01—Abstract
Summary
Summary of the 8-K filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.
Wesco International, Inc. (NYSE: WCC) reported first quarter 2024 results on May 2, 2024.
Net sales were $5.4 billiona ($5,350.0 million), down 3.1% from $5.5 billion a year earlier, with organic sales down 3.2%. Operating profit was $263.0 million (4.9% of net sales) versus $346.4 million (6.3%) in the prior-year quarter. Net income attributable to common stockholders was $101.4 million, or $1.95 per diluted share, compared with $3.48 a year earlier.
Adjusted EPS was $2.30b versus $3.75, and adjusted EBITDA was $340.4 million, a 6.4% margin. Cash generation was the standout. Operating cash flow was $746.3 million, and free cash flow was a record $731.4 million, with more than $1.4 billion over the trailing twelve months.
Financial leverage fell to 2.6x from 2.8x at December 31, 2023. Management raised its 2024 free cash flow outlook to $800 million to $1 billionc, while maintaining its organic sales and adjusted EBITDA margin outlook and its adjusted EPS range of $13.75 to $15.75. The filing notes that the Wesco Integrated Supply business was divested on April 1, 2024, with after-tax proceeds of approximately $300 million that management intends to use for share repurchases.
Backlog declined 10%d year over year but rose sequentially by approximately 1%. Gross margin fell to 21.3% from 21.9%, reflecting sales mix, lower supplier volume rebates and unfavorable inventory adjustments.
SG&A rose to 15.5% of net sales including restructuring and digital transformation costs. The filing also furnishes a slide presentation for investors that reiterates the outlook and includes a second-quarter outlook of roughly flat organic sales year over year.
02—Key points
Key Highlights
- Net sales of $5.35 billion, down 3.1% year over year; organic sales down 3.2%, with volume declines in all three segments partly offset by price inflation.
- Operating profit of $263.0 million (4.9% margin) versus $346.4 million (6.3%) a year earlier; adjusted operating margin of 5.3% versus 6.6%.
- Diluted EPS of $1.95 versus $3.48; adjusted EPS of $2.30 versus $3.75.
- Record free cash flow of $731.4 million in the quarter and more than $1.4 billion over the trailing twelve months; operating cash flow of $746.3 million.
- Financial leverage reduced to 2.6x from 2.8x, nearing the company's 1.5x to 2.5x target range.
- 2024 free cash flow outlook raised to $800 million to $1 billion; organic sales and adjusted EBITDA margin outlook and adjusted EPS range of $13.75 to $15.75 maintained.
- Wesco Integrated Supply divested April 1, 2024, with approximately $300 million of after-tax proceeds expected to fund share repurchases of $300 million in the second quarter.
03—Questions
Frequently Asked Questions
Why did operating profit and EPS decline so sharply in the first quarter?
The filing attributes the decline mainly to lower gross profit, which fell to 21.3% of net sales from 21.9%, reflecting shift in sales mix, lower supplier volume rebates and unfavorable inventory adjustments. SG&A also rose to 15.5% of net sales from 14.8%, driven by wage inflation and facility costs, including restructuring and digital transformation charges.
How strong was the cash flow performance?
Operating cash flow was an inflow of $746.3 million, compared with an outflow of $255.4 million a year earlier. The company cited a $620.9 million increase in accounts payable, driven by a system conversion, inventory purchase timing and a bank holiday that delayed payments, and free cash flow reached a record $731.4 million.
What is the company doing with the proceeds from the Integrated Supply divestiture?
The company expects approximately $300 million in after-tax proceeds from the divestiture of the Wesco Integrated Supply business and plans to use them to significantly increase return of capital through share repurchases, with an initial $300 million repurchase expected in the second quarter. It also cited optionality for debt reduction and M&A in the second half.
What is the outlook for the rest of 2024?
Management reaffirmed its full-year outlook for organic sales growth and adjusted EBITDA margin and its adjusted EPS range of $13.75 to $15.75, updated for the divestiture. The free cash flow outlook was raised to $800 million to $1 billion. The slide presentation indicates second-quarter organic sales are expected to be roughly flat year over year.
How did the backlog and segment performance trend?
Backlog declined 10% year over year but increased approximately 1% sequentially. Organic sales declined in all three segments: Electrical & Electronic Solutions down 1.8%, Communications & Security Solutions down 3.7%, and Utility & Broadband Solutions down 4.6%.
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