WESCO Q3’22 Earnings Analysis: Strong Sales and Profit Growth in Q3 Driven by Cross-Selling and Margin Improvement Programs

WESCO International (NYSE:WCC) reported last week on results for Q3 Fiscal 2022, delivering organic growth of 17% on sales of $5.4B and record profitability of 8.6% adjusted EBITDA margin.  Nine quarters after its merger closed with the similarly-sized Anixter business, Wesco continues to put great results on the board, and the leadership maintains they are still in the early stages of unlocking the growth potential of the Wesco + Anixter combination.

Deleveraging continued in Q3 2022, with net debt improved from 3.4x Net Debt/TTM Adjusted EBITDA at the end of last Q, to 3.2x at the end of Q3 2022.  While still at a high debt level, Wesco is down from the 5.7x net debt ratio at the time of the Anixter acquisition in June 2020, and is now within the net debt range the company has targeted (between 2.0x and 3.5x).  The strong results of the past quarters allowed the company to get net debt back down into their target range a full 12 months sooner than expected.

Just days prior to the Q3 earnings release, Wesco announced the completion of its purchase of Rahi Systems for $217M.   Rahi, a global IT solutions provider and systems integrator offering data center solutions with over 900 employees in 25 countries, has trailing 12-month sales of approximately $400M.  Rahi is Wesco’s first acquisition since the combination of Wesco and Anixter.  The Rahi acquisition is additive to, and will be integrated into Wesco’s Communications & Security Solutions Business Unit (CSS), supporting one of several secular growth trends targeted by Wesco – the data center segment.

CEO John Engel pointed to the strong results of Q3 as further demonstration of the “substantial value-creation capability of the new Wesco.”  The enterprise-wide cross-selling and gross margin improvement programs continue to garner growth in opportunities and backlog, while cost synergy realization (cumulative) is well on track to reach the 2023 target of $315M.


WESCO Q3 FY22 Results by Business Unit

Q3 FY22 Revenue Revenue Change vs Q3 prior FY Adj EBITDA Q3 FY22 Adj EBITDA Change vs Q3 prior FY
Electrical & Electronic Solutions (EES)


$2.23B +15% $226M +30%
Communications & Security Solutions (CSS)


$1.6B +10% $156M +17%
Utility & Broadband Solutions (UBS)


$1.61B +29% $186M +62%

During the Q&A portion of the Q3 earnings call CEO John Engel noted the EES Business Unit (where lighting and lighting controls show up) has had terrific results, with a mix of good industrial end market business for MRO supplies, industrial capital-driven projects, and OEM solutions.  He noted Wesco has very little residential construction exposure, and that their non-residential business is broad-based.  Commenting on the various infrastructure deals that have passed through Congress, CEO Engel said they are yet to see any of that in results yet, so he sees a significant step-up in demand looking at 2023, 2024 2025 and beyond.

Facing questions in the earnings call Q&A on Wesco’s substantial amount of inventory and AR growth in the calendar year, CEO Engel stated that the company has made a conscious decision to support their record backlog growth with investment in inventory.  CFO Dave Schulz stressed that the inventory increases are being driven by their project business, with inventory being brought in based on firm orders.  Schulz noted that Wesco’s stock and flow inventory has been relatively unchanged throughout 2022.

Looking ahead to the final quarter of fiscal 2022, leadership is expecting Q4 sales to be down sequentially  from Q3’s result based on typical seasonality (flat to down 2 percent), and to be down over Q4 of the prior fiscal year which was an exceptional sequential 6% uptick.  However, it will still be another strong year despite challenging market conditions:  Wesco provided an updated 2022 Outlook that slightly narrowed the full year sales growth target to +15 to +17% (from previous +16% to +18%) and guided for lower free cash flow of ~10% (from previous ~50%). 

Go Deeper

Wesco Q3 FY2022 Results:  https://s29.q4cdn.com/496171728/files/doc_financials/2022/q3/Q3-2022-Earnings-Press-Release_FINAL.pdf

Wesco Q3 FY2022 Presentation: https://s29.q4cdn.com/496171728/files/Q3-22-Earnings-Webcast-Slides_Final_11-4.pdf

Wesco Press Release on Purchase of Rahi Systems: https://investors.wesco.com/news-events/news/news-details/2022/Wesco-International-Finalizes-Purchase-of-Rahi-Systems-a-Leading-Provider-of-Global-Hyperscale-Data-Center-Solutions/default.aspx

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