UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 25, 2013
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Commission file number 001-14989
Delaware (State or other jurisdiction of incorporation or organization) | 25-1723342 (I.R.S. Employer Identification No.) | |
225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania (Address of principal executive offices) | (412) 454-2200 (Registrant's telephone number, including area code) | |
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On July 25, 2013, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the second quarter of 2013. A copy of the press release is attached hereto as Exhibit 99.1.
Item 7.01 Regulation FD Disclosure
The information in this Item 7.01 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
A slide presentation to be used by senior management of the Company in connection with its discussions with investors regarding the Company's financial results for the second quarter of 2013 is included in Exhibit 99.2 to this report and is being furnished in accordance with Regulation FD of the Securities and Exchange Commission.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release dated July 25, 2013
99.2 Slide presentation for investors
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
July 25, 2013 | WESCO INTERNATIONAL, INC. | |||
(Date) | ||||
/s/ Kenneth S. Parks | ||||
Kenneth S. Parks | ||||
Vice President and Chief Financial Officer | ||||
 | NEWS RELEASE |
WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |
WESCO International, Inc. Reports Second Quarter 2013 Results;
Achieves Record Quarterly Sales
Second quarter results compared to the prior year:
•Consolidated sales of $1.89 billion, growth of 13.2%
•Gross margin of 20.7%, up 60 basis points
•Net income of $65 million, up 10.9%
•Earnings per share of $1.25, up 8.7%
PITTSBURGH, July 25, 2013/PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, today announced its 2013 second quarter results.
The following are results for the three months ended June 30, 2013 compared to the three months ended June 30, 2012:
• | Net sales were $1,894.0 million for the second quarter of 2013, compared to $1,672.7 million for the second quarter of 2012, an increase of 13.2%. Acquisitions positively impacted sales by 14.6%, foreign exchange negatively impacted sales by 0.2%, and organic sales declined 1.2%. |
• | Gross profit of $392.6 million, or 20.7% of sales, for the second quarter of 2013 improved 60 basis points compared to $335.6 million, or 20.1% of sales, for the second quarter of 2012. |
• | Selling, general & administrative (SG&A) expenses of $265.5 million, or 14.0% of sales, for the second quarter of 2013 increased 20 basis points, compared to $231.2 million, or 13.8% of sales, for the second quarter of 2012. Excluding acquisitions, SG&A declined $3.2 million from the prior year quarter. |
• | Operating profit was $109.9 million for the current quarter, up 14.4% from $96.0 million for the comparable 2012 quarter. Operating profit as a percentage of sales was 5.8% in 2013, up 10 basis points from 5.7% in 2012. |
• | Interest expense for the second quarter of 2013 was $21.8 million, compared to $11.5 million for the second quarter of 2012. Interest expense increased for the quarter due to the increase in indebtedness in late 2012 associated primarily with the EECOL acquisition. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the second quarter of 2013 and 2012 was $2.1 million and $1.4 million, respectively. |
• | The effective tax rate for the current quarter was 25.8%, compared to 30.3% for the prior year second quarter. |
• | Net income attributable to WESCO International, Inc. of $65.3 million for current quarter was up 10.9% from $58.9 million for the prior year quarter. |
• | Earnings per diluted share for the second quarter of 2013 were $1.25 per share, based on 52.3 million diluted shares, and were up 8.7% from $1.15 per share in the second quarter of 2012, based on 51.1 million diluted shares. |
• | Free cash flow for the second quarter of 2013 was $33.6 million, or 52% of net income, compared to $49.1 million for the second quarter of 2012. |
Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, “Our second quarter results reflect continued solid execution in a challenging economic environment with end market conditions consistent with our prior expectations. While organic sales declined 1% versus prior year, business momentum improved through the quarter with June sales per workday up 2%, driven by growth in Lighting and continued strength in Utility. Our acquisitions continue to perform well and we remain on track to deliver our full year EPS accretion expectations for EECOL. Free cash flow was directed to debt reduction and our financial leverage is now at the upper end of our targeted range on a proforma basis. We are seeing the positive impact of our One WESCO sales, productivity and LEAN initiatives on our business as we continue to invest in our growth engines and manage an active acquisition pipeline. We see excellent opportunities to further expand and strengthen our portfolio in the second half of 2013 into 2014. We expect organic sales growth in the second half but less than our prior expectations, and have revised our full year outlook to approximately $5.15 to $5.35 earnings per diluted share, which equates to 18% to 22% growth over prior year, excluding the ArcelorMittal litigation impacts.”
