WESCO International, Inc. Reports Fourth Quarter and Full Year 2018 Results
PITTSBURGH, Jan. 31, 2019 /PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturer (OEM) products, construction materials, and advanced supply chain management and logistics services, announces its results for the fourth quarter and full year 2018.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, "After returning to sales growth in 2017, I'm pleased to report that we executed our top priorities of delivering margin expansion, strong profitable growth and increased cash generation in 2018. We strengthened our business, growing in all end markets and geographies, while operating against an economic backdrop that was more challenging than expected. We improved gross margin as we moved through the year and delivered double digit growth in operating profit and EPS in all four quarters. Free cash flow generation was also very strong at over 115% of net income and remains a hallmark of WESCO across the economic cycle. After paying down debt and accelerating the pace of our share repurchases, we exited last year with financial leverage at the lowest level since early 2015."
The following are results for the three months ended December 31, 2018 compared to the three months ended December 31, 2017:
-- Net sales were $2.0 billion for the fourth quarter of 2018 and 2017.
Organic sales for the fourth quarter of 2018 grew by 1.5% as foreign
exchange rates negatively impacted net sales by 0.8%.
-- Cost of goods sold for the fourth quarter of 2018 and 2017 was $1.6
billion, and gross profit was $390.3 million and $383.1 million,
respectively. As a percentage of net sales, gross profit was 19.4% and
19.2% for the fourth quarter of 2018 and 2017, respectively. Gross
margin for the fourth quarter of 2018 was 40 basis points higher than
the fourth quarter of 2017 excluding the reclassification of certain
labor costs from selling, general and administrative expenses to cost of
goods sold. This reclassification was previously noted in the first
three quarters of 2018.
-- Selling, general and administrative ("SG&A") expenses were $284.2
million, or 14.1% of net sales, for the fourth quarter of 2018 compared
to $285.9 million, or 14.3% of net sales, for the fourth quarter of
2017.
-- Operating profit was $90.5 million for the fourth quarter of 2018,
compared to $80.9 million for the fourth quarter of 2017, an increase of
11.9%. Operating profit as a percentage of net sales was 4.5% for the
fourth quarter of 2018, compared to 4.1% for the fourth quarter of 2017.
-- Net interest and other for the fourth quarter of 2018 was $16.8 million,
compared to $17.1 million for the fourth quarter of 2017.
-- The effective tax rate for the fourth quarter of 2018 was 21.2%,
compared to 65.2% for the fourth quarter of 2017. As adjusted for the
application of the Tax Cuts and Jobs Act of 2017 (the "TCJA"), the
effective tax rate in the prior year's fourth quarter was 23.9%. The
lower effective tax rate in the current quarter as compared to the
adjusted effective tax rate for the prior year's comparable quarter is
primarily due to the permanent reduction of the U.S. federal statutory
income tax rate from 35% to 21%, effective January 1, 2018, and the
completion of the accounting for the income tax effects of the TCJA.
-- Net income attributable to WESCO International, Inc. was $58.2 million
and $22.5 million for the fourth quarter of 2018 and 2017, respectively.
Net income attributable to WESCO International, Inc. for the current
quarter increased 19.0% as compared to adjusted net income attributable
to WESCO International, Inc. of $48.9 million for the prior year's
fourth quarter.
-- Earnings per diluted share for the fourth quarter of 2018 was $1.26,
based on 46.2 million diluted shares, compared to $0.47 for the fourth
quarter of 2017, based on 47.5 million diluted shares. Earnings per
diluted share for the current quarter increased 22.3% as compared to
adjusted earnings per diluted share of $1.03 for the fourth quarter of
2017.
-- Operating cash flow for the fourth quarter of 2018 was $122.2 million,
compared to $68.0 million for the fourth quarter of 2017. Free cash flow
for the fourth quarter of 2018 was $109.7 million, or 189% of net
income. Additionally, the Company repurchased $100 million of shares in
the fourth quarter of 2018.
The following are results for the year ended December 31, 2018 compared to the year ended December 31, 2017:
-- Net sales were $8.2 billion for 2018, compared to $7.7 billion for 2017,
an increase of 6.5%. Organic sales for 2018 grew by 6.2% as foreign
exchange rates positively impacted net sales by 0.3%.
-- Cost of goods sold for 2018 was $6.6 billion and gross profit was $1.6
billion, compared to cost of goods sold and gross profit of $6.2 billion
and $1.5 billion, respectively, for 2017. As a percentage of net sales,
gross profit was 19.2% and 19.3% for 2018 and 2017, respectively. Gross
margin for 2018 was flat compared to 2017 excluding the reclassification
of certain labor costs from selling, general and administrative expenses
to cost of goods sold. This reclassification was previously noted in the
first three quarters of 2018.
