BusinessWire

WESCO International, Inc. Reports Third Quarter 2020 Results

Third quarter summary:


  • Net sales of $4.1 billion, up 93% due to the Anixter merger
  • Operating profit of $178.1 million; operating margin of 4.3%
    • Adjusted operating profit of $200.5 million; adjusted operating margin of 4.8%
  • Earnings per diluted share of $1.31
    • Adjusted earnings per diluted share of $1.66
  • Operating cash flow of $286.3 million
    • Free cash flow of $307.4 million, or 315% of adjusted net income
  • Leverage of 5.3x; improved 0.4x sequentially
    • Net debt reduction of $280 million

PITTSBURGH--(BUSINESS WIRE)--WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the third quarter of 2020.

Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, “We delivered very strong results in the third quarter and exceeded our sales, margin, profit and cash generation expectations. This was our first full quarter of results after completing the merger with Anixter and clearly highlights the value creation potential of this transformational combination. Business momentum improved through the quarter as we took market share and built an all-time record third quarter backlog. We aggressively managed our business and executed significant cost reduction, margin improvement and cash management actions, which enabled us to deliver profit growth in the third quarter. Free cash flow generation was exceptional at over 300% of net income and demonstrates our resilient business model and strength through the cycle. Notably, net debt was reduced by $280 million thereby reducing our financial leverage consistent with our capital allocation priorities. Again this quarter, I would like to recognize and thank all of our associates for their inspirational dedication, commitment and hard work in effectively managing in this COVID-19 driven environment."

Mr. Engel continued, "We accelerated our integration planning, execution and synergy realization efforts, and made outstanding progress in the third quarter. The strong cultural alignment between WESCO and Anixter is proving to be a key driver of our initial success. We realized $15 million of cost synergies in the third quarter, and have already initiated actions to deliver 100% of our year one cost synergy target of $68 million after just four months since closing the acquisition. I could not be more pleased with the integration team’s execution of our plan. As a result, we are raising our year 1, 2 and 3 cost synergy targets to $100 million, $180 million, and $250 million, respectively. Our initial integration progress gives us confidence that we will revisit our synergy targets as we build success upon success. We are also realizing initial sales synergies through leveraging our expanded global footprint and cross-selling our broader product and services portfolio. We believe our sales synergy efforts will support incremental revenue growth in the years ahead. As a result, we are building on these early successes and are increasingly confident in our ability to achieve significant upside potential and exceed our three year cost savings, sales growth, margin expansion, and cash generation synergy targets.”

Mr. Engel added, “WESCO’s new era is off to an exceptional start. As the premier electrical, communications and utility distribution and supply chain solutions company in the world, we are very well positioned to capitalize on the accelerating secular trends of electrification, increased bandwidth demand driven by higher voice, data, video and mobile usage, and the digitization of our B2B value chain. Building on our positive momentum, we are looking forward to entering 2021 with accelerating results. As we look to the future, we are more bullish than ever in the substantial value creation that this transformational combination will create for our customers, supplier partners, employees, investors, and the communities in which we operate."

The following are results for the three months ended September 30, 2020 compared to the three months ended September 30, 2019:

  • Net sales were $4.1 billion for the third quarter of 2020 compared to $2.1 billion for the third quarter of 2019, an increase of 92.8% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the weakened demand impact from the COVID-19 pandemic.
  • Cost of goods sold for the third quarter of 2020 was $3.4 billion compared to $1.7 billion for the third quarter of 2019, and gross profit was $785.5 million and $400.2 million, respectively. As a percentage of net sales, gross profit was 19.0% and 18.6% for the third quarter of 2020 and 2019, respectively. Gross profit as a percentage of net sales for the third quarter of 2020 was 19.6% excluding the effect of merger-related fair value adjustments of $28.0 million.
  • Selling, general and administrative expenses were $562.0 million, or 13.6% of net sales, for the third quarter of 2020, compared to $290.9 million, or 13.5% of net sales, for the third quarter of 2019. SG&A expenses for the third quarter of 2020 include merger-related costs of $14.2 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $567.6 million, or 13.7% of net sales, for the third quarter of 2020, reflecting the favorable impact of cost reduction actions taken in response to the COVID-19 pandemic.
  • Operating profit was $178.1 million for the third quarter of 2020, compared to $93.7 million for the third quarter of 2019. Operating profit as a percentage of net sales was 4.3% for the current quarter, compared to 4.4% for the third quarter of the prior year. As adjusted for the merger-related costs and gain on the sale of a U.S. operating branch, operating profit was $200.5 million for the third quarter of 2020, or 4.8% of net sales.
  • Net interest expense for the third quarter of 2020 was $74.5 million, compared to $14.3 million for the third quarter of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
  • The effective tax rate for the third quarter of 2020 was 23.3%, compared to 19.8% for the third quarter of 2019. The higher effective tax rate in the current quarter is primarily due to costs incurred to complete the merger with Anixter.
  • Net income attributable to common stockholders was $66.2 million for the third quarter of 2020, compared to $64.5 million for the third quarter of 2019. As adjusted, net income attributable to common stockholders was $83.6 million for the third quarter of 2020.
  • Earnings per diluted share for the third quarter of 2020 was $1.31, based on 50.5 million diluted shares, compared to $1.52 for the third quarter of 2019, based on 42.4 million diluted shares. As adjusted, earnings per diluted share for the third quarter of 2020 was $1.66.
  • Operating cash flow for the third quarter of 2020 was $286.3 million, compared to $125.4 million for the third quarter of 2019. Free cash flow for the third quarter of 2020 was $307.4 million, or 315% of adjusted net income, compared to $116.5 million, or 181% of net income, for the third quarter of 2019.