The following results are for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.
• | Net sales were $3,702.0 million for the first six months of 2013, compared to $3,278.7 million for the first six months of 2012. The 12.9% increase in sales includes a 15.3% positive impact from acquisitions, a 2.3% negative impact from organic sales, and a negative 0.1% exchange rate impact. Adjusting for the impact of one less workday in the period, normalized organic sales declined approximately 1.5%. |
• | Gross profit of $773.6 million, or 20.9% of sales, for the first six months of 2013 was up 90 basis points, compared to $655.4 million, or 20.0% of sales, for the first six months of 2012. |
• | SG&A expenses of $493.0 million, or 13.3% of sales, for the first six months of 2013 decreased 70 basis points, compared to $459.3 million, or 14.0% of sales, for the first six months of 2012. SG&A expenses for the first six months of 2013 include a $36.1 million favorable impact resulting from the recognition of insurance coverage relating to a litigation-related charge recorded in the fourth quarter of 2012. Excluding the impact of this favorable item, SG&A expenses were $529.1 million, or 14.3% of sales. |
• | Operating profit was $246.7 million for the first six months of 2013, up 37.4% from $179.6 million for the comparable 2012 period. Operating profit as a percentage of sales was 6.7% in 2013, up 120 basis points from 5.5% in 2012. Excluding the favorable impact resulting from the recognition of insurance coverage on a litigation matter, operating profit was $210.6 million, or 5.7% of sales. |
• | Interest expense for the first six months of 2013 was $43.7 million, compared to $20.4 million for the first six months of 2012. Interest expense increased for the first six months of 2013 due to the increase in indebtedness in late 2012 associated with the EECOL acquisition. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the first six months of 2013 and 2012 was $4.4 million of expense and $0.5 million of income, respectively. Non-cash interest for the six months ended June 30, 2012 included a favorable adjustment of $3.2 million of previously recorded interest related to uncertain tax positions. This adjustment was a result of a favorable Internal Revenue Service appeals settlement in the first quarter of 2012 related to the years 2000 to 2006. |
• | The effective six-month tax rate was 26.4% for 2013 compared to 29.7% for 2012. |
• | Net income attributable to WESCO International, Inc. of $149.3 million for the first six months of 2013 was up 33.5% from $111.9 million for the first six months of 2012. Excluding the favorable impacts of the recognition of insurance coverage on a litigation matter and the Internal Revenue Service appeals settlement in the first six months of 2013 and 2012, respectively, adjusted net income for the first six months of 2013 was $123.8 million, compared to $109.9 million in the first six months of 2012, an increase of 12.6%. |
• | Earnings per diluted share for the first six months of 2013 were up 30.7% to $2.85 per share, based on 52.4 million diluted shares, versus $2.18 per share for the first six months of 2012, based on 51.2 million diluted shares. Excluding the favorable impact of non-recurring items in both years, adjusted earnings per diluted share in the first six months of 2013 were $2.36, compared to $2.15 in the corresponding prior year period. |
• | Free cash flow for the six months of 2013 was $108.0 million, or 72% of net income, compared to $102.9 million in the comparable prior year period. Excluding the favorable impact of non-recurring items, free cash flow was 87% of adjusted net income for the first six months of 2013. |
Mr. Engel continued, “As consolidation and outsourcing continues in our industry, customers are increasingly looking for a one-stop-shop to manage their supply chain needs. Our One WESCO value proposition provides customers with the comprehensive product and service solutions they need to meet their MRO, OEM and Capital Project management requirements. As a result of the investments we are making in our people, our processes, and our business, we are well positioned for continued value creation.”
