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WESCO (WCC) Stock Rises on Q2 Earnings & Revenue Beat
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Shares of WESCO International Inc. (WCC - Free Report) gained over 7% in after-hour trade following better-than-expected results in the second quarter of 2016.
Adjusted earnings per share (EPS) of $1.02 beat the Zacks Consensus Estimate by 5.15% or 5 cents. Earnings increased 38.3% sequentially and 4.9% year over year.
Revenues of $1.9 billion beat the Zacks Consensus Estimate of $1.87 billion by a slight margin.
Sales were low on a year-over-year basis as a result of weak commodity-driven end markets and foreign exchange headwinds. However, the impact of lower sales on earnings was mitigated to a certain extent by the One WESCO strategy.
WESCO reported revenues of $1.9 billion, up 7.6% sequentially but down 0.3% year over year.
Organic sales were down 10% year over year due to a 9% sales decline in the U.S. and a 21% drop in Canada.
Acquisitions offset the decline in the core business, contributing 370 basis points (bps) of growth. Foreign exchange had a 90 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 9% in the U.S. and 21% 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 Global Account and Integrated Supply initiatives, saying that customer demand for supply chain and other cost efficiencies continued to drive orders for the company.
Notably, in the quarter, a U.S. automotive manufacturer awarded WESCO with a multi-year maintenance, repair and operating (MRO) supplies contract.
Construction End Market: The Construction market was up 2% year over year with U.S. and Canada up 2% and 4%, respectively on a local currency basis. The company witnessed weakness in sales to contractors serving industrial markets in the U.S. and Canada. However, sales to commercial construction contractors were much better.
Outside the industrial and construction markets, the company remains positive about the non-residential construction market. The company was recently given a contract to supply emergency power equipment and electrical distribution for revamping a water management facility in Canada.
Utility End Market: Sales to the Utilities market witnessed slight growth. We note that this market has witnessed sales growth for five and a half years consecutively. Sales to investor-owned utilities and utility contractors in the U.S. remained flat in the last quarter, partially offset by a 4% decline in Canada (on a local currency basis).
During the quarter, WESCO was awarded a contract to supply substation related materials and transmission lines for a new wind farm located in the U.S.
CIG End Market: Sales to the CIG market were marginally up year over year. U.S. grew 2% while Canada was up by 10% in local currency. Bidding activities are on the rise in the communications and security categories, given the growth prospects in these segments.
Other areas of demand include energy efficiency in lighting, metering and automation applications as well as security and FTTX applications.
WESCO sees growth opportunities in data center construction and retrofits, as well as cloud technology projects. In the past quarter, the company renewed a multi-year state education cooperative contract in the U.S. as per which it will supply lighting and electrical MRO materials pertaining to several public universities.
Margins
Gross profit was $379.5 million, or 19.9% of sales. Gross margin was down 15 bps sequentially and 6 bps from last year.
Operating profit of $88 million (or 4.6% of sales) was up 69 bps sequentially but down 11 bps from a year ago.
WESCO’s net income of $49.8 million (or a net margin of 2.6%) was up by 58 bps sequentially but down by 10 bps on a year over year basis.
Balance Sheet
Cash and cash equivalents at the end of the second quarter was $160.3 million compared with $147.8 million at the end of the first quarter. Long-term debt was $1.36 billion compared with $1.39 billion in the first quarter.
Free cash flow stayed strong and surpassed 100% of net income.
Guidance
The company expects third quarter sales to be flat to down 3%. Operating margin is expected within 4.9% to 5.3%, with an effective tax rate of approximately 29%.
For 2016, the company narrowed its sales outlook to be flat to down 2%, and expects EPS in the $3.85 to $4.10 range. The company targets increasing its free cash flow to at least 100% of net income.
Conclusion
WESCO reported encouraging second quarter results with earnings and revenues surpassing the respective Zacks Consensus Estimate.
The company continues to implement its One WESCO strategy to boost sales, enhance profitability, generate strong cash flow and enhance shareholder’s value.
On or after Sep 15, 2016, the company intends to redeem 6% of its 2029 convertible debentures.
WESCO emphasizes on providing a comprehensive portfolio of products and services to meet OEM, MRO and capital project management requirements of customers.
However, WESCO’s 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.
Zacks Rank
Currently, WESCO has a Zacks Rank #3 (Hold).
Investors can consider stocks like CDK Global, Inc. , Clearfield, Inc. (CLFD - Free Report) and Facebook, Inc , each sporting a Zacks Rank # 1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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WESCO (WCC) Stock Rises on Q2 Earnings & Revenue Beat
Shares of WESCO International Inc. (WCC - Free Report) gained over 7% in after-hour trade following better-than-expected results in the second quarter of 2016.