-- Selling, general and administrative expenses were $1.2 billion, or 14.1%
of net sales, for 2018 compared to $1.1 billion, or 14.3% of net sales,
for 2017.
-- Operating profit was $352.5 million for 2018, compared to $319.1 million
for 2017, an increase of 10.5%. Operating profit as a percentage of net
sales was 4.3% for 2018, compared to 4.2% for 2017.
-- Net interest and other for 2018 was $71.4 million, compared to $66.6
million for 2017. For the year ended December 31, 2018, net interest and
other includes a foreign exchange loss of $3.0 million from the
remeasurement of a financial instrument, as well as accelerated
amortization of debt discount and debt issuance costs totaling $0.8
million due to early repayments on our term loan facility.
-- The effective tax rate for 2018 was 19.8%, compared to 35.4% for 2017.
As adjusted for the application of the TCJA in the fourth quarter of
2017, the effective tax rate for the prior year was 24.9%. The lower
effective tax rate in the current year as compared to the adjusted
effective tax rate for the prior year is primarily due to the permanent
reduction of the U.S. federal statutory income tax rate from 35% to 21%,
effective January 1, 2018, and the completion of the accounting for the
income tax effects of the TCJA.
-- Net income attributable to WESCO International, Inc. was $227.4 million
and $163.5 million for 2018 and 2017, respectively. Net income
attributable to WESCO International, Inc. for the current year increased
19.7% as compared to adjusted net income attributable to WESCO
International, Inc. of $189.9 million for the prior year.
-- Earnings per diluted share for 2018 was $4.82, based on 47.2 million
diluted shares, compared to $3.38 for 2017, based on 48.4 million
diluted shares. Earnings per diluted share for the current year
increased 22.6% as compared to adjusted earnings per diluted share of
$3.93 for 2017.
-- Operating cash flow for 2018 was $296.7 million, compared to $149.1
million for 2017. Free cash flow for 2018 was $260.5 million, or 116% of
net income. Additionally, the Company repurchased $125 million of shares
in 2018.
Mr. Engel continued, "As mentioned last quarter, we provided our initial end market sales outlook and expect all of our end markets to remain healthy and to continue to provide profitable growth opportunities for WESCO. Our 2019 plan builds on the positive momentum generated in our business last year and includes continued execution of our growth initiatives, investments in our people and processes, and maintaining our cost and cash management discipline. As a result, we reaffirm our 2019 full year outlook for sales growth in the range of 3% to 6%, and provide our full year outlook for operating margin of 4.3% to 4.7%, EPS of $5.10 to $5.70 per diluted share, and free cash flow generation of at least 90% of net income."
Mr. Engel added, "Customers are seeking continuous improvement in their operations and supply chains in an increasingly complex and rapidly changing world. Our talented team of associates and our robust portfolio of products and value-added services continue to differentiate WESCO by providing our customers with complete solutions for their MRO, OEM and capital project needs. We are very well positioned and remain steadfast in our commitment to deliver increased value for our customers, suppliers, associates and shareholders in 2019 and beyond."
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the fourth quarter and full year 2018 earnings as described in this News Release on Thursday, January 31, 2019, 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 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturer (OEM) products, construction materials, and advanced supply chain management and logistic services. 2018 annual sales were approximately $8.2 billion. The company employs approximately 9,100 people, maintains relationships with approximately 30,000 suppliers, and serves approximately 70,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates 10 fully automated distribution centers and approximately 500 branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as the Company's other reports filed with the Securities and Exchange Commission.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended
December 31, December 31,
2018 2017
Net sales $
2,011.4 $
1,996.6
Cost of goods sold (excluding 1,621.1 80.6 1,613.5 80.8
% %
depreciation and amortization)
Selling, general and administrative expenses (1) 284.2 14.1 285.9 14.3
% %
Depreciation and amortization 15.6 16.3
Income from operations 90.5 4.5 80.9 4.1
% %
Net interest and other (1) 16.8 17.1
Income before income taxes 73.7 3.7 63.8 3.2
% %
Provision for income taxes 15.6 41.6
Net income 58.1 2.9 22.2 1.1
% %
Net loss attributable to noncontrolling interests (0.1) (0.3)
Net income attributable to WESCO International, Inc. $
58.2 2.9 $
22.5 1.1
% %
Earnings per diluted common share $
1.26 $
0.47
Weighted-average common shares outstanding and common
share equivalents used in computing earnings per diluted
common share (in millions) 46.2 47.5
(1)
The Company adopted Accounting Standards Update (ASU) 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on a retrospective basis during the first quarter of 2018.
