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WESCO (WCC) Q4 Earnings Beat, Sales Up on End-Market Strength

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WESCO International, Inc. (WCC - Free Report) reported fourth-quarter 2017 adjusted earnings of $1.03 per share, which surpassed the Zacks Consensus Estimate by a nickel. The figure increased 7.3% on a year-over-year basis.

Net sales of $1.997 billion outpaced the Zacks Consensus Estimate of $1.926 billion. The top line improved 11.3% on a year-over-year basis. Also, the reported figure was well ahead of the company’s expected growth range of 5-8%.

Backlog improved 5% sequentially in the reported quarter.

Top-line growth was driven by strong end-market results, product and services portfolio strength and robust performance in certain geographies. Moreover, focus on growth and pricing strategies accelerated the sales number.

2017 at a Glance

In 2017, WESCO reported adjusted earnings of $3.93 per share were up 3.4% compared with the year-ago figure.

Also, the consolidated net sales figure came in at $7.679 billion that increased 4.6% compared with 2016. The reported figure surpassed management’s guidance of 3-4% growth.

Top Line in Detail

Organic sales grew 10% year over year and 2% sequentially. The metric was up 9% in the United States, 13% in Canada and 19% in international markets. Additionally, pricing positively impacted results by 2%.

WESCO recorded the highest organic growth since 2011, which can be attributed to strong end-market demand for its solutions. Additionally, robust performance from the industrial sector drove the top line. Favorable foreign exchange rate contributed 1.2% to organic sales.

End-Market Sales:

Industrial End Market: At the this sector, WESCO reported organic sales of 14% year over year driven by 12% sales growth in the United States and 15% growth in Canada in local currency. Organic growth was driven by robust sales in oil and gas, metals and mining, OEM and technology verticals.

Construction End Market: Organic sales increased 9% year over year, with the United States up 7% and Canada improving 13% in local currency. The upside was driven by higher sales to nonresidential construction and contractor customers. Meanwhile, sales to industrial and commercial contractors continued to increase in the quarter.

Backlog improved 20% year over year and 5% sequentially.

Utility End Market: Organic sales increased 9% with the United States, up 10% and Canada, improving 7% in local currency. Strong performance in both the customer groups — investor-owned utilities and public power customers — led to this growth. The quarter also included sales worth $50 million to support the natural disaster recovery initiatives in Puerto Rico and California.

CIG End Market: Organic sales were up 5% with the United States growing 5% and Canada up 11% in local currency. The upside was driven by strength across technology customers that include data centers, broadband and cloud technology projects. Sales also gained from continuous growth in LED lighting solutions, fiber-to-the-X deployments, broadband build-outs as well as fiber in physical security for critical infrastructure protection.

Operating Details

Gross margin contracted 20 basis points (bps) on a year-over-year basis to 19.2% due to unfavorable product mix.

Selling, general and administrative expenses (SG&A), as percentage of revenues, increased 40 bps on a year-over-year basis.

WESCO’s operating profit in the fourth quarter was $81.4 million and 4.1% of net sales, down 50 bps year over year and 40 bps sequentially. Also, the figure for the full year was $321 million, down 30 bps than that in 2016.

Balance Sheet & Cash Flow

As of Dec 31, 2017, cash & cash equivalents were $118 million compared with $94.1 million as of Sep 30, 2017. Long-term debt was $1.31 billion compared with $1.37 billion at the end of third-quarter 2017.

Additionally, WESCO generated $68 million in cash from operations, down from $81.1 million at the end of the third quarter. In 2017, cash flow from operations was $149.1 million down from $300.2 million reported in 2016.

Capital expenditures in the quarter under review were $5.5 million down from $16 million in the previous quarter. Free cash flow was $62.5 million or 128% of the adjusted net income in the reported quarter.

Further, WESCO repurchased shares worth $100 million in 2017.

Guidance

For first-quarter 2018, WESCO expects sales growth between 6% and 9%. Earnings are projected the range of $4.40-$4.90 per share. Operating margins are projected to lie within the 3.5-3.8% band.

For full-year 2018, management expects sales to be within the range of 3-6%. Continued growth in non-residential construction sector is expected to drive sales. Operating margins are expected between 4.2% and 4.6%.

Moreover, WESCO’s 2018 outlook for free cash flow is very strong, which is anticipated to be more than 90% of the net income. In the first quarter of 2018, effective tax rate is expected to be around 22%.

Also, WESCO has announced a new share repurchase program that increased share buyback authorization to $300 million over the next three years.

WESCO International, Inc. Price, Consensus and EPS Surprise

WESCO International, Inc. Price, Consensus and EPS Surprise | WESCO International, Inc. Quote

Zacks Rank and Other Stocks to Consider
 
WESCO carries a Zacks Rank #2 (Buy).

Some other stocks worth considering from the broader technology sector are Micron Technology (MU - Free Report) , Lam Research (LRCX - Free Report) and The Trade Desk (TTD - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron, Lam Research and The Trade Desk is projected at 10%, 14.9% and 25%, respectively.

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