The following are results for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:

  • Net sales were $8.2 billion for the first nine months of 2020 compared to $6.3 billion for the first nine months of 2019, an increase of 31.0% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the weakened demand impact from the COVID-19 pandemic.
  • Cost of goods sold for the first nine months of 2020 was $6.6 billion and gross profit was $1.6 billion, compared to $5.1 billion and $1.2 billion, respectively, for the first nine months of 2019. As a percentage of net sales, gross profit was 19.0% for the first nine months of 2020 and 2019. Gross profit as a percentage of net sales for the first nine months of 2020 was 19.3% excluding the effect of merger-related fair value adjustments of $28.0 million.
  • Selling, general and administrative expenses were $1.2 billion, or 14.9% of net sales, for the first nine months of 2020, compared to $883.2 million, or 14.1% of net sales, for the first nine months of 2019. SG&A expenses for the first nine months of 2020 include merger-related costs of $92.1 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $1.1 billion, or 14.0% of net sales, for the first nine months of 2020, reflecting the favorable impact of cost reduction actions taken in response to the COVID-19 pandemic.
  • Operating profit was $254.3 million for the first nine months of 2020, compared to $262.4 million for the first nine months of 2019. Operating profit as a percentage of net sales was 3.1% for the current nine month period, compared to 4.2% for the prior nine month period. As adjusted for the merger-related costs and gain on the sale of a U.S. operating branch, operating profit was $354.6 million for the first nine months of 2020, or 4.3% of net sales.
  • Net interest expense for the first nine months of 2020 was $152.3 million, compared to $49.3 million for the first nine months of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
  • The effective tax rate for the first nine months of 2020 was 22.9%, compared to 21.0% for the first nine months of 2019. The higher effective tax rate in the current nine month period is primarily due to costs incurred to complete the merger with Anixter.
  • Net income attributable to common stockholders was $64.8 million for the first nine months of 2020, compared to $170.3 million for the first nine months of 2019. As adjusted, net income attributable to common stockholders was $143.0 million for the nine months ended September 30, 2020.
  • Earnings per diluted share for the first nine months of 2020 was $1.44, based on 45.1 million diluted shares, compared to $3.88 for the first nine months of 2019, based on 43.9 million diluted shares. As adjusted, earnings per diluted share for the current nine month period was $3.17.
  • Operating cash flow for the first nine months of 2020 was $418.9 million, compared to $116.7 million for the first nine months of 2019. Free cash flow for the first nine months of 2020 was $462.1 million, or 292% of adjusted net income, compared to $86.3 million, or 51% of net income, for the first nine months of 2019.

Segment Results

In the third quarter of 2020, in connection with the acquisition of Anixter, the Company identified new segments, which have been organized around three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").

Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Corporate expenses are not directly identifiable with our reportable segments and are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.

The following are results by segment for the three months ended September 30, 2020 compared to the three months ended September 30, 2019:

  • EES reported net sales of $1.7 billion for the third quarter of 2020, compared to $1.3 billion for the third quarter of 2019, an increase of 32.3%. Operating profit was $105.5 million for the third quarter of 2020, compared to $72.0 million for the third quarter of 2019. Adjusted EBITDA was $107.9 million for the third quarter of 2020, or 6.5% of net sales, compared to $78.7 million for the third quarter of 2019, or 6.3% of net sales.
  • CSS reported net sales of $1.4 billion for the third quarter of 2020, compared to $235.9 million for the third quarter of 2019, an increase of 488.7%. Operating profit was $89.6 million for the third quarter of 2020, compared to $10.6 million for the third quarter of 2019. Adjusted EBITDA was $120.5 million for the third quarter of 2020, or 8.7% of net sales, compared to $12.4 million for the third quarter of 2019, or 5.2% of net sales.
  • UBS reported net sales of $1.1 billion for the third quarter of 2020, compared to $662.1 million for the third quarter of 2019, an increase of 66.0%. Operating profit was $74.1 million for the third quarter of 2020, compared to $43.8 million for the third quarter of 2019. Adjusted EBITDA was $85.7 million for the third quarter of 2020, or 7.8% of net sales, compared to $47.3 million for the third quarter of 2019, or 7.1% of net sales.

