Key Points
- Adjusted EPS of $3.21 missed analyst consensus estimates of $3.58.
- Net sales came in slightly below the analyst consensus estimate.
- The full-year management forecast was revised downward.
Wesco International (WCC 0.25%), a leading provider of electrical, industrial, and communications MRO and OEM products, reported second-quarter earnings on Thursday that missed analyst estimates for net sales and adjusted EPS.
The company's adjusted EPS was $3.21, down from $3.71 in Q2 2023. Net sales of $5.48 billion were down 4.6% year over year. Despite these challenges, the company saw sequential improvements in gross margins and strong free cash flow, suggesting a mixed performance for the quarter.
| Metric | Q2 2024 | Analyst Estimates | Q2 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $3.21 | $3.58 | $3.71 | (13.5%) |
| Net sales | $5.48 billion | $5.55 billion | $5.75 billion | (4.6%) |
| Gross profit | $1.2 billion | N/A | $1.24 billion | (3.5%) |
| Gross margin | 21.9% | N/A | 21.6% | 0.3 pps |
Source: Wesco International. Note: Analyst estimates provided by FactSet. YOY = Year over year.
Overview of Wesco International
Wesco International is a global supply chain solutions company that serves nearly 150,000 customers worldwide. The company offers a wide range of products and services, including electrical, industrial, and communications solutions. Headquartered in Pittsburgh, Wesco operates in approximately 50 countries with a workforce of about 20,000 employees.
Recently, WESCO has focused on several key areas to drive its business: diversifying its product and service offerings, leveraging its market position and scale, investing in digital and technological advancements, focusing on secular growth trends, and maintaining a diversified customer and supplier base.
Quarterly Highlights
In Q2 2024, WESCO experienced mixed year-over-year performance across its business segments:
Electrical and Electronic Solutions (EES): Sales fell 1.2% year over year thanks to general economic uncertainty and slower project activity.
Communications and Security Solutions (CSS): This segment saw a slight 0.8% increase in sales, driven by strong demand for data center solutions fueled by AI-driven requirements.
Utility and Broadband Solutions (UBS): This segment faced a significant decline, with sales down 15%. The company noted that utility customers' destocking and delays in broadband projects were major contributors.
Despite these challenges, Wesco noted a sequential improvement in its adjusted EBITDA margin by 90 basis points to 7.3%. However, the margin was still down 40 basis points year over year. Free cash flow was robust, as cash inflow reached $731.4 million, compared to an outflow of $265.90 million in Q2 2023.
Digital and Technological Advancements: Wesco continues to invest in its digital transformation, spending $6.1 million on digital transformation costs and $3 million on cloud computing amortization expenses during the quarter. The company also noted a loss on abandonment of assets, indicating a strategic pivot toward more suitable digital solutions.
Cost and Expense Management: Wesco's selling, general, and administrative (SG&A) expenses stood at $828.4 million, a slight decrease from $831.7 million in Q2 2023. However, these costs increased as a percentage of net sales (15.1% vs. 14.5% year over year), reflecting rising operational expenses.
Backlog and Supplier Relationships: The company reported a 10% decline in backlog, with a sequential decline of approximately 2%. Wesco's extensive supplier relationships and global footprint help mitigate risks from industry-specific downturns.
Notable One-Time Events: Wesco executed $300 million in stock buybacks and closed two small acquisition deals during the quarter.
Looking Ahead
Wesco revised its full-year guidance, expecting organic sales growth between (1.5%) to 0.5%, down from previous expectations. Adjusted EBITDA margin projections were adjusted to between 7.0% and 7.3%, reflecting the mixed economic environment and anticipated customer purchasing delays, particularly in the utility and broadband segments.
Investors should keep an eye on Wesco's ability to manage costs, secure new projects, and successfully integrate recent acquisitions. The company's strategic focus on digitalization and long-term growth trends remains crucial for its future performance.