Wesco International Reports Third Quarter 2024 Results
Third quarter reported net sales down 2.7% YOY due primarily to the Wesco Integrated Supply divestiture
Organic sales down 0.6% YOY and up 0.1% sequentially
Third quarter operating profit of $336 million; operating margin of 6.1%
Gross margin of 22.1%, up 50 basis points YOY and up 20 basis points sequentially
Adjusted EBITDA margin of 7.3%, down 80 basis points YOY and flat sequentially
Operating cash flow of $302 million in the third quarter and $825 million for the first nine months of 2024, up from $424 million in the first nine months of 2023
Reaffirming full-year outlook
PITTSBURGH, Oct. 31, 2024 /PRNewswire/ -- Wesco International (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the third quarter of 2024.
"We had a strong close to our third quarter, with sales slightly up compared to the second quarter driven by accelerating momentum in our Communications and Security Solutions segment, including double-digit sales growth in our global data center business. The continued weakness in Utility and Broadband Solutions offset what would have been a return to organic growth in the quarter. Adjusted EBITDA margin was flat compared to the second quarter and better than the expectations reviewed during our Investor Day last month, primarily driven by a sequential increase in gross margin," said John Engel, Chairman, President and CEO.
Mr. Engel added, "I am pleased with our free cash flow generation of $280 million in the third quarter and $777 million year-to-date, or 154% of adjusted net income. We have placed a particular focus on working capital management and are beginning to see the benefits, particularly in our Communications & Security Solutions business. Financial leverage was stable at 2.9X trailing twelve-month adjusted EBITDA as we reduced our net debt $188 million and repurchased $25 million of shares in the third quarter. Our pipeline of strategic acquisitions remains strong and is aligned with our goal to increase service offerings to our customers."
Mr. Engel concluded, "Quoting, bid activity levels, and backlog remain healthy across our Wesco enterprise. We are reaffirming our 2024 full-year outlook for sales, profitability and free cash flow. While end markets remain mixed, in the fourth quarter we expect to continue to benefit from double-digit growth in the data center space as well as some large projects in our electrical and industrial end markets. As we look ahead, I like Wesco's leadership position and exposure to the long-term trends we have consistently described in detail. While the macro-economic environment will inevitably present challenges, I believe Wesco will continue to outperform our competitors under all market conditions. Our commitment to value creation from operational improvements, digital transformation and our capital allocation strategy, including focused M&A, is clear and resolute as outlined during our recent Investor Day. The Wesco team will continue to strive to execute on those plans to deliver outsized returns for our shareholders."
The following are results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023:
Net sales were $5.5 billion for the third quarter of 2024 compared to $5.6 billion for the third quarter of 2023, a decrease of 2.7%. On an organic basis, which removes the impact of the Wesco Integrated Supply ("WIS") divestiture, differences in foreign exchange rates, and the impact from the number of workdays, sales for the third quarter of 2024 declined by 0.6%. The decrease in organic sales reflects volume declines in the EES and UBS segments, partially offset by a volume increase in the CSS segment, and price inflation in the EES and UBS segments. Sequentially, net sales increased 0.2% and organic sales grew by 0.1% as fluctuations in foreign exchange rates positively impacted reported net sales by 0.1%.
Cost of goods sold for the third quarter of 2024 was $4.3 billion compared to $4.4 billion for the third quarter of 2023, and gross profit was $1.2 billion for the third quarter of 2024 and 2023. As a percentage of net sales, gross profit was 22.1% and 21.6% for the third quarter of 2024 and 2023, respectively. The increase in gross profit as a percentage of net sales for the third quarter of 2024 primarily reflects the impact of the divestiture of the WIS business. Sequentially, gross profit as a percentage of net sales increased 20 basis points from 21.9% in the second quarter of 2024.
Selling, general and administrative ("SG&A") expenses were $831.1 million, or 15.1% of net sales, for the third quarter of 2024, compared to $796.4 million, or 14.1% of net sales, for the third quarter of 2023. SG&A expenses for the third quarter of 2024 include $5.4 million of digital transformation costs and $0.5 million of restructuring costs. SG&A expenses for the third quarter of 2023 include $12.9 million of digital transformation costs, $5.6 million of restructuring costs, and $2.1 million of merger-related and integration costs. Adjusted for these costs, SG&A expenses were $825.2 million, or 15.0% of net sales, for the third quarter of 2024 and $775.8 million, or 13.7% of net sales, for the third quarter of 2023. Adjusted SG&A expenses for the third quarter of 2024 reflect higher payroll and payroll-related expenses, costs to operate our facilities and transportation costs, partially offset by the impact of the divestiture of the WIS business.