# # #
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the second quarter earnings as described in this News Release on Thursday, July 25, 2013, at 11:00 a.m. E.D.T. The call will be broadcast live over the Internet and can be accessed from the Company's website at http://www.wesco.com. The call will be archived on this Internet site for seven days.
# # #
WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (“MRO”) and original equipment manufacturers (“OEM”) product, construction materials, and advanced supply chain management and logistic services. 2012 annual sales were approximately $6.6 billion. The Company employs approximately 9,000 people, maintains relationships with over 18,000 suppliers, and serves over 65,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers and utilities. WESCO operates nine fully automated distribution centers and approximately 475 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
# # #
The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as well as the Company's other reports filed with the Securities and Exchange Commission.
Contact: Kenneth S. Parks, Vice President and Chief Financial Officer
WESCO International, Inc. (412) 454-2392, Fax: (412) 222-7566
http://www.wesco.com
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended | Three Months Ended | ||||||||||
June 30, 2013 | June 30, 2012 | ||||||||||
Net sales | $ | 1,894.0 | $ | 1,672.7 | |||||||
Cost of goods sold (excluding | 1,501.4 | 79.3 | % | 1,337.1 | 79.9 | % | |||||
depreciation and amortization below) | |||||||||||
Selling, general and administrative expenses | 265.5 | 14.0 | % | 231.2 | 13.8 | % | |||||
Depreciation and amortization | 17.2 | 8.4 | |||||||||
Income from operations | 109.9 | 5.8 | % | 96.0 | 5.7 | % | |||||
Interest expense, net | 21.8 | 11.5 | |||||||||
Income before income taxes | 88.1 | 4.7 | % | 84.5 | 5.1 | % | |||||
Provision for income taxes | 22.7 | 25.6 | |||||||||
Net income | 65.4 | 3.5 | % | 58.9 | 3.5 | % | |||||
Less: Net income attributable to noncontrolling interest | 0.1 | — | |||||||||
Net income attributable to WESCO International, Inc. | $ | 65.3 | 3.4 | % | $ | 58.9 | 3.5 | % | |||
Earnings per diluted common share | $ | 1.25 | $ | 1.15 | |||||||
Weighted average common shares outstanding and common | |||||||||||
share equivalents used in computing earnings per diluted | |||||||||||
share (in millions) | 52.3 | 51.1 | |||||||||
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Six Months Ended | Six Months Ended | ||||||||||
June 30, 2013 | June 30, 2012 | ||||||||||
Net sales | $ | 3,702.0 | $ | 3,278.7 | |||||||
Cost of goods sold (excluding | 2,928.4 | 79.1 | % | 2,623.3 | 80.0 | % | |||||
depreciation and amortization below) | |||||||||||
Selling, general and administrative expenses | 493.0 | 13.3 | % | 459.3 | 14.0 | % | |||||
Depreciation and amortization | 33.9 | 16.5 | |||||||||
Income from operations | 246.7 | 6.7 | % | 179.6 | 5.5 | % | |||||
Interest expense, net | 43.7 | 20.4 | |||||||||
Income before income taxes | 203.0 | 5.5 | % | 159.2 | 4.9 | % | |||||
Provision for income taxes | 53.6 | 47.3 | |||||||||
Net income | 149.4 | 4.0 | % | 111.9 | 3.4 | % | |||||
Less: Net income attributable to noncontrolling interest | 0.1 | — | |||||||||
Net income attributable to WESCO International, Inc. | $ | 149.3 | 4.0 | % | $ | 111.9 | 3.4 | % | |||
Earnings per diluted common share | $ | 2.85 | $ | 2.18 | |||||||
Weighted average common shares outstanding and common | |||||||||||
share equivalents used in computing earnings per diluted | |||||||||||
share (in millions) | 52.4 | 51.2 | |||||||||
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(dollar amounts in millions)
(Unaudited)
