WESCO International, Inc. Reports Second Quarter 2018 Results

August 2 [addtoany]

PITTSBURGH, Aug. 2, 2018 /PRNewswire/ — WESCO International, Inc. (WCC), a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply chain management and logistics services, announces its results for the second quarter of 2018.

Mr. John J. Engel, WESCO’s Chairman, President and CEO, commented, “Our broad-based return to growth, which began in mid-2017, continued in the second quarter. Organic sales grew 9%, with all end markets and geographies contributing to growth for the fourth consecutive quarter. Sales growth was consistently strong throughout the quarter and our backlog expanded to a record high level. Gross margin was sequentially stable, and we delivered double digit growth in operating profit and EPS for the second quarter in a row.”

The following are results for the three months ended June 30, 2018 compared to the three months ended June 30, 2017:

  • Net sales were $2.1 billion for the second quarter of 2018, compared to $1.9 billion for the second quarter of 2017, an increase of 10.2%. Organic sales for the second quarter of 2018 grew by 9.0% as foreign exchange rates impacted net sales by 1.2%. Sequentially, net sales increased 5.5% and organic sales increased 6.1%.
  • Cost of goods sold for the second quarter of 2018 was $1.7 billion and gross profit was $399.9 million, compared to cost of goods sold and gross profit of $1.5 billion and $366.1 million, respectively, for the second quarter of 2017. As a percentage of net sales, gross profit was 19.0% and 19.2% for the second quarter of 2018 and 2017, respectively. A reclassification of certain labor costs from selling, general and administrative expenses and the mix impact of growth in the International and Utility businesses collectively reduced gross margin for the second quarter of 2018 by 30 basis points.
  • Selling, general and administrative (“SG&A”) expenses were $292.9 million, or 13.9% of net sales, for the second quarter of 2018, compared to $267.8 million, or 14.0% of net sales, for the second quarter of 2017. SG&A for the second quarter of 2018 included the restoration of incentive compensation of approximately $8.0 million and a bad debt charge of $2.5 million related to a Canadian customer that ceased operations.
  • Operating profit was $91.2 million for the second quarter of 2018, compared to $82.6 million for the second quarter of 2017, an increase of 10.4%. Operating profit as a percentage of net sales was 4.3% for the second quarter of 2018 and 2017. Excluding the aforementioned bad debt charge, operating profit as a percentage of net sales was 4.5% for the second quarter of 2018.
  • Net interest and other for the second quarter of 2018 was $17.7 million, compared to $16.3 million for the second quarter of 2017. For the three months ended June 30, 2018, net interest and other includes accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments on our term loan facility.
  • The effective tax rate for the second quarter of 2018 was 21.5%, compared to 25.3% for the second quarter of 2017. The lower effective tax rate in the current quarter is primarily due to the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018.
  • Net income attributable to WESCO International, Inc. was $58.0 million for the second quarter of 2018, compared to $49.5 million for the second quarter of 2017, an increase of 17.0%.
  • Earnings per diluted share for the second quarter of 2018 was $1.22, based on 47.6 million diluted shares, compared to $1.02 for the second quarter of 2017, based on 48.8 million diluted shares, an increase of 19.6%.
  • Operating cash flow for the second quarter of 2018 was $33.8 million, compared to $19.1 million for the second quarter of 2017. Free cash flow for the second quarter of 2018 was $25.1 million, or 44% of net income, compared to $13.8 million, or 28% of net income, for the second quarter of 2017.

The following are results for the six months ended June 30, 2018 compared to the six months ended June 30, 2017:

  • Net sales were $4.1 billion for the first six months of 2018, compared to $3.7 billion for the first six months of 2017, an increase of 11.3%. Organic sales for the first six months of 2018 grew by 9.9% as foreign exchange rates impacted net sales by 1.4%.
  • Cost of goods sold for the first six months of 2018 was $3.3 billion and gross profit was $779.8 million, compared to cost of goods sold and gross profit of $3.0 billion and $716.1 million, respectively, for the first six months of 2017. As a percentage of net sales, gross profit was 19.0% and 19.4% for the first six months of 2018 and 2017, respectively. A reclassification of certain labor costs from selling, general and administrative expenses and the mix impact of growth in the International and Utility businesses collectively reduced gross margin for the first six months of 2018 by 30 basis points.
  • Selling, general and administrative expenses were $583.7 million, or 14.2% of net sales, for the first six months of 2018, compared to $535.2 million, or 14.5% of net sales, for the first six months of 2017. SG&A for the first six months of 2018 included the restoration of incentive compensation of approximately $16.0 million.
  • Operating profit was $164.4 million for the first six months of 2018, compared to $149.3 million for the first six months of 2017, an increase of 10.1%. Operating profit as a percentage of net sales was 4.0% for the current six month period, compared to 4.1% for the prior six month period.
  • Net interest and other for the first six months of 2018 was $37.5 million, compared to $32.6 million for the first six months of 2017. For the six months ended June 30, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments on our term loan facility.
  • The effective tax rate for the first six months of 2018 was 20.7%, compared to 25.1% for the first six months of 2017. The lower effective tax rate in the current year is primarily due to the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018.
  • Net income attributable to WESCO International, Inc. was $102.3 million for the first six months of 2018, compared to $87.3 million for the first six months of 2017, an increase of 17.2%.
  • Earnings per diluted share for the first six months of 2018 was $2.15, based on 47.6 million diluted shares, compared to $1.78 for the first six months of 2017, based on 49.1 million diluted shares, an increase of 20.8%.
  • Operating cash flow for the first six months of 2018 was $86.8 million, compared to $66.8 million for the first six months of 2017. Free cash flow for the first six months of 2018 was $70.4 million, or 70% of net income, compared to $57.0 million, or 65% of net income, for the first six months of 2017.

Mr. Engel continued, “We are pleased with our results in the first half and our focus remains on driving profitable growth in 2018. Sales growth momentum has continued into July, and we expect favorable economic conditions and the positive momentum in our end markets to continue this year. Based on our first half results and our positive view of the end markets, we have increased our full year expectation for sales growth to be in the range of 6% to 9% and raised the low end of our diluted EPS outlook $0.10 to a range of $4.60 to $5.00. We expect operating margin to be in the range of 4.2% to 4.5% and to generate free cash flow of at least 90% of net income.”

Mr. Engel added, “Our customers continue to look to WESCO to provide robust supply chain solutions to meet their MRO, OEM and capital project needs. Increasingly, customers are utilizing our portfolio of value-added services to ensure job site productivity, while our team of technical sales personnel is differentiating WESCO and driving above market growth rates. I am highly confident in our team’s ability to provide outstanding customer service and to deliver value to our customers and suppliers now and into the future.”

Webcast and Teleconference Access

WESCO will conduct a webcast and teleconference to discuss the second quarter of 2018 earnings as described in this News Release on Thursday, August 2, 2018, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company’s website at www.wesco.investorroom.com. The call will be archived on this internet site for seven days.

WESCO International, Inc. (WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply chain management and logistic services. 2017 annual sales were approximately $7.7 billion. The company employs approximately 9,100 people, maintains relationships with over 26,000 suppliers, and serves approximately 70,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates 10 fully automated distribution centers and approximately 500 branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.

The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as the Company’s other reports filed with the Securities and Exchange Commission.