WESCO International (NYSE:WCC) reported Q4 and full year FY2022 results this week, with exceptional growth in the fourth quarter and strong results for the full year. Instead of the anticipated sequentially flat-to-down sales in Q4, Wesco achieved record quarterly sales of $5.6B, up 14% year-over-year, along with record profitability. All three business units had double-digit sales growth in FY2022. Full year FY2022 results also featured record annual sales of $21.4B, up +18% compared to $18.2B in FY2021. Record profitability included a 47% year-over-year increase in adjusted EBITDA margin at $1.726B for full year FY2022.
Chairman, President and CEO John Engel noted in his opening comments of the earnings call that the strength of the “new Wesco” business model and success of the integration efforts of Wesco+Anixter have established a track record of superior results and outperformed the market. From 2019 pre-acquisition (comparing pro-forma for the 2 separate entities) to FY2022, sales have increased 25%. Profitability has improved from 5.3% EBITDA in FY2020 to 8.1% in FY2022. Leverage has also been brought down more quickly than anticipated since its highpoint of 5.7x at the time of closing the Anixter acquisition (Q2 FY2020), to the current 2.9x at the end of FY2022.
An update was provided on Wesco’s recent acquisition, Rahi Systems, a global IT solutions provider and systems integrator offering data center solutions (completed Nov 2022). Rahi’s sales for Q4 “far exceeded” expectations at $112M, with full year 2022 sales at $480M, and strong growth (20%+) is expected to continue in 2023. CEO Engel described Rahi as “an excellent example of the type of acquisition that fits well within our strategy and our capital allocation priorities. It operates in a fast-growing market, is highly complementary to Wesco’s product and service capabilities, and is easily integrated into our operations.”
Wesco’s 2023 capital allocation priorities were laid out on two paths: 1) invest for above market growth (organic growth opportunities, M&A to further accelerate growth, and 2) increase return of capital to shareholders (initiating a common stock dividend in 2023 subject to board review/approval, and continuing share repurchases under a current $1B repurchase authorization.)
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WESCO Q4 FY22 Results by Business Unit |
Q4 FY22 Revenue | Revenue Change vs Q4 prior FY | Adj EBITDA Q4 FY22 | Adj EBITDA Change vs Q4 prior FY |
| Electrical & Electronic Solutions (EES)
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$2.2B | +11% | $198M | +31% |
| Communications & Security Solutions (CSS)
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$1.8B | +12% | $170M | +35% |
| Utility & Broadband Solutions (UBS) | $1.6B | +22% | $186M | +44%
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Electrical & Electronic Solutions, EES, the business unit where lighting and lighting control solutions revenue is captured, had a record fourth quarter with sales growth in all operating groups. Notes on the market for this business unit included 1) non-residential construction demand remaining strong, driven by investments in electrification and renewables, and 2) strong industrial and OEM momentum driven by strength in automation, petrochemicals, metals and mining. CEO Engel described the EES unit as having strong momentum, with industrial end markets holding up very well.
Wesco’s CapEx and IT spend increased in the second half of FY2022 as they accelerated several digital projects and operations investments aimed at driving facility efficiency. For the full year 2022, the spend totaled $165M. In 2023, Wesco expects to spend approximately $100M on CapEx and an additional $40M on capital cloud-based arrangements related to Wesco’s ongoing digital transformation (estimated to continue for another couple of years). CEO Engel noted the tremendous benefits to date of new digital applications across the company: “our AI-enabled product search, our intelligent pricing application and something we call unified sales desk, which is brand new and kind of knits together all the applications and the behind-the-scenes work we have done on our big data…turning that into more valuable information that we can use as the sales force engages with customers in developing their solutions…It really is all about unlocking the power of our big data.”
Looking ahead to FY2023, leadership is expecting organic sales growth of +5% to +8%, adjusted EBITDA margin within the range of 8.1% to 8.4% of sales, and adjusted diluted EPS of $16.80 to $18.30. Cash flow from Q1 FY2023 is expected to be a use-of-cash as 2022 incentive compensation payments are made in March. CFO Dave Schulz commented on the earnings call that 2023 was off to a great start, with book-to-bill in January “significantly above 1.0 as demand for our products and services remains robust.” He also noted they continue to experience higher volume-related costs (shipping, sales commissions, employee benefits and incentive compensation). Consistently strong results, positive momentum and continued development of cross-sell synergies – all these make credible Wesco’s expectation for 2023 to be another transformational year.
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Wesco Q4 + Full Year FY2022 Results: https://investors.wesco.com/static-files/e00880a2-1682-461d-a46d-85d13bf11092
Wesco Q4 + Full Year FY2022 Presentation: https://investors.wesco.com/static-files/a6c50325-217f-454f-9916-b734dacbc6d4