Adjusted earnings per share (EPS) of $1.02 beat the Zacks Consensus Estimate by 5.15% or 5 cents. Earnings increased 38.3% sequentially and 4.9% year over year.
Revenues of $1.9 billion beat the Zacks Consensus Estimate of $1.87 billion by a slight margin.
Sales were low on a year-over-year basis as a result of weak commodity-driven end markets and foreign exchange headwinds. However, the impact of lower sales on earnings was mitigated to a certain extent by the One WESCO strategy.
The quarterly numbers in detail:
WESCO INTL INC Price, Consensus and EPS Surprise
WESCO INTL INC Price, Consensus and EPS Surprise | WESCO INTL INC Quote
Revenues
WESCO reported revenues of $1.9 billion, up 7.6% sequentially but down 0.3% year over year.
Organic sales were down 10% year over year due to a 9% sales decline in the U.S. and a 21% drop in Canada.
Acquisitions offset the decline in the core business, contributing 370 basis points (bps) of growth. Foreign exchange had a 90 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 9% in the U.S. and 21% 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 Global Account and Integrated Supply initiatives, saying that customer demand for supply chain and other cost efficiencies continued to drive orders for the company.
Notably, in the quarter, a U.S. automotive manufacturer awarded WESCO with a multi-year maintenance, repair and operating (MRO) supplies contract.
Construction End Market: The Construction market was up 2% year over year with U.S. and Canada up 2% and 4%, respectively on a local currency basis. The company witnessed weakness in sales to contractors serving industrial markets in the U.S. and Canada. However, sales to commercial construction contractors were much better.
Outside the industrial and construction markets, the company remains positive about the non-residential construction market. The company was recently given a contract to supply emergency power equipment and electrical distribution for revamping a water management facility in Canada.
Utility End Market: Sales to the Utilities market witnessed slight growth. We note that this market has witnessed sales growth for five and a half years consecutively. Sales to investor-owned utilities and utility contractors in the U.S. remained flat in the last quarter, partially offset by a 4% decline in Canada (on a local currency basis).
During the quarter, WESCO was awarded a contract to supply substation related materials and transmission lines for a new wind farm located in the U.S.
CIG End Market: Sales to the CIG market were marginally up year over year. U.S. grew 2% while Canada was up by 10% in local currency. Bidding activities are on the rise in the communications and security categories, given the growth prospects in these segments.
Other areas of demand include energy efficiency in lighting, metering and automation applications as well as security and FTTX applications.
WESCO sees growth opportunities in data center construction and retrofits, as well as cloud technology projects. In the past quarter, the company renewed a multi-year state education cooperative contract in the U.S. as per which it will supply lighting and electrical MRO materials pertaining to several public universities.
Margins
Gross profit was $379.5 million, or 19.9% of sales. Gross margin was down 15 bps sequentially and 6 bps from last year.
Operating profit of $88 million (or 4.6% of sales) was up 69 bps sequentially but down 11 bps from a year ago.
WESCO’s net income of $49.8 million (or a net margin of 2.6%) was up by 58 bps sequentially but down by 10 bps on a year over year basis.
Balance Sheet
Cash and cash equivalents at the end of the second quarter was $160.3 million compared with $147.8 million at the end of the first quarter. Long-term debt was $1.36 billion compared with $1.39 billion in the first quarter.
Free cash flow stayed strong and surpassed 100% of net income.
Guidance
The company expects third quarter sales to be flat to down 3%. Operating margin is expected within 4.9% to 5.3%, with an effective tax rate of approximately 29%.
For 2016, the company narrowed its sales outlook to be flat to down 2%, and expects EPS in the $3.85 to $4.10 range. The company targets increasing its free cash flow to at least 100% of net income.
Conclusion
WESCO reported encouraging second quarter results with earnings and revenues surpassing the respective Zacks Consensus Estimate.
The company continues to implement its One WESCO strategy to boost sales, enhance profitability, generate strong cash flow and enhance shareholder’s value.
On or after Sep 15, 2016, the company intends to redeem 6% of its 2029 convertible debentures.
WESCO emphasizes on providing a comprehensive portfolio of products and services to meet OEM, MRO and capital project management requirements of customers.
However, WESCO’s 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.
Zacks Rank
Currently, WESCO has a Zacks Rank #3 (Hold).
Investors can consider stocks like CDK Global, Inc. , Clearfield, Inc. (CLFD - Free Report) and Facebook, Inc , each sporting a Zacks Rank # 1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>