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WESCO (WCC) Earnings and Revenues Miss Estimates in Q3
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Shares of WESCO International Inc. (WCC - Free Report) barely moved after the company reported lower-than-expected results in the third quarter of 2016.
Adjusted earnings per share (EPS) of 1.05 lagged the Zacks Consensus Estimate by 5.7% or 6 cents. Revenues of $1.86 billion also missed the consensus mark of $1.91 billion.
Sales were low on a year-over-year basis as a result of a weak construction market in the U.S. and Canada, weak commodity-driven end markets and foreign exchange headwinds.
In the third quarter, the company redeemed convertible debt of $1.70 per diluted share.
Management expects that WESCO’s comprehensive portfolio of products and services, and global footprint will help drive growth, going forward.
However, management anticipates weakness in commodity-driven end markets. The company also stated that profits would remain under pressure throughout 2016 due to foreign exchange headwinds.
WESCO’s revenues were down 3% sequentially and 3.6% year over year. Organic sales were down 6% mainly due to decreased pricing and foreign currency headwinds.
Acquisitions offset the decline in the core business, contributing 290 basis points (bps) of growth year over year. However, foreign exchange had a 30 bps negative impact.
End Market Update
Industrial End Market: WESCO stated that sales from the Industrial end market were down 10% year over year. The decline was due to weak oil and gas, metals and mining, and original equipment manufacturers (OEM). Local currency sales were down 7% in the U.S. and 20% in Canada.
The manufacturing sector is reeling under the impact of weak demand, dismal global commodity prices and a strong U.S. dollar leading to deferred project and maintenance spending. But management remains optimistic about its supply chain process enhancements, cost reduction and supplier consolidations that are helping customers tackle these challenges.
Construction End Market: The Construction market was down 5.5% year over year. The company witnessed weakness in the construction project business due to economic challenges and uncertainty. Outside the industrial and construction markets, the company remains positive about the non-residential construction market.
Utility End Market: Sales to the Utilities market were down 2% with the U.S. declining 2% and Canada down 5% in local currency. Sales to investor-owned utilities in the U.S. were particularly down. However, WESCO has witnessed sales growth for five years consecutively on the back of value creation and scope expansion with investor-owned utilities, utility contractors and public power customers.
During the quarter, WESCO renewed a multi-year contract to deliver power and generation materials to a big large municipal-owned utility.
CIG End Market: Sales to the CIG market were down 2% year over year. The U.S. declined 2% while Canada was up 9% in local currency. During the quarter, solid growth in broadband was partially offset by a decline in government fiscal year-end spending.
WESCO sees growth opportunities in data center construction and retrofits, Internet Protocol security as well as cloud technology projects.
Margins
Gross profit was $365.0 million, or 19.7% of sales. Gross margin was down 18 bps sequentially and 12 bps from last year.
Operating profit of $92.6 million (or 5% of sales) was up 39 bps sequentially but down 53 bps from a year ago.
Balance Sheet
Cash and cash equivalents at the end of the third quarter was $112.8 million compared with $160.3 million at the end of the second quarter. Long-term debt was $1.42 billion compared with $1.36 billion in the second quarter.
Free cash flow stayed strong and surpassed 100% of net income.
Guidance
The company expects fourth quarter sales to decline 1% to 3%. Operating margin is expected within 4.5% to 4.8%.
For 2016, the company narrowed its sales outlook. It expects sales to be down 2% to 3%, and EPS in the $3.75 to $3.90 range. The company targets increasing its free cash flow to at least 125% of net income.
For the current year, the consensus estimate for Amazon has gone up by 1.6% in the past 30 days. The same for Stratasys and F5 Networks has gone up by 27.8 and 0.47% respectively.
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WESCO (WCC) Earnings and Revenues Miss Estimates in Q3
Shares of WESCO International Inc. (WCC - Free Report) barely moved after the company reported lower-than-expected results in the third quarter of 2016.
