01—Abstract
Summary
Summary of the 10-K filed March 1, 2021. Cited figures are marked; the original filing is the authoritative source.
WESCO International, Inc., headquartered in Pittsburgh, Pennsylvania, is a business-to-business distributor, logistics and supply chain services provider.
Its 2020 results reflect the June 22, 2020 acquisition of Anixter International Inc., which roughly doubled its revenue. Net sales were $12.3 billiona in 2020 compared with $8.4 billion in 2019, an increase of 47.5% driven by the merger, partially offset by weakened demand from the COVID-19 pandemic. Net income attributable to common stockholders fell to $70.4 million, or $1.51 per diluted share, from $223.4 million, or $5.14 per diluted share, in 2019.
Adjusted diluted EPS, which excludes merger-related and other items, was $4.37b versus $5.20 in 2019. Cash flow from operations was $543.9 million, and free cash flow, a non-GAAP measure, was $586.1 million. The merger substantially increased leverage.
Total debt was $5.0 billionc at December 31, 2020, and the financial leverage ratio was 5.3 on a pro forma basis, compared with 2.7 as reported for 2019. The company stated it must repay or refinance approximately $1.6 billion of debt over the next three years. Management said excess liquidity will be directed primarily to debt reduction and integration activities, and it reported total liquidity of $1.1 billion.
The company redeemed its $500 milliond 5.375% Senior Notes due 2021 in January 2021 and announced the sale of Canadian legacy businesses for approximately $52 million, as required by a Canadian Competition Bureau consent agreement. WESCO does not pay common dividends, and its revolving credit facility and note indentures restrict dividends and share repurchases. The filing reports $3.19 billion of goodwill and $2.07 billion of net intangible assets.
The EES reporting unit's estimated fair value exceeded its carrying value by less than 10%, which the company identified as a source of greater impairment susceptibility under adverse macroeconomic conditions. The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion, and management excluded Anixter Inc. from its internal control assessment, which represented about 30% of consolidated total assets and 37% of net sales.
02—Key points
Key Highlights
- Net sales rose 47.5% to $12.3 billion in 2020 from $8.4 billion in 2019, reflecting the Anixter merger, partly offset by COVID-19 demand weakness.
- Net income attributable to common stockholders was $70.4 million ($1.51 diluted EPS) versus $223.4 million ($5.14) in 2019; adjusted diluted EPS was $4.37 versus $5.20.
- Operating cash flow was $543.9 million and free cash flow was $586.1 million for 2020, compared with $224.4 million and $180.3 million in 2019.
- Total debt was $5.0 billion at year-end 2020, and the pro forma financial leverage ratio was 5.3, versus 2.7 as reported for 2019.
- Approximately $1.6 billion of debt must be repaid or refinanced over the next three years; $500 million of 2021 notes were redeemed in January 2021.
- Three business segments now report: Electrical & Electronic Solutions (net sales $5.5 billion), Communications & Security Solutions ($3.3 billion), and Utility & Broadband Solutions ($3.5 billion).
- Common stock pays no dividends; Series A preferred stock issued in the merger paid $30.1 million in dividends in 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Wesco International kept $0.01.
- Revenue$12.33B100.0%
- Cost of revenue−$10.00B81.1%
- Gross profit$2.33B18.9%
- Operating costs−$1.98B16.1%
- Operating income$347.0M2.8%
- Interest, other & tax−$246.5M2.0%
- Net income$100.6M0.8%
Where FY2020 revenue went
$12.33B- Cost of revenue: $10.00B, 81% of revenue
- SG&A: $1.86B, 15% of revenue
- Net income: $100.6M, 0.8% of revenue
- Other operating costs: $121.6M, 1.0% of revenue
- Interest, other & tax: $246.5M, 2.0% of revenue
Kept 0.8% as net incomeNet income $100.6M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed March 1, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $12.33B$8.36B | +47.5% |
| Cost of Revenue | $10.00B$6.78B | +47.5% |
| Gross Profit | $2.33B$1.58B | +47.2% |
| SG&A Expenses | $1.86B$1.17B | +58.5% |
| Operating Income | $347.04M$346.22M | +0.2% |
| Net Income | $100.56M$223.43M | −55.0% |
| EPS (Basic) | $1.53$5.18 | −70.5% |
| EPS (Diluted) | $1.51$5.14 | −70.6% |
| Shares Outstanding (Basic) | 46.17M43.10M | +7.1% |
| Shares Outstanding (Diluted) | 46.63M43.49M | +7.2% |
05—Questions
Frequently Asked Questions
How much did the Anixter acquisition change WESCO's financial profile?
The merger, completed June 22, 2020, drove net sales up 47.5% to $12.3 billion and increased interest expense, net, to $226.6 million from $65.7 million in 2019. Total debt rose to $5.0 billion, and the company reported employing nearly 18,000 people and operating about 800 branches, warehouses and sales offices in more than 50 countries.
Why did earnings per share decline in 2020?
Net income attributable to common stockholders fell to $70.4 million, or $1.51 per diluted share, from $223.4 million, or $5.14, in 2019. The filing attributes the change to higher interest expense from merger financing, $132.2 million of merger-related costs, $43.7 million of merger-related fair value adjustments in cost of goods sold, an $18.9 million out-of-period inventory adjustment, $30.1 million of preferred stock dividends, and COVID-19 demand weakness. Adjusted diluted EPS was $4.37 versus $5.20.
How is WESCO managing its debt load?
Management said excess liquidity will go primarily to debt reduction and integration, and that it has already reduced outstanding indebtedness by approximately $205 million since the acquisition. About $1.6 billion of debt is due or must be refinanced over the next three years. Available liquidity at year-end was $1.1 billion, including $801.5 million under the revolving credit facility, $75.0 million under the receivables facility and $259.5 million of cash. About 75% of the debt portfolio was fixed rate.
Will WESCO pay dividends to common stockholders?
No. The company has not paid common dividends and does not currently plan to pay them, though it evaluates the possibility from time to time. Its revolving credit facility and the indentures governing its senior notes limit its ability to pay dividends and repurchase common stock. The company repurchased 5,459,030 shares for $275.0 million under its authorization, and did not repurchase shares in 2020.
06—Continue