WESCO’s business plan, Engel pointed out three areas that have the company’s focus: protecting our employees, “superserving” customers, and responding to the current environment with pay reductions for senior staff.

Engel pointed out that all employees have personal protection equipment, locations have been sanitized, and social distancing protocols are being followed. For “superserving” its customers, WESCO has implemented both a business continuity plan and “daily impact reporting” to provide supply chain visibility. It also responded to the COVID-19 situation by announcing a 25% pay reduction for the board of directors and c-suite executive salaries, plus a 20% salary reduction for vice-presidents, and it is suspending 401(K) matching contributions, all beginning on May 1.

As far as the earning report goes, Engel says WESCO was having a solid first quarter until the middle of March. And then, “We estimate that COVID-19 negatively impacted sales by over $50 million in the quarter,” Engel said. But, Engel sees some positive signs in the future. “Our backlog, which primarily reflects construction activity, reached an all-time record in March. Construction projects have been delayed rather than being cancelled in an overwhelming number of circumstances,” Engel told reporters. He added that construction was initially down, but Engel sees some positive signs in the future. “That gives us some degree of confidence that delayed project activities will kick back in.”

Engel was also asked about the Anixter acquisition, which is still on track to be completed in the 2nd or 3rd quarter of this year. His integration team is still working to make the transition as smooth as possible. “More than 500 separate initiatives have already created and developed to date,” Engel announced. “The amount of work these teams have accomplished in a short period of time is impressive. More importantly, the high degree of collaboration between these teams has been inspiring and underscores the strong cultural alignment between the two companies.”

Engel remains confident in exceeding the 3-year cost savings, sales growth, and cash generation targets. And, with the company about to double in size, even with our current downturn, Engel’s plan for the future is in motion.

“There’s one thing that makes this cycle very, very different,” Engel explained. “We are pursuing a transformational agreement with Anixter. Fundamentally, we are going to use the integration plan and the delivery of the synergy as our restructuring. We are doubling the size of the company overnight, and everything we are doing now is to prepare for flawless execution on day one. We want to have a quick reaction to support demand when it comes back on line. Once workers are allowed back on site, that kicks the project back into gear and we want to be able to meet that capacity.”

Engel believes COVID-19 will change the way many distributors look at the supply chain, and help them prepare for the future.

“Now more than ever, given the nature of what is driving this cycle, this will increase the importance of supply chain integrity. If you look at what happened in this particular crisis, this has impacted the global supply chain. It’s a really important thing to understand. We have been able to utilize our very strong sense of supplier relationships and our customer needs in this cycle thus far, when the supply chain is very challenging and not easy to navigate,” Engel said.

As far as sales teams are concerned following the merger with Anixter, Engel believes it will be an essential part of the integration. “We call it the detailed execution plan to deliver $200 million of announced cost synergies. We’re focused on delivering top line growth synergies because that’s where our focus is. The sales force will really work aggressively and work the cross-selling opportunities. And when we get to the close obviously once the transaction closes, as we committed to when we outlined the compelling attributes of this deal, we’ll be providing very clear markers,” Engel announced.