This ASU requires the disaggregation of service cost from the other components of net periodic benefit cost. For the three months ended
December 31, 2018 and 2017, the non-service cost components of net periodic benefit cost aggregated to a benefit of $0.5 million and are included
in net interest and other.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Twelve Months Ended
December 31, December 31,
2018 2017
Net sales $
8,176.6 $
7,679.0
Cost of goods sold (excluding 6,609.2 80.8 6,194.4 80.7
% %
depreciation and amortization)
Selling, general and administrative expenses(1) 1,151.9 14.1 1,101.5 14.3
% %
Depreciation and amortization 63.0 64.0
Income from operations 352.5 4.3 319.1 4.2
% %
Net interest and other(1) 71.4 66.6
Income before income taxes 281.1 3.4 252.5 3.3
% %
Provision for income taxes 55.7 89.3
Net income 225.4 2.8 163.2 2.1
% %
Net loss attributable to noncontrolling interests (2.0) (0.3)
Net income attributable to WESCO International, Inc. $
227.4 2.8 $
163.5 2.1
% %
Earnings per diluted common share $
4.82 $
3.38
Weighted-average common shares outstanding and common
share equivalents used in computing earnings per diluted
common share (in millions) 47.2 48.4
(1)
For the years ended December 31, 2018 and 2017, the non-service cost components of net periodic benefit cost aggregated to a benefit of $1.9
million and are included in net interest and other.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
December 31, December 31,
2018 2017
---
Assets
Current Assets
Cash and cash equivalents $
96.3 $
118.0
Trade accounts receivable, net 1,166.6 1,170.1
Inventories 948.7 956.1
Other current assets 174.0 164.7
Total current assets 2,385.6 2,408.9
Other assets 2,219.4 2,326.6
Total assets $
4,605.0 $
4,735.5
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $
794.3 $
799.5
Short-term borrowings and current debt 56.2 35.3
Other current liabilities 211.4 206.2
Total current liabilities 1,061.9 1,041.0
Long-term debt, net 1,167.3 1,313.3
Other noncurrent liabilities 240.4 265.1
Total liabilities 2,469.6 2,619.4
Stockholders' Equity
Total stockholders' equity 2,135.4 2,116.1
Total liabilities and stockholders' equity $
4,605.0 $
4,735.5
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended
December 31, December 31,
2018 2017
---
Operating Activities:
Net income $
225.4 $
163.2
Add back (deduct):
Depreciation and amortization 63.0 64.0
Deferred income taxes 9.1 (50.4)
Change in trade receivables, net (22.9) (113.0)
Change in inventories (8.7) (119.0)
Change in accounts payable 9.2 102.9
Other(1) 21.6 101.4
Net cash provided by operating activities 296.7 149.1
Investing Activities:
Capital expenditures (36.2) (21.5)
Other 2.1 16.3
Net cash used in investing activities (34.1) (5.2)
Financing Activities:
Debt repayments, net (128.1) (41.7)
Equity activity, net (127.2) (106.8)
Other (19.9) 7.3
Net cash used in financing activities (275.2) (141.2)
Effect of exchange rate changes on cash and cash equivalents (9.1) 5.2
Net change in cash and cash equivalents (21.7) 7.9
Cash and cash equivalents at the beginning of the period 118.0 110.1
Cash and cash equivalents at the end of the period $
96.3 $
118.0
(1)
Other operating cash flow activities for the year ended December 31, 2017 include the effect of accruing a $65.0 million tax liability
related to the taxation of undistributed earnings of foreign subsidiaries under the TCJA.
