WESCO International, Inc. Reports Third Quarter 2019 Results
PITTSBURGH, Oct. 31, 2019 /PRNewswire/ --
Third quarter highlights:
-- Record consolidated net sales of $2.1 billion, up 3.9% versus prior year
-- Organic sales growth of 3.4%
-- Cost of goods sold as a percentage of net sales of 81.4%
-- Gross margin of 18.6%
-- Operating profit of $94 million
-- Operating margin of 4.4%
-- Earnings per diluted share of $1.52, up 8%
-- Operating cash flow of $125.4 million; free cash flow of $116.5 million,
or 181% of net income
-- Leverage of 3.0x, down 0.2x sequentially
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 third quarter of 2019.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, "We achieved record third quarter sales due to improving results in the U.S. and strength in Industrial, Utility and Datacom. Despite an economic backdrop of increased headwinds, all of our end markets and geographies grew on a year-over-year basis as expected. Gross margin was down versus prior year primarily driven by business mix and the impact of supplier price increases, which we continue to aggressively work to pass through. Operating margin was within our expected range driven by effective cost management and EPS grew 8% versus prior year. Free cash flow generation was also very strong at over 180% of net income due to inventory reduction and strong collections in the quarter."
The following are results for the three months ended September 30, 2019 compared to the three months ended September 30, 2018:
-- Net sales were $2.1 billion for the third quarter of 2019, up 3.9%
compared to the third quarter of 2018. Organic sales for the third
quarter of 2019 grew by 3.4% as foreign exchange rates negatively
impacted net sales by 0.4%, and acquisitions positively impacted net
sales by 0.9%. Sequentially, there was no change in net sales; organic
sales increased 1.2%.
-- Cost of goods sold for the third quarter of 2019 and 2018 was $1.7
billion, and gross profit was $400.2 million and $397.2 million,
respectively. As a percentage of net sales, gross profit was 18.6% and
19.2% for the third quarter of 2019 and 2018, respectively. Gross profit
as a percentage of net sales for the third quarter of 2019 primarily
reflects unfavorable business mix and the impact of supplier price
increases.
-- Selling, general and administrative expenses were $290.9 million, or
13.5% of net sales, for the third quarter of 2019, compared to $284.1
million, or 13.7% of net sales, for the third quarter of 2018.
-- Operating profit was $93.7 million for the third quarter of 2019,
compared to $97.5 million for the third quarter of 2018. Operating
profit as a percentage of net sales was 4.4% for the current quarter,
compared to 4.7% for the third quarter of the prior year.
-- Net interest and other for the third quarter of 2019 was $13.5 million,
compared to $17.1 million for the third quarter of 2018. The resolution
of transfer pricing matters associated with the Canadian taxing
authority resulted in non-cash interest income of $3.7 million for the
third quarter of 2019.
-- The effective tax rate for the third quarter of 2019 was 19.8%, compared
to 17.2% for the third quarter of 2018. The higher effective tax rate in
the current quarter is primarily due to the full application of the
international provisions of U.S. tax reform, as well as taxes
attributable to the undistributed earnings of operations in China that
are expected to be remitted in the future.
-- Net income attributable to WESCO International, Inc. was $64.5 million
for the third quarter of 2019, compared to $66.8 million for the third
quarter of 2018.
-- Earnings per diluted share for the third quarter of 2019 was $1.52,
based on 42.4 million diluted shares, compared to $1.41 for the third
quarter of 2018, based on 47.5 million diluted shares, an increase of
8%.
-- Operating cash flow for the third quarter of 2019 was $125.4 million,
compared to $87.6 million for the third quarter of 2018. Free cash flow
for the third quarter of 2019 was $116.5 million, or 181% of net income,
compared to $80.3 million, or 120% of net income, for the third quarter
of 2018.
The following are results for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018:
-- Net sales were $6.3 billion for the first nine months of 2019, compared
to $6.2 billion for the first nine months of 2018, an increase of 1.5%.
Organic sales for the first nine months of 2019 grew by 2.1% as foreign
exchange rates and the number of workdays negatively impacted net sales
by 0.9% and 0.5%, respectively, and were partially offset by the
positive 0.8% impact from acquisitions.
-- Cost of goods sold for the first nine months of 2019 was $5.1 billion
and gross profit was $1.2 billion, compared to $5.0 billion and $1.2
billion, respectively, for the first nine months of 2018. As a
percentage of net sales, gross profit was 19.0% and 19.1% for the first
nine months of 2019 and 2018, respectively.
-- Selling, general and administrative expenses were $883.2 million, or
14.1% of net sales, for the first nine months of 2019, compared to
$867.8 million, or 14.1% of net sales, for the first nine months of
2018.
-- Operating profit was $262.4 million for the first nine months of 2019,
compared to $262.0 million for the first nine months of 2018. Operating
profit as a percentage of net sales was 4.2% for both the current and
prior nine month periods.