June 30, 2013 | December 31, 2012 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 104.5 | $ | 86.1 | |||
Trade accounts receivable, net | 1,101.8 | 1,036.2 | |||||
Inventories, net | 808.7 | 794.0 | |||||
Current deferred income taxes | 30.6 | 42.1 | |||||
Other current assets | 149.1 | 143.4 | |||||
Total current assets | 2,194.7 | 2,101.8 | |||||
Other assets | 2,441.0 | 2,527.8 | |||||
Total assets | $ | 4,635.7 | $ | 4,629.6 | |||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 754.1 | $ | 706.6 | |||
Current debt and short-term borrowings | 43.5 | 39.8 | |||||
Other current liabilities | 243.5 | 261.6 | |||||
Total current liabilities | 1,041.1 | 1,008.0 | |||||
Long-term debt | 1,572.4 | 1,695.4 | |||||
Other noncurrent liabilities | 379.6 | 372.5 | |||||
Total liabilities | 2,993.1 | 3,075.9 | |||||
Stockholders' Equity | |||||||
Total stockholders' equity | 1,642.6 | 1,553.7 | |||||
Total liabilities and stockholders' equity | $ | 4,635.7 | $ | 4,629.6 | |||
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Six Months Ended | Six Months Ended | ||||||
June 30, 2013 | June 30, 2012 | ||||||
Operating Activities: | |||||||
Net income | $ | 149.4 | $ | 111.9 | |||
Add back (deduct): | |||||||
Depreciation and amortization | 33.9 | 16.5 | |||||
Deferred income taxes | 26.8 | 14.0 | |||||
Change in Trade and other receivables, net | (105.0 | ) | (59.1 | ) | |||
Change in Inventories, net | (27.7 | ) | (17.4 | ) | |||
Change in Accounts Payable | 53.3 | 61.2 | |||||
Other | (10.9 | ) | (11.9 | ) | |||
Net cash provided by operating activities | 119.8 | 115.2 | |||||
Investing Activities: | |||||||
Capital expenditures | (11.8 | ) | (12.3 | ) | |||
Acquisition payments | — | (22.0 | ) | ||||
Other | 9.7 | — | |||||
Net cash used by investing activities | (2.1 | ) | (34.3 | ) | |||
Financing Activities: | |||||||
Debt proceeds (repayments) | (105.0 | ) | (67.6 | ) | |||
Equity activity, net | (1.0 | ) | (1.4 | ) | |||
Other | 8.1 | (3.7 | ) | ||||
Net cash used by financing activities | (97.9 | ) | (72.7 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (1.4 | ) | 0.1 | ||||
Net change in cash and cash equivalents | 18.4 | 8.3 | |||||
Cash and cash equivalents at the beginning of the period | 86.1 | 63.9 | |||||
Cash and cash equivalents at the end of the period | $ | 104.5 | $ | 72.2 | |||
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include financial leverage, free cash flow, gross profit, organic sales growth, and adjusted earnings per share. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's capital structure position, liquidity, and organic growth trends on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude transactions of an unusual nature, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
Twelve Months Ended | Twelve Months Ended | ||||||
Financial Leverage: | June 30, 2013 | December 31, 2012 | |||||
(dollar amounts in thousands) | |||||||
Income from operations | $ | 400.1 | $ | 332.9 | |||
Add: ArcelorMittal litigation charge | — | 36.1 | |||||
Depreciation and amortization | 54.9 | 37.6 | |||||
Adjusted EBITDA | $ | 455.0 | $ | 406.6 | |||
June 30, 2013 | December 31, 2012 | ||||||
Current debt | $ | 43.5 | $ | 39.8 | |||
Long-term debt | 1,572.4 | 1,695.4 | |||||
Debt discount related to convertible debentures (1) | 181.3 | 183.6 | |||||
Total debt including debt discount | $ | 1,797.2 | $ | 1,918.8 | |||
Financial leverage ratio | 3.9 | 4.7 | |||||
Note: Financial leverage is provided by the Company as an indicator of capital structure position. Financial leverage is calculated by dividing total debt, including debt discount, by Adjusted EBITDA. Adjusted EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization, excluding the ArcelorMittal litigation charge.