Depreciation and amortization for the third quarter of 2024 was $46.0 million compared to $45.1 million for the third quarter of 2023, an increase of $0.9 million.
Operating profit was $335.6 million for the third quarter of 2024 compared to $380.5 million for the third quarter of 2023, a decrease of $44.9 million, or 11.8%. Operating profit as a percentage of net sales was 6.1% for the current quarter compared to 6.7% for the third quarter of the prior year. Adjusted for digital transformation costs and restructuring costs, operating profit was $341.5 million, or 6.2% of net sales, for the third quarter of 2024. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, and accelerated trademark amortization expense, operating profit was $401.5 million, or 7.1% of net sales, for the third quarter of 2023.
Net interest expense for the third quarter of 2024 was $86.5 million compared to $98.5 million for the third quarter of 2023. The decrease is primarily attributable to lower borrowings and a decrease in variable interest rates.
Other non-operating income for the third quarter of 2024 was $24.9 million compared to expense of $3.7 million for the third quarter of 2023. During the third quarter, we finalized the divestiture of our WIS business, and recognized an additional gain from the sale of $19.3 million. We also recognized income of $2.2 million as a result of the finalization of the liabilities transferred related to the settlement of the Anixter Inc. Pension Plan. Adjusted for the gain on the divestiture of our WIS business as well as the reduction to pension settlement costs, other non-operating income was $3.4 million for the third quarter of 2024.
The effective tax rate for the third quarter of 2024 was 25.3% compared to 15.9% for the third quarter of 2023. The higher effective tax rate for the third quarter of 2024 is due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year. The corresponding quarter of the prior year also reflected discrete income tax benefits relating to the reversal of certain valuation allowances and return-to-provision adjustments.
Net income attributable to common stockholders was $189.9 million for the third quarter of 2024 compared to $219.0 million for the third quarter of 2023. Adjusted for digital transformation costs, restructuring costs, the gain recognized on the divestiture of our WIS business, the reduction to pension settlement cost, and the related income tax effects, net income attributable to common stockholders was $178.1 million for the third quarter of 2024. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $234.4 million for the third quarter of 2023.
Earnings per diluted share for the third quarter of 2024 was $3.81, based on 49.8 million diluted shares, compared to $4.20 for the third quarter of 2023, based on 52.2 million diluted shares. Adjusted for digital transformation costs, restructuring costs, the gain recognized on the divestiture of our WIS business, the reduction to pension settlement cost, and the related income tax effects, earnings per diluted share for the third quarter of 2024 was $3.58. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the third quarter of 2023 was $4.49. Adjusted earnings per diluted share decreased 20.3% year-over-year.
Operating cash flow for the third quarter of 2024 was an inflow of $302.1 million compared to $361.7 million for the third quarter of 2023. Free cash flow for the third quarter of 2024 was $279.5 million, or 144.9% of adjusted net income. The net cash inflow in the third quarter of 2024 was primarily driven by net income of $204.7 million, as well as an improvement in net working capital. Fluctuations in accounts payable resulted in a cash inflow of $136.1 million for the third quarter of 2024, primarily due to the timing of payments to suppliers as well as inventory purchases. A decrease in trade accounts receivable of $40.9 million primarily due to the timing of receipts from customers also contributed to the cash inflow. An increase in inventories resulted in a use of cash of $103.9 million.
The following are results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
Net sales were $16.3 billion for the first nine months of 2024 compared to $16.9 billion for the first nine months of 2023, a decrease of 3.5%. On an organic basis, which removes the impact of the WIS divestiture, differences in foreign exchange rates, and the impact from the number of workdays, sales for the first nine months of 2024 declined by 1.5%. The decrease in organic sales reflects volume declines in the EES and UBS segments, partially offset by a volume increase in the CSS segment, and price inflation in the EES and UBS segments.
Cost of goods sold for the first nine months of 2024 was $12.8 billion compared to $13.2 billion for the first nine months of 2023, and gross profit was $3.5 billion and $3.7 billion, respectively. As a percentage of net sales, gross profit was 21.7% for the first nine months of 2024 and 2023.