Adjusted earnings per share (EPS) of 1.05 lagged the Zacks Consensus Estimate by 5.7% or 6 cents. Revenues of $1.86 billion also missed the consensus mark of $1.91 billion.
Sales were low on a year-over-year basis as a result of a weak construction market in the U.S. and Canada, weak commodity-driven end markets and foreign exchange headwinds.
In the third quarter, the company redeemed convertible debt of $1.70 per diluted share.
Management expects that WESCO’s comprehensive portfolio of products and services, and global footprint will help drive growth, going forward.
However, management anticipates weakness in commodity-driven end markets. The company also stated that profits would remain under pressure throughout 2016 due to foreign exchange headwinds.
WESCO INTL INC Price, Consensus and EPS Surprise
WESCO INTL INC Price, Consensus and EPS Surprise | WESCO INTL INC Quote
The quarterly numbers in detail:
Revenues
WESCO’s revenues were down 3% sequentially and 3.6% year over year. Organic sales were down 6% mainly due to decreased pricing and foreign currency headwinds.
Acquisitions offset the decline in the core business, contributing 290 basis points (bps) of growth year over year. However, foreign exchange had a 30 bps negative impact.
End Market Update
Industrial End Market: WESCO stated that sales from the Industrial end market were down 10% year over year. The decline was due to weak oil and gas, metals and mining, and original equipment manufacturers (OEM). Local currency sales were down 7% in the U.S. and 20% in Canada.
The manufacturing sector is reeling under the impact of weak demand, dismal global commodity prices and a strong U.S. dollar leading to deferred project and maintenance spending. But management remains optimistic about its supply chain process enhancements, cost reduction and supplier consolidations that are helping customers tackle these challenges.
Construction End Market: The Construction market was down 5.5% year over year. The company witnessed weakness in the construction project business due to economic challenges and uncertainty. Outside the industrial and construction markets, the company remains positive about the non-residential construction market.
Utility End Market: Sales to the Utilities market were down 2% with the U.S. declining 2% and Canada down 5% in local currency. Sales to investor-owned utilities in the U.S. were particularly down. However, WESCO has witnessed sales growth for five years consecutively on the back of value creation and scope expansion with investor-owned utilities, utility contractors and public power customers.
During the quarter, WESCO renewed a multi-year contract to deliver power and generation materials to a big large municipal-owned utility.
CIG End Market: Sales to the CIG market were down 2% year over year. The U.S. declined 2% while Canada was up 9% in local currency. During the quarter, solid growth in broadband was partially offset by a decline in government fiscal year-end spending.
WESCO sees growth opportunities in data center construction and retrofits, Internet Protocol security as well as cloud technology projects.
Margins
Gross profit was $365.0 million, or 19.7% of sales. Gross margin was down 18 bps sequentially and 12 bps from last year.
Operating profit of $92.6 million (or 5% of sales) was up 39 bps sequentially but down 53 bps from a year ago.
Balance Sheet
Cash and cash equivalents at the end of the third quarter was $112.8 million compared with $160.3 million at the end of the second quarter. Long-term debt was $1.42 billion compared with $1.36 billion in the second quarter.
Free cash flow stayed strong and surpassed 100% of net income.
Guidance
The company expects fourth quarter sales to decline 1% to 3%. Operating margin is expected within 4.5% to 4.8%.
For 2016, the company narrowed its sales outlook. It expects sales to be down 2% to 3%, and EPS in the $3.75 to $3.90 range. The company targets increasing its free cash flow to at least 125% of net income.
Zacks Rank and Stocks to Consider
Currently, WESCO has a Zacks Rank #3 (Hold). Better-ranked stocks in the wider technology sector include Amazon.com, Inc. (AMZN - Free Report) , F5 Networks, Inc. (FFIV - Free Report) and Stratasys Ltd. (SSYS - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For the current year, the consensus estimate for Amazon has gone up by 1.6% in the past 30 days. The same for Stratasys and F5 Networks has gone up by 27.8 and 0.47% respectively.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>