(1)The convertible debentures are presented in the consolidated balance sheets in long-term debt net of the unamortized discount.
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | ||||||||||||
Free Cash Flow: | June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||
(dollar amounts in millions) | |||||||||||||||
Cash flow provided by operations | $ | 39.4 | $ | 56.9 | $ | 119.8 | $ | 115.2 | |||||||
Less: Capital expenditures | (5.8 | ) | (7.8 | ) | (11.8 | ) | (12.3 | ) | |||||||
Free cash flow | $ | 33.6 | $ | 49.1 | $ | 108.0 | $ | 102.9 | |||||||
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating flow to determine free cash flow. Free cash flow is available to provide a source of funds for any of the Company's financing needs.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended | Three Months Ended | ||||||
Gross Profit: | June 30, 2013 | June 30, 2012 | |||||
(dollar amounts in millions) | |||||||
Net Sales | $ | 1,894.0 | $ | 1,672.7 | |||
Cost of goods sold (excluding depreciation and amortization) | 1,501.4 | 1,337.1 | |||||
Gross profit | $ | 392.6 | $ | 335.6 | |||
Gross margin | 20.7 | % | 20.1 | % | |||
Six Months Ended | Six Months Ended | ||||||
Gross Profit: | June 30, 2013 | June 30, 2012 | |||||
(dollar amounts in millions) | |||||||
Net Sales | $ | 3,702.0 | $ | 3,278.7 | |||
Cost of goods sold (excluding depreciation and amortization) | 2,928.4 | 2,623.3 | |||||
Gross profit | $ | 773.6 | $ | 655.4 | |||
Gross margin | 20.9 | % | 20.0 | % | |||
Note: Gross profit is provided by the Company as an additional financial measure. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. This amount represents a commonly used financial measure within the distribution industry. Gross margin is calculated by dividing gross profit by net sales.
Three Months Ended | Six Months Ended | ||||
Normalized Organic Sales Growth: | June 30, 2013 | June 30, 2013 | |||
Change in net sales | 13.2 | % | 12.9 | % | |
Impact from acquisitions | 14.6 | % | 15.3 | % | |
Impact from foreign exchange rates | (0.2 | )% | (0.1 | )% | |
Impact from number of workdays | — | % | (0.8 | )% | |
Normalized organic sales growth | (1.2 | )% | (1.5 | )% | |
Note: Organic sales growth is provided by the Company as an additional financial measure to provide a better understanding of the Company's sales growth trends. Organic sales growth is calculated by deducting the percentage impact on net sales from acquisitions, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | ||||||||||||
Adjusted Earnings per Share: | June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||
(amounts in millions, except EPS) | |||||||||||||||
Income before income taxes | $ | 88.1 | $ | 84.5 | $ | 203.0 | $ | 159.2 | |||||||
Less: Favorable IRS appeals settlement | — | — | — | (3.2 | ) | ||||||||||
Less: Recognition of insurance coverage for ArcelorMittal litigation charge | — | — | (36.1 | ) | — | ||||||||||
Adjusted income before income taxes | 88.1 | 84.5 | 166.9 | 156.0 | |||||||||||
Provision for income taxes | 22.7 | 25.6 | 43.0 | 46.1 | |||||||||||
Adjusted net income | 65.4 | 58.9 | 123.9 | 109.9 | |||||||||||
Less: Net income attributable to noncontrolling interest | 0.1 | — | 0.1 | — | |||||||||||
Adjusted net income attributable to WESCO International, Inc. | $ | 65.3 | $ | 58.9 | $ | 123.8 | $ | 109.9 | |||||||
Adjusted earnings per diluted common share | $ | 1.25 | $ | 1.15 | $ | 2.36 | $ | 2.15 | |||||||
Weighted average common shares outstanding and common share equivalents used in computing earnings per diluted share | 52.3 | 51.1 | 52.4 | 51.2 | |||||||||||
Year Ended | |||
Adjusted income from operations: | December 31, 2012 | ||
(amounts in millions, except EPS) | |||