SG&A expenses were $2,488.9 million, or 15.3% of net sales, for the first nine months of 2024, compared to $2,445.8 million, or 14.5% of net sales, for the first nine months of 2023. SG&A expenses for the first nine months of 2024 include a $17.8 million loss on abandonment of assets, $17.5 million of digital transformation costs, $9.5 million of restructuring costs, and $4.8 million of excise taxes on excess pension plan assets. SG&A expenses for the first nine months of 2023 include $28.5 million of digital transformation costs, $16.9 million of merger-related and integration costs, and $15.4 million of restructuring costs. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets, SG&A expenses were $2,439.3 million, or 14.9% of net sales, for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, and restructuring costs, SG&A expenses were $2,385.0 million, or 14.1% of net sales for the first nine months of 2023. The increase in adjusted SG&A expenses for the first nine months of 2024 compared to the first nine months of 2023 reflects higher costs to operate our facilities, an increase in IT costs, and an increase in payroll and payroll-related costs.
Depreciation and amortization for the first nine months of 2024 was $137.6 million compared to $136.4 million for the first nine months of 2023, an increase of $1.2 million.
Operating profit was $922.1 million for the first nine months of 2024 compared to $1,090.7 million for the first nine months of 2023, a decrease of $168.6 million, or 15.5%. Operating profit as a percentage of net sales was 5.7% for the first nine months of 2024 compared to 6.4% for the first nine months of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets, operating profit was $971.7 million, or 6.0% of net sales, for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, and accelerated trademark amortization expense, operating profit was $1,152.7 million, or 6.8% of net sales, for the first nine months of 2023.
Net interest expense for the first nine months of 2024 was $279.8 million compared to $292.3 million for the first nine months of 2023. The decrease is primarily attributable to lower borrowings and a decrease in variable interest rates.
Other non-operating income for the first nine months of 2024 was $99.3 million compared to expense of $14.6 million for the first nine months of 2023. In the first nine months of 2024, we completed the divestiture of our WIS business and recognized a gain from the sale of $122.2 million. Additionally, in the first nine months of 2024, we recognized a $3.8 million loss on termination of a business arrangement. Due to fluctuations in the U.S. dollar against certain foreign currencies, a net foreign currency exchange loss of $18.2 million was recognized for the first nine months of 2024 compared to a net loss of $14.6 million for the first nine months of 2023. Net costs of $3.2 million, comprising pension settlement cost, and net benefits of $0.9 million associated with the non-service cost components of net periodic pension (benefit) cost were recognized for the first nine months of 2024 and 2023, respectively. Adjusted for the gain on divestiture of our WIS business, the loss on termination of a business arrangement, and pension settlement cost described above, other non-operating expense was $15.8 million for the first nine months of 2024.
The effective tax rate for the first nine months of 2024 was 25.4% compared to 20.4% for the first nine months of 2023. The effective tax rate for the first nine months of 2024 was higher than the comparable prior year period due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year period. The prior year period also reflected discrete income tax benefits relating to the reversal of certain valuation allowances and return-to-provision adjustments.
Net income attributable to common stockholders was $509.1 million for the first nine months of 2024 compared to $580.5 million for the first nine months of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of the WIS business, the loss on termination of a business arrangement, pension settlement cost, and the related income tax effects, net income attributable to common stockholders was $461.0 million for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders for the first nine months of 2023 was $625.7 million.
Earnings per diluted share for the first nine months of 2024 was $10.02, based on 50.8 million diluted shares, compared to $11.08 for the first nine months of 2023, based on 52.4 million diluted shares. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of our WIS business, the loss on termination of a business arrangement, pension settlement cost, and the related income tax effects, earnings per diluted share for the first nine months of 2024 was $9.07. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first nine months of 2023 was $11.94. Adjusted earnings per diluted share decreased 24.0% year-over-year.