The following are results by segment for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:

  • EES reported net sales of $3.8 billion for the first nine months of 2020, compared to $3.6 billion for the first nine months of 2019, an increase of 5.1%. Operating profit was $194.6 million for the first nine months of 2020, compared to $198.8 million for the first nine months of 2019. Adjusted EBITDA was $212.0 million for the first nine months of 2020, or 5.6% of net sales, compared to $219.6 million for the first nine months of 2019, or 6.1% of net sales.
  • CSS reported net sales of $2.0 billion for the first nine months of 2020, compared to $681.1 million for the first nine months of 2019, an increase of 186.9%. Operating profit was $127.5 million for the first nine months of 2020, compared to $32.5 million for the first nine months of 2019. Adjusted EBITDA was $164.3 million for the first nine months of 2020, or 8.4% of net sales, compared to $38.0 million for the first nine months of 2019, or 5.6% of net sales.
  • UBS reported net sales of $2.4 billion for the first nine months of 2020, compared to $2.0 billion for the first nine months of 2019, an increase of 24.6%. Operating profit was $167.7 million for the first nine months of 2020, compared to $134.4 million for the first nine months of 2019. Adjusted EBITDA was $187.0 million for the first nine months of 2020, or 7.7% of net sales, compared to $144.7 million for the first nine months of 2019, or 7.4% of net sales.

Webcast and Teleconference Access

WESCO will conduct a webcast and teleconference to discuss the third quarter of 2020 earnings as described in this News Release on Thursday, November 5, 2020, 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 www.wesco.investorroom.com. The call will be archived on this internet site for seven days.

WESCO International, Inc. (NYSE: WCC), a publicly traded FORTUNE 500® company headquartered in Pittsburgh, Pennsylvania, is a leading provider of business-to-business distribution, logistics services and supply chain solutions. Pro forma 2019 annual sales were over $17 billion, including Anixter International Inc., which it acquired in June 2020. 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 over 18,000 people, maintains relationships with over 30,000 suppliers, and serves more than 150,000 customers worldwide. With nearly 1.5 million 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, institutions, telecommunications providers, and utilities. WESCO operates nearly 800 branch and warehouse locations in over 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and multi-national 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 the process to divest the legacy WESCO Utility and Datacom businesses in Canada, including the expected length of the process, the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company's plans, objectives, expectations and intentions, statements that address the combined company's expected future business and financial performance, and other statements identified by words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," "will" and similar words, phrases or expressions. 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.

Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, the risk that problems may arise in successfully integrating the businesses of the companies or that the combined company could be required to divest one or more businesses, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the proposed transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial conditions, the risk that the divesture of the legacy WESCO Utility and Datacom businesses in Canada may take longer than expected and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC").

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

September 30,
2020

 

 

September 30,
2019

 

Net sales

$

4,141,801

 

 

 

$

2,148,110

 

 

Cost of goods sold (excluding

3,356,259

 

81.0

%

 

1,747,913

 

81.4

%

depreciation and amortization)

 

 

 

 

 

Selling, general and administrative expenses

561,971

 

13.6

%

 

290,852

 

13.5

%

Depreciation and amortization

45,476

 

 

 

15,612

 

 

Income from operations

178,095

 

4.3

%

 

93,733

 

4.4

%

Interest expense, net

74,540

 

 

 

14,306

 

 

Other, net

(777)

 

 

 

(798)

 

 

Income before income taxes

104,332

 

2.5

%

 

80,225

 

3.7

%

Income tax expense

24,294

 

 

 

15,886

 

 

Net income

80,038

 

1.9

%

 

64,339

 

3.0

%

Net loss attributable to noncontrolling interests

(640)

 

 

 

(156)

 

 

Net income attributable to WESCO International, Inc.