-- Net interest and other for the first nine months of 2019 was $47.9
million, compared to $54.6 million for the first nine months of 2018.
The resolution of transfer pricing matters associated with the Canadian
taxing authority resulted in non-cash interest income of $3.7 million
for the first nine months of 2019. For the nine months ended September
30, 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 of our then outstanding
term loan facility.
-- The effective tax rate for the first nine months of 2019 was 21.0%,
compared to 19.3% for the first nine months of 2018. The higher
effective tax rate in the current year is primarily due to the full
application of the international provisions of U.S. tax reform, as well
as taxes attributable to the undistributed earnings of operations in
China that are expected to be remitted in the future.
-- Net income attributable to WESCO International, Inc. was $170.3 million
for the first nine months of 2019, compared to $169.2 million for the
first nine months of 2018.
-- Earnings per diluted share for the first nine months of 2019 was $3.88,
based on 43.9 million diluted shares, compared to $3.56 for the first
nine months of 2018, based on 47.5 million diluted shares, an increase
of 9%.
-- Operating cash flow for the first nine months of 2019 was $116.7
million, compared to $174.5 million for the first nine months of 2018.
Free cash flow for the first nine months of 2019 was $86.3 million, or
51% of net income, compared to $150.7 million, or 90% of net income, for
the first nine months of 2018. The Company repurchased $150.0 million of
shares during the first nine months of 2019.
Mr. Engel continued, "We remain committed to delivering profitable growth in 2019 and beyond. Based on our year-to-date results and our view of the end markets, we have narrowed the range for our full-year expectations for sales, operating margin and EPS while maintaining our outlook for free cash flow generation of at least 90% of net income. As the economy slows and end markets become more challenging, the strong free cash flow generation capability of our business supports execution of our strategy and capital allocation priorities."
Mr. Engel added, "Consistent with our past practice, we are providing our first end market outlook for 2020 today. Overall we expect our end markets to provide profitable growth opportunities for WESCO, while macroeconomic uncertainties could limit growth rates in the Industrial and Construction end markets. We expect to outperform the market by leveraging our full range of WESCO services and supply chain solutions, by making investments in our people and digital capabilities, and by maintaining our cash and cost management discipline. As a result, we expect sales growth in the range of flat to 4% for next year and will provide the balance of our 2020 outlook during our fourth quarter earnings call in January. Customers are seeking continuous improvement and supply chain stability 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 in providing our customers with complete solutions for their MRO, OEM and capital project needs."
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the third quarter of 2019 earnings as described in this News Release on Thursday, October 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 9,300 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 11 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, 2018, 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 thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30, September 30,
2019 2018
Net sales $
2,148,110 $
2,067,245
Cost of goods sold (excluding 1,747,913 81.4 1,670,037 80.8
% %
depreciation and amortization)
Selling, general and administrative expenses 290,852 13.5 284,073 13.7
% %
Depreciation and amortization 15,612 15,618
Income from operations 93,733 4.4 97,517 4.7
% %
Net interest and other 13,508 17,050
Income before income taxes 80,225 3.7 80,467 3.9
% %
Provision for income taxes 15,886 13,822
Net income 64,339 3.0 66,645 3.2
% %
Net loss attributable to noncontrolling interests (156) (204)
Net income attributable to WESCO International, Inc. $
64,495 3.0 $
66,849 3.2
% %
Earnings per diluted common share $
1.52 $
1.41
Weighted-average common shares outstanding and common
share equivalents used in computing earnings per diluted
common share (in thousands) 42,378 47,486
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
Nine Months Ended
September 30, September 30,
2019 2018
Net sales $
6,259,465 $
6,165,154
Cost of goods sold (excluding 5,067,799 81.0 4,988,103 80.9
% %
depreciation and amortization)
Selling, general and administrative expenses 883,222 14.1 867,790 14.1
% %
Depreciation and amortization 46,035 47,321
Income from operations 262,409 4.2 261,940 4.2
% %
Net interest and other 47,934 54,574
Income before income taxes 214,475 3.4 207,366 3.4
% %
Provision for income taxes 44,970 40,077
Net income 169,505 2.7 167,289 2.7
% %
Net loss attributable to noncontrolling interests (824) (1,921)
Net income attributable to WESCO International, Inc. $
170,329 2.7 $
169,210 2.7
% %
Earnings per diluted common share $
3.88 $
3.56
Weighted-average common shares outstanding and common
share equivalents used in computing earnings per diluted
common share (in thousands) 43,901 47,547
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
September 30, December 31,
2019 2018
---
Assets
Current Assets
Cash and cash
equivalents $
138,160 $
96,343
Trade accounts
receivable, net 1,315,026 1,166,607
Inventories 961,997 948,726
Other current assets 163,297 173,964
---
Total current assets 2,578,480 2,385,640
Other assets (1) 2,468,931 2,219,396
Total assets $
5,047,411 $
4,605,036
===
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $
849,584 $
794,348
Short-term
borrowings and
current debt 25,899 56,214
Other current
liabilities (1) 229,041 211,384
---
Total current
liabilities 1,104,524 1,061,946
Long-term debt, net 1,346,333 1,167,311
Other noncurrent
liabilities (1) 409,844 246,053
---
Total liabilities 2,860,701 2,475,310
Stockholders' Equity
Total stockholders'
equity 2,186,710 2,129,726
---
Total liabilities and
stockholders' equity $
5,047,411 $
4,605,036
===
(1) Effective January 1, 2019, the
Company adopted Accounting
Standards Update 2016-02, Leases,
and all the related amendments
("Topic 842") using the effective
date method. The adoption of Topic
842 resulted in the recognition of
right-of-use assets and lease
liabilities in the balance sheet.
