A month has gone by since the last earnings report for Wesco International (WCC - Free Report) . Shares have added about 0.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wesco International due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
WESCOBeats Q3 Earnings Estimates, Lags Revenues
WESCO International, Inc. reported third-quarter 2018 adjusted earnings of 1.41 per share, which surpassed the Zacks Consensus Estimate by 5 cents. The figure increased 26% on a year-over-year basis and 15.6% sequentially.
Strong operating results, a lower tax rate and the benefit of share repurchases drove the year-over-year growth of its bottom line.
Net sales of $2.067 billion missed the Zacks Consensus Estimate of $2.106 billion. The figure increased 3.4% on a year-over-year basis but decreased 1.8% sequentially. Further, the sales growth came within management’s guided range of 3-6%.
Further, organic sales grew 4.2% from the prior-year quarter.
The year-over-year sales growth was driven by strength in almost all its end markets. Additionally, growing contract wins in all the end markets remain a positive.
Notably, shares of WESCO have lost 21.3% on a year-to-date basis against the industry’s growth of 5.5%.
Top Line in Detail
WESCO operates in four organized end markets, namely Industrial, Construction, Utility and CIG.
Industrial Market: The company recorded 1% year-over-year growth in organic sales, reflecting 3% sales improvement in the United States and 4% growth in Canada in local currency.
Construction Market: Organic sales increased 3% year over year, with 12% growth in Canada in local currency. This can be attributed to strong sales from the industrial and commercial contractors. Further, sales to non-residential construction customers continued to accelerate in the quarter. Additionally, backlog was down 3% sequentially but increased 7% year over year in the reported quarter. The company expects continuous investment in nonresidential construction projects, indicating a positive momentum.
Utility Market: The company experienced year-over-year sales growth of 11% in this market. This was driven by 13% improvement in the United States, partially offset by a decline of 4% in Canada in local currency. Strong performance in this market can be attributed to strengthening relationships with investor-owned utility, public power and utility contractor customers. Further, WESCO continued to gain from the growing need for renewable energy.
CIG Market: The company recorded 8% year-over-year improvement in organic sales in this market, driven by strong performance in Canada (12% growth in local currency). Moreover, sales growth in international markets contributed significantly in the quarter. The upside was driven by strong momentum across technology customers, with its robust supply chain solutions portfolio. Sales also gained from continuous growth in LED lighting solutions, fiber-to-the-X deployments, broadband build-outs, as well as physical and cyber security for critical infrastructure protection.
Gross margin was up 19.2% in the reported quarter, which contracted 10 basis points (bps) from the year-ago quarter. This was due to an unfavorable business mix.
Selling, general and administrative expenses (SG&A), as percentage of revenues, were 13.7%, contracting 30 bps on a year-over-year basis.
WESCO’s operating profit came in at $97.5 million, up 10% from the prior-year quarter.
However, operating margin was 4.7%, up 30 bps from the year-ago quarter.
Balance Sheet & Cash Flow
At the end of the third quarter, cash & cash equivalents were $142.8 million compared with $110.9 million in the second quarter. Long-term debt was $1.23 billion compared with $1.26 billion at the end of second-quarter 2018.
Additionally, WESCO generated $87.7 million in cash from operations, up from $33.8 million at the end of the second quarter.
Free cash flow was $80.4 million, up from $25.1 million in the last reported quarter.
For fourth-quarter 2018, WESCO expects sales growth in the range of 1-4%.
For 2018, the company revised its sales growth guidance to 6-8% from prior expectation of 3-6%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Wesco International has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Wesco International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.