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, financial leverage, earnings before interest, taxes, depreciation and amortization (EBITDA), free cash flow, adjusted net income and adjusted earnings per diluted common share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain of the aforementioned non-GAAP measures either focus on or exclude transactions impacting comparability of results, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except organic sales data)
(Unaudited)
Three Months Twelve
Months
Ended Ended
Organic Sales December 31, December
Growth: 31,
2018 2018
---
Change in net 0.7 6.5
sales %
%
Impact from
acquisitions %
%
Impact from (0.8)% 0.3
foreign
exchange rates %
Impact from
number of
workdays %
%
Organic sales 1.5 6.2
growth %
%
===
Note: Organic sales growth is a measure of sales performance. Organic sales growth is calculated by deducting the percentage impact from acquisitions
in the first year of ownership, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
Three Months Ended Twelve Months Ended
Gross Profit: December 31, December 31, December 31, December 31,
2018 2017 2018 2017
Net sales $
2,011.4 $
1,996.6 $
8,176.6 $
7,679.0
Cost of goods sold (excluding depreciation and 1,621.1 1,613.5 6,609.2 6,194.4
amortization)
Gross profit $
390.3 $
383.1 $
1,567.4 $
1,484.6
Gross margin 19.4 19.2 19.2 19.3
% % % %
Three Months
Ended
Gross Profit: September 30,
2018
Net sales $
2,067.2
Cost of goods sold (excluding
depreciation and 1,670.0
amortization)
Gross profit $
397.2
Gross margin 19.2
%
Note: Gross profit is a financial measure commonly used within the distribution industry. Gross profit is calculated by deducting cost of goods sold,
excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended
Financial Leverage: December 31, December 31,
2018 2017
---
Income from operations (1) $
352.5 $
319.1
Depreciation and amortization 63.0 64.0
EBITDA $
415.5 $
383.1
December 31, December 31,
2018 2017
Short-term borrowings and current
debt $
56.2 $
35.3
Long-term debt 1,167.3 1,313.3
Debt discount and debt issuance
costs (2) 9.7 14.2
Total debt 1,233.2 1,362.8
Less: cash and cash equivalents 96.3 118.0
Total debt, net of cash $
1,136.9 $
1,244.8
Financial leverage ratio 3.0 3.6
Financial leverage ratio, net of
cash 2.7 3.2
(1)
Due to the adoption of ASU 2017-07 on a retrospective basis in the first quarter of 2018, the Company classified the non-service cost components
of net periodic benefit cost as part of net interest and other for the years ended December 31, 2018 and December 31, 2017. These components
aggregated to a benefit of $1.9 million for both years.
(2)
Long-term debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs.
Note: Financial leverage measures the use of debt. Financial leverage ratio is calculated by dividing total debt, including debt discount and debt
issuance costs, by EBITDA. Financial leverage ratio, net of cash is calculated by dividing total debt, including debt discount and debt issuance
costs, net of cash, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.
Three Months Ended Twelve Months Ended
Free Cash Flow: December 31, December 31, December 31, December 31,
2018 2017 2018 2017
Cash flow provided by operations $
122.2 $
68.0 $
296.7 $
149.1
Less: Capital expenditures (12.5) (5.5) (36.2) (21.5)
Free cash flow $
109.7 $
62.5 $
260.5 $
127.6
Percentage of net income 189 281 116
% % % 78
%
Percentage of adjusted net income(1)
n/a 129
%
n/a 67
%
(1)
See the following page for a reconciliation of adjusted net income.
Note: Free cash flow is a measure of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash
flow is available to fund investing and financing activities.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Three Months Twelve Months
Ended Ended
Adjusted Tax Provision: December 31, December 31,
2017 2017
---
Provision for income taxes $
41.6 $
89.3
Income tax expense for TCJA (26.4) (26.4)
Adjusted provision for income taxes $
15.2 $
62.9
Three Months Twelve Months
Ended Ended
Adjusted Net Income Attributable to WESCO December 31, December 31,
International, Inc.:
2017 2017
---
Income before income taxes $
63.8 $
252.5
Adjusted provision for income taxes 15.2 62.9
Adjusted net income 48.6 189.6
Net loss attributable to noncontrolling interests (0.3) (0.3)
Adjusted net income attributable to WESCO International, Inc. $
48.9 $
189.9
Three Months Twelve Months
Ended Ended
Adjusted Earnings Per Diluted Share: December 31, December 31,
2017 2017
---
Earnings per diluted common share $
0.47 $
3.38
Impact of TCJA(1) 0.56 0.55
Adjusted earnings per diluted common share $
1.03 $
3.93
(1)
The application of the TCJA in 2017 resulted in a provisional discrete income tax expense of $26.4 million, which was comprised of $82.8 million of
expense associated with the deemed repatriation of undistributed earnings of foreign subsidiaries partially offset by a $56.4 million benefit from the
remeasurement of net deferred income tax liabilities.
Note: Adjusted net income attributable to WESCO International, Inc. for the three and twelve month periods ended December 31, 2017 does not include
provisional discrete income tax expense of $26.4 million associated with the application of the TCJA.
For the three and twelve month periods ended December 31, 2017, adjusted earnings per diluted share is computed by dividing adjusted net income by
the weighted-average common shares outstanding and common share equivalents.
The Company believes that these non-GAAP financial measures are useful to investors' overall understanding of the Company's current financial
performance and provides a consistent measure for assessing the current and historical financial results.
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