As of September 30, 2019, other
assets includes $237.3 million of
operating lease assets, and other
current liabilities and other
noncurrent liabilities include
$61.1 million and $182.0 million,
respectively, of operating lease
liabilities.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
Nine Months Ended
September 30, September 30,
2019 2018
---
Operating Activities:
Net income $
169,505 $
167,289
Add back (deduct):
Depreciation and amortization 46,035 47,321
Deferred income taxes 4,621 12,194
Change in trade receivables,
net (122,903) (104,215)
Change in inventories (1,500) 23,189
Change in accounts payable 46,902 18,235
Other (25,996) 10,447
---
Net cash provided by operating
activities 116,664 174,460
Investing Activities:
Capital expenditures (30,323) (23,749)
Other (23,167) 3,609
---
Net cash used in investing
activities (53,490) (20,140)
Financing Activities:
Debt borrowings (repayments),
net 147,605 (90,356)
Equity activity, net (152,735) (27,055)
Other (12,952) (7,409)
---
Net cash used in financing
activities (18,082) (124,820)
Effect of exchange rate
changes on cash and cash
equivalents (3,275) (4,693)
---
Net change in cash and cash
equivalents 41,817 24,807
Cash and cash equivalents at
the beginning of the period 96,343 117,953
Cash and cash equivalents at
the end of the period $
138,160 $
142,760
===
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, gross margin, financial leverage, earnings before interest, taxes, depreciation and amortization (EBITDA), and free cash flow. 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. 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 thousands, except organic sales data)
(Unaudited)
Three Months Ended Nine Months Ended
Organic Sales Growth: September 30, September 30,
2019 2019
---
Change in net sales 3.9 1.5
% %
Impact from acquisitions 0.9 0.8
% %
Impact from foreign exchange rates (0.4) (0.9)
% %
Impact from number of workdays -
% (0.5)
%
---
Organic sales growth 3.4 2.1
% %
===
Three Months
Ended
Organic Sales Growth - September
Sequential: 30,
2019
Change in net sales (0.1)
%
Impact from acquisitions
%
Impact from foreign exchange 0.3
rates %
Impact from number of workdays (1.6)
%
Organic sales growth 1.2
%
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 Nine Months Ended
Gross Profit: September 30, September 30, September 30, September 30,
2019 2018 2019 2018
Net sales $
2,148,110 $
2,067,245 $
6,259,465 $
6,165,154
Cost of goods sold (excluding depreciation 1,747,913 1,670,037 5,067,799 4,988,103
and amortization)
Gross profit $
400,197 $
397,208 $
1,191,666 $
1,177,051
Gross margin 18.6
% 19.2
% 19.0
% 19.1
%
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 thousands)
(Unaudited)
Twelve Months Ended
Financial Leverage: September 30, December 31,
2019 2018
---
Income from operations $
352,909 $
352,440
Depreciation and amortization 61,711 62,997
---
EBITDA $
414,620 $
415,437
===
September 30, December 31,
2019 2018
Short-term borrowings and current debt $
25,899 $
56,214
Long-term debt 1,346,333 1,167,311
Debt discount and debt issuance costs (1) 9,371 9,600
---
Total debt 1,381,603 1,233,125
---
Less: cash and cash equivalents 138,160 96,343
Total debt, net of cash $
1,243,443 $
1,136,782
===
Financial leverage ratio 3.0 2.7
(1) 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, net of
cash, by EBITDA. EBITDA is
defined as the trailing twelve
months earnings before
interest, taxes, depreciation
and amortization.
Three Months Ended Nine Months Ended
Free Cash Flow: September 30, September 30, September 30, September 30,
2019 2018 2019 2018
Cash flow provided by operations $
125,439 $
87,639 $
116,664 $
174,460
Less: capital expenditures (8,921) (7,365) (30,323) (23,749)
Free cash flow $
116,518 $
80,274 $
86,341 $
150,711
Percentage of net income 181
% 120
% 51
% 90
%
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.
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SOURCE WESCO International, Inc.