Operating cash flow for the first nine months of 2024 was an inflow of $824.6 million compared to $423.9 million for the first nine months of 2023. Free cash flow for the first nine months of 2024 was $776.8 million, or 153.7% of adjusted net income. The net cash inflow in the first nine months of 2024 was primarily driven by net income of $553.5 million and non-cash adjustments to net income totaling $66.3 million. Operating cash flow was positively impacted by net changes in assets and liabilities of $204.8 million, which primarily comprised an increase in accounts payable of $478.0 million, primarily due to the timing of payments to suppliers, as well as inventory purchases, partially offset by an increase in trade accounts receivable of $217.9 million due to the timing of receipts from customers and an increase in inventories of $85.0 million.
Webcast and Teleconference Access
Wesco will conduct a webcast and teleconference to discuss the third quarter of 2024 earnings as described in this News Release on Thursday, October 31, 2024, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company's website at https://investors.wesco.com. The call will be archived on this internet site for seven days.
Wesco International (NYSE:WCC) builds, connects, powers and protects the world. Headquartered in Pittsburgh, Pennsylvania, Wesco is a FORTUNE 500® company with more than $22 billion in annual sales and a leading provider of business-to-business distribution, logistics services and supply chain solutions. Wesco offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs approximately 20,000 people, partners with the industry's premier suppliers, and serves thousands of customers around the world. With millions of products, end-to-end supply chain services, and leading digital capabilities, Wesco provides innovative solutions to meet customer needs across commercial and industrial businesses, contractors, government agencies, educational institutions, telecommunications providers, and utilities. Wesco operates nearly 800 branches, warehouses and sales offices in more than 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and global corporations.
Forward-Looking Statements
All statements made herein that are not historical facts should be considered as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product and service introductions, and liquidity and capital resources. Such statements can generally be identified by the use of words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," and similar words, phrases or expressions or future or conditional verbs such as "could," "may," "should," "will," and "would," although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations and beliefs of Wesco's management, as well as assumptions made by, and information currently available to, Wesco's management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of Wesco's and Wesco's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.
Important factors that could cause actual results or events to differ materially from those presented or implied in the forward-looking statements include, among others, the failure to achieve the anticipated benefits of, and other risks associated with, acquisitions, joint ventures, divestitures and other corporate transactions; the inability to successfully integrate acquired businesses; the impact of increased interest rates or borrowing costs; fluctuations in currency exchange rates; failure to adequately protect Wesco's intellectual property or successfully defend against infringement claims; the inability to successfully deploy new technologies, digital products and information systems or to otherwise adapt to emerging technologies in the marketplace, such as those incorporating artificial intelligence; failure to execute on our efforts and programs related to environmental, social and governance (ESG) matters; unanticipated expenditures or other adverse developments related to compliance with new or stricter government policies, laws or regulations, including those relating to data privacy, sustainability and environmental protection; the inability to successfully develop, manage or implement new technology initiatives or business strategies, including with respect to the expansion of e-commerce capabilities and other digital solutions and digitalization initiatives; disruption of information technology systems or operations; natural disasters (including as a result of climate change), health epidemics, pandemics and other outbreaks; supply chain disruptions; geopolitical issues, including the impact of the evolving conflicts in the Middle East and Russia/Ukraine; the impact of sanctions imposed on, or other actions taken by the U.S. or other countries against, Russia or China; the failure to manage the increased risks and impacts of cyber incidents or data breaches; and exacerbation of key materials shortages, inflationary cost pressures, material cost increases, demand volatility, and logistics and capacity constraints, any of which may have a material adverse effect on the Company's business, results of operations and financial condition. All such factors are difficult to predict and are beyond the Company's control. Additional factors that could cause results to differ materially from those described above can be found in Wesco's most recent Annual Report on Form 10-K and other periodic reports filed with the U.S. Securities and Exchange Commission.
Contact Information
Investor Relations
Corporate Communications
Will Ruthrauff
Director, Investor Relations
484-885-5648
Jennifer Sniderman
Vice President, Corporate Communications
717-579-6603
http://www.wesco.com
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(Unaudited)
Three Months Ended
September 30, 2024
September 30, 2023
Net sales
$ 5,489.4
$ 5,644.4
Cost of goods sold (excluding depreciation and amortization)
4,276.7
77.9 %
4,422.4
78.4 %
Selling, general and administrative expenses
831.1
15.1 %
796.4
14.1 %
Depreciation and amortization
46.0
45.1
Income from operations
335.6
6.1 %
380.5
6.7 %
Interest expense, net
86.5
98.5
Other (income) expense, net
(24.9)
3.7
Income before income taxes
274.0
5.0 %
278.3
4.9 %
Provision for income taxes
69.3
44.3
Net income
204.7
3.7 %
234.0
4.1 %
Net income attributable to noncontrolling interests
0.4
0.6
Net income attributable to WESCO International, Inc.
