Analysis of WESCO (WCC) 2021 Q4 and Full-Year Results: 18 months into the integration following the combination with Anixter, WESCO set records in net sales, net income and earnings
WESCO International, Inc. is a provider of business-to-business distribution, logistics services, and supply chain solutions. The company reported its 2021 Q4 and full year results on February 15, 2022 beating most forecasts. Q4 results included record net sales of $4.9M, up 17.5% year-over-year (YOY) and noted a record backlog going into 2022. The quarter yielded an operating profit of $220.3M, an operating margin of 4.5%, record net income and earnings per share. The full 2021 results included record net sales of $18.2M (up 14% YOY), operating profit of $801.9M, an operating margin of 4.4%, and record net income of $408M.
WESCO is divided into 3 business units – and here is the revenue breakdown for each:
- Electrical & Electronic Solutions (EES) with $7.6M in sales for FY21 (42% of sales)
- Communications & Security Solutions (CSS) with $5.7M in sales for FY21 (31% of sales)
- Utility & Broadband Solutions (UBS) with $4.9M in sales for FY21 (27% of sales)
On the earnings webcast, CEO John Engel highlighted progress on the integration plan since the close of the Anixter acquisition. WESCO sees themselves as well-positioned across all business units to tap four growth trends: Electrification, Automation and IoT, Green Energy and Grid Modernization, and 24/7 Connectivity and Security. He sees WESCO capitalizing on public and private investments in The Grid, Broadband and Data Centers. WESCO+Anixter benefits from cross-selling initiatives and new service capabilities. Engel presented an example of a new service capability that leverages the end-to-end solutions of WESCO+Anixter: A/V Conference-Room-as-a-Service. The concept allows clients to access conferencing solutions through an Opex model, with WESCO providing infrastructure, applications and updates, predictive maintenance, advanced automation and analytics.
CFO Dave Schultz outlined the cost synergies realized to date following the acquisition of Anixter ($188M in FY2021, target of $250M in FY2022) and noted that the estimated $45M in Corporate Overhead savings has been fully realized. For 2022-2023, the largest remaining synergies are in the areas of supply chain and field operations.
On WESCO’s significant debt position, Schultz noted that reducing their leverage is a top priority. At the time of the close of the Anixter acquisition (June 2020), WESCO’s leverage was at 5.7x; at the close of FY2021 it had been reduced to 3.9x and the company has accelerated the expected timing to get back to their target range of 2.0-3.5x by the end of FY2022.
Engel credits the margin improvement to value-based selling (with value-based pricing). He noted that pre-acquisition, Anixter had in place an enterprise-wide margin improvement plan, one that has now been refreshed and taken enterprise-wide. Engel noted “it’s not just cost plus a markup, standard distribution. It’s really focusing on the value we’re delivering on to customer and pricing for that value.”
Engel also highlighted WESCO’s increasing investment in digital applications – in order to unlock the power of their big data. Two new digital products have been deployed inside their business and are now going across the enterprise – intelligent pricing and an AI-enabled product search function.
WESCO’s FY2022 Outlook calls for a sales revenue growth of +5% to +8% (including +3% to +5% of market growth and +2% to +3% of share gain/cross-sell). WESCO had an exceptional FY2021 – no small achievement when navigating the integration of an equal-sized business like Anixter.
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