01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported net sales of $7.34 billiona for 2016, down 2.4% from $7.52 billion in 2015, with normalized organic sales down 4.9% as acquisitions (+3.1%) and workdays (+0.4%) were offset by a 1.0% foreign exchange decrease.
Income from operations fell to $332.0 millionb from $373.7 million, and net income attributable to WESCO International declined 51.8% to $101.6 million. Diluted EPS was $2.10 versus $4.18 in 2015, and the company cited adjusted diluted EPS of $3.80 excluding the non-cash loss on debt redemption of $123.9 million (about $1.70 per share of the convertible debt conversion impact). The company strengthened its capital structure in 2016 by redeeming its 6.0% Convertible Senior Debentures due 2029 for $344.8 million in cash and issuing $350 million of 5.375% Senior Notes due 2024.
Total debt was $1.40 billionc at year-end, the financial leverage ratio improved to 3.5 from 3.8, and operating cash flow was $300.2 million, producing free cash flow of $282.2 million. Liquidity totaled $704.6 million, and the company was in compliance with all debt covenants. WESCO is a North American electrical, industrial and communications distributor with about 500 branches and nine distribution centers, serving roughly 75,000 customers.
Sales are 77% United States, 19% Canada and 1% Mexico. The company repurchased 2,468,576 shares for $150.0 milliond under a $300 million authorization running through December 31, 2017, and it does not pay dividends. Goodwill and indefinite-lived intangibles totaled $1.82 billion, with no impairments recorded to date.
02—Key points
Key Highlights
- Net sales declined 2.4% to $7.34 billion in 2016; normalized organic sales fell 4.9%.
- Income from operations decreased to $332.0 million (4.5% of net sales) from $373.7 million (5.0%).
- Net income attributable to WESCO International fell 51.8% to $101.6 million; diluted EPS was $2.10 versus $4.18, and adjusted diluted EPS was $3.80.
- A $123.9 million non-cash loss on debt redemption followed the September 2016 redemption of the 2029 Debentures, which were settled for $344.8 million in cash plus conversion shares.
- Operating cash flow was $300.2 million and free cash flow was $282.2 million; the financial leverage ratio improved to 3.5 from 3.8.
- Total debt was $1.40 billion, with $704.6 million of liquidity and $548.5 million of debt to be repaid over the next three years.
- Sales are concentrated in North America (77% United States, 19% Canada), with industrial end-market sales falling to 36% of total from 39%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Wesco International kept $0.01.
- Revenue$7.34B100.0%
- Cost of revenue−$5.89B80.3%
- Gross profit$1.45B19.7%
- Operating costs−$1.12B15.2%
- Operating income$330.5M4.5%
- Interest, other & tax−$229.0M3.1%
- Net income$101.6M1.4%
Where FY2016 revenue went
$7.34B- Cost of revenue: $5.89B, 80% of revenue
- SG&A: $1.05B, 14% of revenue
- Net income: $101.6M, 1.4% of revenue
- Other operating costs: $66.9M, 0.9% of revenue
- Interest, other & tax: $229.0M, 3.1% of revenue
Kept 1.4% as net incomeNet income $101.6M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.34B$7.52B | −2.4% |
| Cost of Revenue | $5.89B$6.02B | −2.3% |
| Gross Profit | $1.45B$1.49B | −3.0% |
| SG&A Expenses | $1.05B$1.05B | −0.4% |
| Operating Income | $330.55M$373.74M | −11.6% |
| Net Income | $101.59M$210.69M | −51.8% |
| EPS (Basic) | $2.30$4.85 | −52.6% |
| EPS (Diluted) | $2.10$4.18 | −49.8% |
| Shares Outstanding (Basic) | 44.12M43.43M | +1.6% |
| Shares Outstanding (Diluted) | 48.33M50.37M | −4.0% |
05—Questions
Frequently Asked Questions
Why did WESCO's net income fall so sharply in 2016?
Net income attributable to WESCO International fell 51.8% to $101.6 million, driven by lower sales and gross margin, which cut operating income to $332.0 million, and by a $123.9 million non-cash loss on the early redemption of the 6.0% Convertible Senior Debentures due 2029. The company stated that cost reduction actions partially offset these pressures.
How did the company's end-market mix change in 2016?
Industrial sales fell to 36% of total sales from 39% in 2015, while construction rose to 34% from 32%, utility rose to 16% from 15%, and commercial, institutional and government held at 14%.
What is WESCO's capital allocation policy and how much stock has it bought back?
WESCO does not pay dividends and does not currently plan to, expecting earnings to fund business growth, debt reduction, acquisitions and share repurchases. Under its December 2014 authorization of up to $300 million through December 31, 2017, the company had repurchased 2,468,576 shares for $150.0 million as of December 31, 2016.
What debt obligations must WESCO address in the coming years?
The filing states that approximately $548.5 million of debt must be repaid over the next three years, including $380.0 million under the Receivables Facility (renewable in September 2018), $144.8 million under the Term Loan Facility due December 2019, $20.9 million of international lines of credit and $2.8 million of capital leases. The Revolving Credit Facility, with $509.7 million available at year-end, matures in September 2020.
What are the main risks highlighted in the filing?
Key risks include adverse economic conditions and volatility in commodity-driven markets such as oil and gas and metals and mining, dependence on suppliers (the ten largest accounted for about 32% of purchases, with Eaton Corporation at about 11%), competitive pressure, and covenant restrictions in its debt agreements. The company also cited exposure to foreign currency fluctuations, with about 23% of 2016 sales made by foreign subsidiaries.
06—Continue