204.3
3.7 %
233.4
4.1 %
Preferred stock dividends
14.4
14.4
Net income attributable to common stockholders
$ 189.9
3.5 %
$ 219.0
3.9 %
Earnings per diluted share attributable to common stockholders
$ 3.81
$ 4.20
Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share
49.8
52.2
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(Unaudited)
Nine Months Ended
September 30, 2024
September 30, 2023
Net sales
$ 16,319.1
$ 16,911.8
Cost of goods sold (excluding depreciation and amortization)
12,770.5
78.3 %
13,238.9
78.3 %
Selling, general and administrative expenses
2,488.9
15.3 %
2,445.8
14.5 %
Depreciation and amortization
137.6
136.4
Income from operations
922.1
5.7 %
1,090.7
6.4 %
Interest expense, net
279.8
292.3
Other (income) expense, net
(99.3)
14.6
Income before income taxes
741.6
4.5 %
783.8
4.6 %
Provision for income taxes
188.1
160.2
Net income
553.5
3.4 %
623.6
3.7 %
Net income attributable to noncontrolling interests
1.3
—
Net income attributable to WESCO International, Inc.
552.2
3.4 %
623.6
3.7 %
Preferred stock dividends
43.1
43.1
Net income attributable to common stockholders
$ 509.1
3.1 %
$ 580.5
3.4 %
Earnings per diluted share attributable to common stockholders
$ 10.02
$ 11.08
Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share
50.8
52.4
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
As of
September 30,2024
December 31,2023
Assets
Current Assets
Cash and cash equivalents
$ 706.8
$ 524.1
Trade accounts receivable, net
3,629.1
3,639.5
Inventories
3,630.1
3,572.1
Other current assets
717.5
655.9
Total current assets
8,683.5
8,391.6
Goodwill and intangible assets
5,028.9
5,119.9
Other assets
1,562.6
1,549.4
Total assets
$ 15,275.0
$ 15,060.9
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
$ 2,839.1
$ 2,431.5
Short-term debt and current portion of long-term debt, net
14.9
8.6
Other current liabilities
1,074.5
948.3
Total current liabilities
3,928.5
3,388.4
Long-term debt, net
5,007.8
5,313.1
Other noncurrent liabilities
1,301.9
1,327.5
Total liabilities
10,238.2
10,029.0
Stockholders' Equity
Total stockholders' equity
5,036.8
5,031.9
Total liabilities and stockholders' equity
$ 15,275.0
$ 15,060.9
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Nine Months Ended
September 30,2024
September 30,2023
Operating Activities:
Net income
$ 553.5
$ 623.6
Add back (deduct):
Depreciation and amortization
137.6
136.4
Gain on divestiture
(122.2)
—
Loss on abandonment of assets
17.8
—
Change in trade receivables, net
(217.9)
(133.4)
Change in inventories
(85.0)
(62.7)
Change in accounts payable
478.0
(86.5)
Other, net
62.8
(53.5)
Net cash provided by operating activities
824.6
423.9
Investing Activities:
Capital expenditures
(70.4)
(63.6)
Acquisition payments
(41.7)
—
Proceeds from divestiture, net of cash transferred
354.9
—
Other, net
6.9
2.4
Net cash provided by (used in) investing activities
249.7
(61.2)
Financing Activities:
Debt repayments, net(1)
(318.2)
(41.0)
Payments for taxes related to net-share settlement of equity awards
(26.2)
(68.0)
Repurchases of common stock
(375.0)
(50.0)
Payment of common stock dividends
(61.4)
(57.6)
Payment of preferred stock dividends
(43.1)
(43.1)
Debt issuance costs
(26.6)
—
Other, net
(23.8)
6.3
Net cash used in financing activities
(874.3)
(253.4)
Effect of exchange rate changes on cash and cash equivalents
(17.3)
(5.2)
Net change in cash and cash equivalents
182.7
104.1
Cash and cash equivalents at the beginning of the period
524.1
527.3
Cash and cash equivalents at the end of the period
$ 706.8
$ 631.4
