01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported a return to growth in 2017, with net sales of $7.68 billiona, up 4.7% from $7.34 billion in 2016.
Organic sales growth was 4.5%, with foreign exchange and acquisitions adding 0.4% and 0.2%, partly offset by a 0.4% impact from the number of workdays. Income from operations declined to $320.9 millionb from $332.1 million, reflecting lower gross margin and the restoration of incentive and discretionary compensation. Net income attributable to WESCO International rose to $163.5 million from $101.6 million, but the comparison is flattered by a $123.9 million non-cash loss on debt redemption in 2016.
Diluted EPS was $3.38c, including a $26.4 million, or $0.55 per diluted share, provisional discrete tax expense from the Tax Cuts and Jobs Act; adjusted diluted EPS was $3.93. Cash generation weakened in 2017. Operating cash flow was $149.1 million versus $300.2 million in 2016, and free cash flow was $127.6 million versus $282.2 million, as inventory and trade receivables increased with higher backlog and sales.
The financial leverage ratio was 3.5 at both year-ends, and liquidity was $793.8 milliond at December 31, 2017, including $562.9 million of revolving credit availability and $170.0 million of receivables facility availability. Total debt was $1.36 billion, with $512.8 million to be repaid or refinanced over the next three years. The company authorized a new repurchase of up to $300 million of common stock through December 31, 2020, and repurchased $106.8 million of stock in 2017, though none under the new authorization as of year-end.
The filing also discloses that the company revised its December 31, 2016 balance sheet to correct overstated income tax balances, and that it has not paid dividends and does not currently plan to. Management expects capital expenditures in 2018 to be higher than in 2017.
02—Key points
Key Highlights
- Net sales rose 4.7% to $7.68 billion in 2017, with organic sales growth of 4.5%, after a 2.4% decline in 2016.
- Net income attributable to WESCO International was $163.5 million, up from $101.6 million, which included a $123.9 million loss on debt redemption in 2016.
- Diluted EPS was $3.38 versus $2.10; excluding the $0.55 TCJA impact, adjusted diluted EPS was $3.93 versus $3.80.
- Operating cash flow fell to $149.1 million from $300.2 million, and free cash flow fell to $127.6 million from $282.2 million.
- Financial leverage ratio was 3.5 at both December 31, 2017 and 2016, with total liquidity of $793.8 million at year-end.
- A new $300 million share repurchase authorization runs through December 31, 2020; $106.8 million of stock was repurchased in 2017.
- Sales are 75% U.S., 20% Canada, and 1% Mexico, with other international sales at 4%; the top ten customers were approximately 17% of 2017 sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Wesco International kept $0.02.
- Revenue$7.68B100.0%
- Cost of revenue−$6.19B80.7%
- Gross profit$1.48B19.3%
- Operating costs−$1.17B15.2%
- Operating income$319.0M4.2%
- Interest, other & tax−$155.6M2.0%
- Net income$163.5M2.1%
Where FY2017 revenue went
$7.68B- Cost of revenue: $6.19B, 81% of revenue
- SG&A: $1.10B, 14% of revenue
- Net income: $163.5M, 2.1% of revenue
- Other operating costs: $64.0M, 0.8% of revenue
- Interest, other & tax: $155.6M, 2.0% of revenue
Kept 2.1% as net incomeNet income $163.5M · 2.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.68B$7.34B | +4.7% |
| Cost of Revenue | $6.19B$5.89B | +5.2% |
| Gross Profit | $1.48B$1.45B | +2.5% |
| SG&A Expenses | $1.10B$1.05B | +4.8% |
| Operating Income | $319.04M$330.55M | −3.5% |
| Net Income | $163.46M$101.59M | +60.9% |
| EPS (Basic) | $3.42$2.30 | +48.7% |
| EPS (Diluted) | $3.38$2.10 | +61.0% |
| Shares Outstanding (Basic) | 47.85M44.12M | +8.5% |
| Shares Outstanding (Diluted) | 48.36M48.33M | +0.1% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in 2017?
Net income attributable to WESCO International increased to $163.5 million from $101.6 million, primarily because 2016 included a $123.9 million non-cash loss on the early redemption of the 2029 Debentures. Net sales growth also contributed, partly offset by higher cost of sales, SG&A and income tax expenses.
How did the Tax Cuts and Jobs Act affect 2017 results?
The company recorded a provisional discrete income tax expense of $26.4 million, comprising $82.8 million for the deemed repatriation of foreign earnings, partly offset by a $56.4 million benefit from remeasuring U.S. deferred tax balances. This reduced diluted EPS by $0.55, and the effective tax rate was 35.4% compared with 23.1% in 2016. Excluding the TCJA, the 2017 effective tax rate would have been 24.9%.
Why did operating cash flow decline in 2017?
Operating cash flow was $149.1 million versus $300.2 million in 2016. The filing attributes the use of cash mainly to a $119.0 million increase in inventory and a $113.0 million increase in trade receivables, driven by higher customer backlog and sales. These were partly offset by a $102.9 million increase in accounts payable.
What are the company's main debt obligations and near-term repayment needs?
Total debt was $1.36 billion at December 31, 2017, including $500 million of 5.375% Senior Notes due 2021, $350 million of 5.375% Senior Notes due 2024, and $380.0 million under the Accounts Receivable Securitization Facility. The company expects to repay or refinance approximately $512.8 million over the next three years. The Term Loan Facility's U.S. sub-facility matures December 12, 2019.
Does WESCO pay dividends, and what is its share repurchase activity?
WESCO has not paid dividends on its common stock and does not currently plan to, though it evaluates the possibility from time to time. In December 2017 the board approved a repurchase of up to $300 million of common stock through December 31, 2020; no shares had been repurchased under that authorization as of December 31, 2017.
06—Continue