01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc. reported record 2019 net sales of $8.36 billiona, up $182.3 million, or 2.2%, from $8.18 billion in 2018.
Organic sales growth was 2.6%, after foreign exchange rates and the number of workdays reduced net sales by 0.8% and 0.4%, and acquisitions added 0.8%. Income from operations was $346.2 millionb, compared with $352.4 million in 2018, and net income attributable to WESCO was $223.4 million. Diluted earnings per share were $5.14, versus $4.82 in 2018.
Excluding $3.1 millionc of merger-related transaction costs, adjusted diluted earnings per share were $5.20. Cost of goods sold rose to 81.1% of net sales from 80.8%, which the filing attributes to a challenging pricing environment and business mix. Cash flow weakened, with operating cash flow of $224.4 million compared with $296.7 million in 2018, and free cash flow of $180.3 million compared with $260.5 million.
Total indebtedness was $1.3 billiond at December 31, 2019, and the financial leverage ratio was 2.8, up from 2.7. The company expects to repay or refinance approximately $942.6 million of debt over the next three years. Liquidity was $823.2 million, and the company repurchased $150.0 million of stock in 2019.
WESCO does not pay dividends. The dominant event in the filing is the pending acquisition of Anixter International Inc., announced January 10, 2020, in a transaction valued at approximately $4.5 billion. Each Anixter share would receive $70.00 in cash, 0.2397 WESCO common shares and 0.6356 depositary shares of new WESCO Series A preferred stock, an implied value of $100.00 per Anixter share.
WESCO stockholders would own 84% of the combined company. Closing requires Anixter stockholder approval and regulatory approvals in the United States, Canada, Mexico and Turkey, and the company anticipates closing in the second or third quarter of 2020. WESCO would pay a $190 million reverse termination fee in specified circumstances, and Anixter would pay a $100 million termination fee.
02—Key points
Key Highlights
- Record 2019 net sales of $8.36 billion, up 2.2% from $8.18 billion, with organic sales growth of 2.6%
- Diluted EPS of $5.14 versus $4.82 in 2018; adjusted diluted EPS of $5.20 excluding $3.1 million of merger-related transaction costs
- Income from operations of $346.2 million, down from $352.4 million; cost of goods sold rose to 81.1% of net sales from 80.8%
- Operating cash flow fell to $224.4 million from $296.7 million; free cash flow was $180.3 million versus $260.5 million
- Pending Anixter acquisition valued at approximately $4.5 billion, implied at $100.00 per Anixter share, with WESCO stockholders owning 84% of the combined company
- Total debt of $1.3 billion, financial leverage ratio of 2.8, and $942.6 million of debt to repay or refinance over the next three years
- Repurchased $275.0 million of stock under a $400 million authorization through December 31, 2019; no dividends paid
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Wesco International kept $0.03.
- Revenue$8.36B100.0%
- Cost of revenue−$6.78B81.1%
- Gross profit$1.58B18.9%
- Operating costs−$1.24B14.8%
- Operating income$346.2M4.1%
- Interest, other & tax−$122.8M1.5%
- Net income$223.4M2.7%
Where FY2019 revenue went
$8.36B- Cost of revenue: $6.78B, 81% of revenue
- SG&A: $1.17B, 14% of revenue
- Net income: $223.4M, 2.7% of revenue
- Other operating costs: $62.1M, 0.7% of revenue
- Interest, other & tax: $122.8M, 1.5% of revenue
Kept 2.7% as net incomeNet income $223.4M · 2.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.36B$8.18B | +2.2% |
| Cost of Revenue | $6.78B$6.61B | +2.5% |
| Gross Profit | $1.58B$1.57B | +0.9% |
| SG&A Expenses | $1.17B$1.15B | +1.8% |
| Operating Income | $346.22M$352.44M | −1.8% |
| Net Income | $223.43M$227.34M | −1.7% |
| EPS (Basic) | $5.18$4.87 | +6.4% |
| EPS (Diluted) | $5.14$4.82 | +6.6% |
| Shares Outstanding (Basic) | 43.10M46.72M | −7.7% |
| Shares Outstanding (Diluted) | 43.49M47.20M | −7.9% |
05—Questions
Frequently Asked Questions
What is the Anixter transaction and what will shareholders receive?
On January 10, 2020, WESCO agreed to acquire Anixter International Inc. in a transaction valued at approximately $4.5 billion. Each Anixter share would convert into $70.00 in cash, 0.2397 WESCO common shares and 0.6356 depositary shares of new WESCO Series A preferred stock, for an implied value of $100.00 per Anixter share. WESCO stockholders would own 84% of the combined company and Anixter stockholders 16%.
What conditions must be met before the Anixter merger can close?
Closing requires Anixter stockholder approval, the expiration or termination of the HSR Act waiting period, and approvals under the antitrust laws of Canada, Mexico and Turkey. WESCO and Anixter also plan to seek approvals under Russian and Chilean antitrust laws, but those are not closing conditions. WESCO anticipates closing in the second or third quarter of 2020.
What termination fees apply if the Anixter merger does not close?
Anixter would pay WESCO a $100 million termination fee in specified circumstances. If Anixter stockholders do not approve the merger without a change in recommendation by Anixter's board, Anixter must reimburse WESCO's actual expenses up to $25 million, which is creditable against any termination fee. WESCO would pay Anixter a $190 million reverse termination fee if required regulatory clearances are not obtained before the outside date or are denied.
How much debt does WESCO carry and how will the merger affect it?
As of December 31, 2019, WESCO had $1.3 billion of consolidated indebtedness and a financial leverage ratio of 2.8, compared with 2.7 a year earlier. The filing states that the company will incur additional indebtedness to finance the merger and may assume some of Anixter's debt, which would increase interest expense. Management also expects to use excess cash and receivables facility availability to fund the merger and to reduce debt afterward.
How concentrated are WESCO's customers and suppliers?
No single customer accounted for more than 4% of 2019 sales, and the top ten customers accounted for approximately 18%. Eaton Corporation, the largest supplier, accounted for approximately 11% of purchases, and the ten largest suppliers accounted for approximately 32%. Most supplier agreements are terminable by either party on 60 days' notice or less.
06—Continue