01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported record 2018 net sales of $8.18 billiona, up 6.5% from $7.68 billion in 2017, with organic sales growth of 6.2% and growth in all end markets and geographies.
Income from operations rose to $352.4 millionb from $319.0 million, and net income attributable to WESCO International was $227.3 million, or $4.82 per diluted share, compared with $3.38 in 2017. The 2017 results included $26.4 million of discrete tax expense from the Tax Cuts and Jobs Act. Operating cash flow was $296.7 million, and free cash flow, a non-GAAP measure, was $260.5 million versus $127.6 million in 2017.
The company ended 2018 with $1.23 billionc of total debt and a financial leverage ratio of 3.0, down from 3.6 a year earlier. Available liquidity was $824.0 million, including $515.9 million under the Revolving Credit Facility, $275.0 million under the Receivables Facility, and $33.1 million of cash. Over the next three years, the company must repay or refinance approximately $883.3 million of debt.
Share repurchases totaled $125.0 milliond under a repurchase authorization that was increased to $400 million in October 2018, and the company does not pay dividends. Management highlighted growth engines including global accounts, integrated supply, utilities, communications, lighting and sustainability, and acquisitions.
Risk factors cited include competition, supplier concentration (Eaton Corporation was about 11% of purchases), commodity price swings, cybersecurity, and exposure to oil and gas and metals and mining end markets. A January 16, 2019 press release announced a definitive agreement for WESCO Services, LLC to acquire certain assets of Sylvania Lighting Solutions from OSRAM Sylvania, with closing expected in March 2019.
02—Key points
Key Highlights
- Record 2018 net sales of $8.18 billion, up 6.5%, with organic sales growth of 6.2% and growth in all end markets and geographies
- Net income attributable to WESCO International rose to $227.3 million, or $4.82 per diluted share, from $163.5 million, or $3.38 per diluted share, in 2017
- Operating cash flow of $296.7 million and free cash flow of $260.5 million, compared with $149.1 million and $127.6 million in 2017
- Total debt of $1.23 billion at year-end, with financial leverage ratio of 3.0 versus 3.6 a year earlier
- Liquidity of $824.0 million at December 31, 2018, and roughly $883.3 million of debt to be repaid or refinanced over the next three years
- Share repurchase authorization increased from $300 million to $400 million in October 2018, with $125.0 million repurchased under the program as of year-end; no dividends paid
- Eaton Corporation was the largest supplier at about 11% of purchases, and the top ten suppliers accounted for about 32%
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Wesco International kept $0.03.
- Revenue$8.18B100.0%
- Cost of revenue−$6.61B80.8%
- Gross profit$1.57B19.2%
- Operating costs−$1.21B14.9%
- Operating income$352.4M4.3%
- Interest, other & tax−$125.1M1.5%
- Net income$227.3M2.8%
Where FY2018 revenue went
$8.18B- Cost of revenue: $6.61B, 81% of revenue
- SG&A: $1.15B, 14% of revenue
- Net income: $227.3M, 2.8% of revenue
- Other operating costs: $63.0M, 0.8% of revenue
- Interest, other & tax: $125.1M, 1.5% of revenue
Kept 2.8% as net incomeNet income $227.3M · 2.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $8.18B$7.68B | +6.5% |
| Cost of Revenue | $6.61B$6.19B | +6.7% |
| Gross Profit | $1.57B$1.48B | +5.6% |
| SG&A Expenses | $1.15B$1.10B | +4.6% |
| Operating Income | $352.44M$319.04M | +10.5% |
| Net Income | $227.34M$163.46M | +39.1% |
| EPS (Basic) | $4.87$3.42 | +42.4% |
| EPS (Diluted) | $4.82$3.38 | +42.6% |
| Shares Outstanding (Basic) | 46.72M47.85M | −2.4% |
| Shares Outstanding (Diluted) | 47.20M48.36M | −2.4% |
05—Questions
Frequently Asked Questions
How did WESCO perform in 2018 compared with 2017?
Net sales increased 6.5% to $8.18 billion, and income from operations rose to $352.4 million from $319.0 million. Net income attributable to WESCO was $227.3 million versus $163.5 million, and diluted EPS was $4.82 versus $3.38. The 2017 figure included $26.4 million of discrete tax expense from the TCJA.
How strong is WESCO's cash flow and liquidity?
Operating cash flow was $296.7 million in 2018, and free cash flow, a non-GAAP measure, was $260.5 million. At year-end the company had $824.0 million of liquidity, consisting of $515.9 million available under the Revolving Credit Facility, $275.0 million under the Receivables Facility, and $33.1 million of cash.
What debt obligations does WESCO face?
Total debt was $1.23 billion at December 31, 2018, including $500 million of 5.375% Senior Notes due 2021 and $350 million of 5.375% Senior Notes due 2024. The company expects to repay or refinance about $883.3 million over the next three years, and the Revolving Credit Facility and Receivables Facility both mature in September 2020.
Does WESCO pay dividends or buy back shares?
WESCO has not paid dividends on common stock and does not currently plan to, though it evaluates the possibility. It repurchased $125.0 million of stock under its authorization, which was increased to $400 million in October 2018, and the Company's debt agreements limit both dividends and repurchases.
What are the main risks to WESCO's business?
The filing cites competition that could pressure prices and margins, dependence on key suppliers (with Eaton about 11% of purchases), commodity price fluctuations, cybersecurity and information technology disruptions, and the cyclicality of oil and gas and metals and mining end markets. It also notes exposure to foreign currency movements, tax law changes, and covenant restrictions in its debt agreements.
06—Continue