Income from operations | $ | 332.9 | |
Add: ArcelorMittal litigation charge | 36.1 | ||
Adjusted income from operations | $ | 369.0 | |
Adjusted net income attributable to WESCO International, Inc.: | |||
Net income attributable to WESCO International, Inc. | $ | 201.8 | |
Add: ArcelorMittal litigation charge, net of tax | 22.0 | ||
Adjusted net income attributable to WESCO International, Inc. | $ | 223.8 | |
Adjusted Diluted EPS: | |||
Diluted share count | 51.1 | ||
Adjusted Diluted EPS | $ | 4.38 | |
Note: Adjusted earnings per share is provided by the Company as an additional financial measure. Adjusted earnings per share is calculated by eliminating the impact of the reversal of ArcelorMittal litigation charge and the favorable IRS appeals settlement from Income before income taxes. The adjusted net income attributable to WESCO International, Inc. is divided by the weighted average common shares outstanding and common share equivalents.
Prepared for WESCO Investor Day 2011. The information contained herein is confidential in nature and considered proprietary to WESCO. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO. The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast Presentation July 25, 2013
2 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Safe Harbor Statement Note: All statements made herein that are not historical facts should be considered as “forward- looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to: adverse conditions in the global economy; increase in competition; debt levels, terms, financial market conditions or interest rate fluctuations; risks related to acquisitions, including the integration of EECOL; disruptions in operations or information technology systems; expansion of business activities; litigation, contingencies or claims; product, labor or other cost fluctuations; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2012 and any subsequent filings with the Securities & Exchange Commission. Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be obtained via WESCO’s website, www.wesco.com.
3 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Q2 2013 Highlights • Sales of $1.89 billion, up 13.2% YOY − Achieved record quarterly sales − 14.6 points from acquisitions; EECOL sales of $214 million − (1.2) points organic • Gross margin 20.7%, up 60 bps YOY − Core gross margin declined 30 basis points YOY • SG&A 14.0% of sales, up 20 bps YOY − Core SG&A expenses down $3 million YOY • Operating margin 5.8%, up 10 bps YOY • Net income of $65.3 million, up 10.9% YOY • EPS of $1.25, up 8.7% YOY − EECOL contributed approximately $0.19 of EPS accretion • Free cash flow of $33.6 million, 51.5% of net income − YTD free cash flow of $108 million, 87% of adjusted net income • Financial leverage reduced to approximately 3.5x on a proforma basis, and is now at top end of our targeted range of 2.0X to 3.5X
4 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 11.8% 7.7% (5.4%) (2.7%) Industrial End Market Core Sales Growth versus Prior Year • Q2 2013 − Down 2.7% versus prior year − Flat sequential − Conney Safety up 5% versus prior year • Sales declines driven by prior year industrial capital projects and delays in customer spending. • Channel inventory levels appear to be in balance with demand. • Bidding activity remains robust with notable customer trends including outsourcing and supplier consolidation. • Global Accounts and Integrated Supply opportunity pipeline increased to $2.5+ billion. Signed a multi-year integrated supply contract with a US based industrial company initially serving five locations. Implementation of the award should commence in Q3. Industrial 44% Industrial • Global Accounts • Integrated Supply •OEM •General Industrial 12% Note: Excludes acquisitions during the first year of ownership. Q1 2013 Q4 2012 Q2 2013 Q3 2012 Q2 2012 Q1 2012 2012 5.1% 0.8% 0.7%