80,678

 

1.9

%

 

64,495

 

3.0

%

Preferred stock dividends

14,511

 

 

 

 

 

Net income attributable to common stockholders

$

66,167

 

1.6

%

 

$

64,495

 

3.0

%

 

 

 

 

 

 

Earnings per share attributable to common stockholders

$

1.31

 

 

 

$

1.52

 

 

Weighted-average common shares outstanding and common

 

 

 

 

 

share equivalents used in computing earnings

 

 

 

 

 

per diluted common share (in thousands)

50,487

 

 

 

42,378

 

 

 

 

 

 

 

 

Reportable Segments

 

 

 

 

 

Net sales:

 

 

 

 

 

Electrical & Electronic Solutions

$

1,653,726

 

 

 

$

1,250,079

 

 

Communications & Security Solutions

1,388,791

 

 

 

235,921

 

 

Utility & Broadband Solutions

1,099,284

 

 

 

662,110

 

 

 

$

4,141,801

 

 

 

$

2,148,110

 

 

Income from operations:

 

 

 

 

 

Electrical & Electronic Solutions

$

105,508

 

 

 

$

72,007

 

 

Communications & Security Solutions

89,634

 

 

 

10,555

 

 

Utility & Broadband Solutions

74,092

 

 

 

43,811

 

 

Corporate

(91,139)

 

 

 

(32,640)

 

 

 

$

178,095

 

 

 

$

93,733

 

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Nine Months Ended

 

 

September 30,
2020

 

 

September 30,
2019

 

Net sales

$

8,197,154

 

 

 

$

6,259,465

 

 

Cost of goods sold (excluding

6,641,438

 

81.0

%

 

5,067,799

 

81.0

%

depreciation and amortization)

 

 

 

 

 

Selling, general and administrative expenses

1,221,114

 

14.9

%

 

883,222

 

14.1

%

Depreciation and amortization

80,324

 

 

 

46,035

 

 

Income from operations

254,278

 

3.1

%

 

262,409

 

4.2

%

Interest expense, net

152,281

 

 

 

49,293

 

 

Other, net

(1,463)

 

 

 

(1,359)

 

 

Income before income taxes

103,460

 

1.3

%

 

214,475

 

3.4

%

Income tax expense

23,707

 

 

 

44,970

 

 

Net income

79,753

 

1.0

%

 

169,505

 

2.7

%

Net loss attributable to noncontrolling interests

(825)

 

 

 

(824)

 

 

Net income attributable to WESCO International, Inc.

80,578

 

1.0

%

 

170,329

 

2.7

%

Preferred stock dividends

15,787

 

 

 

 

 

Net income attributable to common stockholders

$

64,791

 

0.8

%

 

$

170,329

 

2.7

%

 

 

 

 

 

 

Earnings per share attributable to common stockholders

$

1.44

 

 

 

$

3.88

 

 

Weighted-average common shares outstanding and common

 

 

 

 

 

share equivalents used in computing earnings

 

 

 

 

 

per diluted common share (in thousands)

45,104

 

 

 

43,901

 

 

 

 

 

 

 

 

Reportable Segments

 

 

 

 

 

Net sales:

 

 

 

 

 

Electrical & Electronic Solutions

$

3,811,498

 

 

 

$

3,626,423

 

 

Communications & Security Solutions

1,953,967

 

 

 

681,087

 

 

Utility & Broadband Solutions

2,431,689

 

 

 

1,951,955

 

 

 

$

8,197,154

 

 

 

$

6,259,465

 

 

Income from operations:

 

 

 

 

 

Electrical & Electronic Solutions

$

194,643

 

 

 

$

198,774

 

 

Communications & Security Solutions

127,502

 

 

 

32,501

 

 

Utility & Broadband Solutions

167,651

 

 

 

134,431

 

 

Corporate

(235,518)

 

 

 

(103,297)

 

 

 

$

254,278

 

 

 

$

262,409

 

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands)

(Unaudited)

 

 

September 30,
2020

 

December 31,
2019

Assets

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

352,249

 

 

$

150,902

 

Trade accounts receivable, net

2,492,248

 

 

1,187,359

 

Inventories

2,357,634

 

 

1,011,674

 

Other current assets

395,319

 

 

190,476

 

Total current assets

5,597,450

 

 

2,540,411

 

 

 

 

 

Other assets

6,270,889

 

 

2,477,224

 

Total assets

$

11,868,339

 

 

$

5,017,635

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Current Liabilities

 

 

 

Accounts payable

$

1,830,877

 

 

$

830,478

 

Short-term borrowings and current portion of long-term debt

28,844

 

 

26,685

 

Other current liabilities

681,214

 

 

226,896

 

Total current liabilities

2,540,935

 

 

1,084,059

 

 

 

 

 

Long-term debt, net

4,878,124

 

 

1,257,067

 

Other noncurrent liabilities

1,236,056

 

 

417,838

 

Total liabilities

8,655,115

 

 

2,758,964

 

 

 

 

 

Stockholders' Equity

 

 

 

Total stockholders' equity

3,213,224

 

 

2,258,671

 

Total liabilities and stockholders' equity

$

11,868,339

 

 

$

5,017,635

 


Contacts

Will Ruthrauff
Director, Investor Relations and Corporate Communications
(412) 454-4220
http://www.wesco.com


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