It has been about a month since the last earnings report for Wesco International (WCC - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wesco International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
WESCO's Q2 Earnings and Revenues Surpass Estimates
WESCO International, Inc. reported second-quarter 2020 adjusted earnings of $1.04 per share, which reflects a 28.3% year-over-year decline. Also, the bottom line surpassed the Zacks Consensus Estimate of $0.66 per share.
The company reported quarterly net sales of $2.09 billion, down 2.9% year over year. However, the figure surpassed the Zacks Consensus Estimate by 6.7%.
The company’s organic sales for the reported quarter declined 12.3% from the prior-year period. However, its merger with Anixter positively impacted net sales by 10.3%.
Management stated that sales were negatively impacted by the COVID-19 pandemic.
The company’s sales in the United States were down 12% from the year-ago quarter. In Canada, sales were also down 17% year over year. The decrease was due to weakness in industrial and construction end markets, as projects were delayed starting in March as a result of the pandemic outbreak. Industrial sales were down in the United States and Canada during the second quarter.
Nevertheless, Utility sales remained strong in the quarter. Organically, sales from the United States and Canada were up 6% and 36%, respectively. It remains focused on strategic investments and margin expansion initiatives. Further, WESCO stays confident about product portfolio strength, value-added services and end-market momentum. These are likely to help the stock rebound in the near term.
Additionally, projects related to data center builds, security and cloud computing continue to provide sales growth opportunities.
During the quarter, the company completed the acquisition of Anixter International in a transaction valued at $4.5 billion. The deal will help it capitalize on the accelerating secular trends of electrification, increased bandwidth demand driven by higher voice, data, video and mobile usage, along with the digitization of the B2B value chain.
Gross margin was 18.9% for the reported quarter, which contracted 10 basis points (bps) from the year-ago period.
Adjusted selling, general and administrative expenses were $262.8 million, or 14.1% of net sales for the second quarter.
Legacy WESCO adjusted operating margin came in at 3.8%, contracting 80 bps from the prior-year quarter due to lower sales.
Balance Sheet & Cash Flow
At second quarter-end, cash & cash equivalents were $265.2 million, down from $342.6 million in the prior-year comparable period. Net long-term debt in second-quarter 2020 was $5.07 billion.
WESCO generated $101.2 million of cash from operations and $141.9 million in free cash flow in the reported quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 49% due to these changes.
Currently, Wesco International has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Wesco International has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.