5 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Core Sales Growth versus Prior Year Construction •Non-Residential •Residential 31% 4.7% 3.8% (4.8%) Construction End Market • Q2 2013 − Down 6.6% versus prior year − Up 12.7% sequential • Core backlog down approximately 3.5% versus last year, and up approximately 5% from year end 2012. • U. S. non-residential construction market remains weak, but residential recovery is positive leading indicator. • Canadian economy and construction market moderated in second quarter, driven by late spring and flooding in western Canada. Secured a large electrical order for a mining project in Canada scheduled for delivery in 2014. Follow on opportunities are in the final bidding stages. Construction Note: Excludes acquisitions during the first year of ownership. 2012 0.9% Q1 2013 Q4 2012 Q2 2013 Q3 2012 Q2 2012 Q1 2012 (6.6%) (5.8%) 0.0%
6 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Utility End Market Core Sales Growth versus Prior Year 14% Utility • Investor Owned •Public Power •Utility Contractors • Q2 2013 − Up 22.5% versus prior year − Up 6.1% sequential • Ninth consecutive quarter of year-over- year organic sales growth. • Implementation of 2012 and 2013 customer wins providing strong YOY growth. • Scope expansion with IOU, public power and generation customers also providing sales growth. • Strong interest for WESCO Integrated Supply across all utility customer groups. Awarded a large investor owned utility (IOU) integrated supply program covering a multi-state footprint. The contract will provide sourcing, procurement, inventory, and logistics services for the utility’s generation, transmission and distribution operations. Utility Note: Excludes acquisitions during the first year of ownership. 23.9% 11.7% 4.3% 6.9% 17.5% 22.5% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 2012 10.9%
7 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 5.4% 14.3% 0.0% (3.3%) (8.5%) (4.3%) CIG End Market • Q2 2013 − Down 4.3% versus prior year − Up 1.7% sequential • Bidding activity remains active in CIG verticals. • Federal contracts continue but awards have slowed due to budget constraints and sequestration. • Government opportunity pipeline remains healthy at over $535 million. Awarded a data communications security products contract with a large US metropolitan transit authority. The security products will be installed in approximately 2,700 buses and trains. Government Core Sales Growth versus Prior Year CIG •Commercial • Institutional •Government 11% Note: Excludes acquisitions during the first year of ownership. 2012 3.8% Q1 2013 Q4 2012 Q2 2013 Q3 2012 Q2 2012 Q1 2012
8 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Q2 2013 Results versus Outlook Q2 Outlook Q2 Actual Sales Growth of 13% to 16% (1)% to 2% excluding EECOL (3)% to flat organic Growth of 13.2% (0.5)% excluding EECOL (1.2)% organic Gross Margin At or above 20.9% 20.7% Operating Margin At or above 6.0% 5.8% Effective Tax Rate Approximately 26% to 28% 25.8%
9 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Q2 2012 Core Acquisitions Q2 2013 (0.12) 1.15 0.22 1.25 EPS Roadmap ($) (1)% organic (30) bps GM $3M SG&A reduction Share count growth EECOL ~0.19 Conney/Trydor ~0.03 +9%
10 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 102.9 108.0 YTD 2012 YTD 2013 Cash Generation 2011 2012 (Total Par Debt to TTM EBITDA) Leverage 2013 Free Cash Flow (1) ($ Millions) +38% 87% of adjusted net Income (1) 94% of adjusted net income (1) 1.5 2 2.5 3 3.5 4 4.5 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Target Leverage 2.0x – 3.5x 3.9X 3.5X (1) Reconciliation of these non-GAAP financial measures is included in the Appendix to this webcast presentation. Reported 4.7X Estimated Proforma < 4.0X
11 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Outlook 2013 Outlook Q3 Full Year Sales Growth of 17% to 19%; 2% to 4% organic Growth of 14% to 16%; Approximately flat organic Gross Margin Approximately 20.8% Approximately 20.9% Operating Margin Approximately 6.2% Approximately 6.0% Effective Tax Rate Approximately 26% to 27% Approximately 26% to 27% Adjusted Earnings Per Diluted Share Approximately $5.15 to $5.35
12 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Appendix
13 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Adjusted Results YTD Q2 2012 YTD Q2 2013 Reported Results Non-recurring Favorable Item Adjusted Results Reported Results Non-recurring Favorable Item Adjusted Results Net Sales 3,278.7 - 3,278.7 3,702.0 - 3,702.0 Gross Profit 655.4 - 655.4 773.6 - 773.6 Gross margin 20.0% 20.0% 20.9% 20.9% SG&A 459.3 - 459.3 493.0 36.1 529.1 SG&A rate 14.0% 14.0% 13.3% 14.3% Operating profit 179.6 - 179.6 246.7 (36.1) 210.6 Operating margin 5.5% 5.5% 6.7% 5.7% Interest 20.4 3.2 23.6 43.7 - 43.7 Taxes 47.3 (1.2) 46.1 53.6 (10.6) 43.0 Effective tax rate 29.7% 29.6% 26.4% 25.8% Net income 111.9 (2.0) 109.9 149.4 (25.5) 123.9 Less: Net income attributable to non-controlling interest - - - 0.1 - 0.1 Net income attributable to WESCO International, Inc. 111.9 (2.0) 109.9 149.3 (25.5) 123.8 Average Diluted Shares Outstanding 51.2 51.2 52.4 52.4 Fully diluted EPS 2.18 2.15 2.85 2.36 Financial results throughout the presentation reference the adjusted results above.
14 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 WESCO Profile Q2 YTD 2013 44% 31% 14% 11% 40% 14% 16% 11% 10% 9% Controls & Motors Lighting & Controls General Supplies Data & Broadband Communications Wire, Cable & Conduit Distribution Equipment Note: Markets & Customers and Products & Services percentages reported on consolidated basis. 70% 25% 5% Geography ROW Canada U.S. Products & Services Markets & Customers Utility CIG Industrial Construction Investor Owned | Public Power Utility Contractors Commercial | Institutional | Government Global Accounts | Integrated Supply OEM | General Industrial Non-Residential | Residential Sales 1994 $1.5B at LBO 2003 $3.3B 2012 $6.6B …portfolio diversified and strengthened over last decade
15 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Sales Growth Components 2011 2012 2013 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Q1 Q2 Organic Sales Growth (%) 16.5 12.7 11.3 13.2 13.4 9.8 8.2 1.4 (1.3) 4.4 (3.4) (1.2) Acquisitions (%) 7.0 7.4 6.9 6.2 6.8 2.6 2.2 4.0 4.3 3.3 16.0 14.6 FX (%) 1.1 1.0 1.1 0.0 0.8 (0.2) (0.7) (0.6) 0.5 (0.3) 0.0 (0.2) Consolidated Sales Growth (%) 24.6 21.1 19.3 19.4 21.0 12.2 9.7 4.8 3.5 7.4 12.6 13.2 Workdays 63 64 64 63 254 64 64 63 63 254 63 64 Organic Growth Impact (%) - - - (1.6) (0.4) 1.6 - (1.6) - - (1.6) - Day Adjusted Organic Growth (%) 16.5 12.7 11.3 14.8 13.8 8.2 8.2 3.0 (1.3) 4.4 (1.8) (1.2) Estimated Price Impact (%) 3.5 3.0 3.5 2.0 3.0 1.5 1.0 0.5 1.0 1.0 1.0 0.0
16 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Outstanding at December 31, 2012 Outstanding at June 30, 2013 Debt Maturity Schedule AR Revolver (V) 445 471 2014 Inventory Revolver (V) 218 110 2016 Real Estate Mortgage (F) 26 - 2019 Term Loans (V) 850 834 2019 2029 Convertible Bonds (F) 345 345 2029 (No Put) Other (V) 35 37 N/A Total Par Debt 1,919 1,797 Capital Structure Key Financial Metrics YTD Q2 2012 YE 2012 YTD Q2 2013 Cash 72 86 105 Capital Expenditures 12 23 12 Free Cash Flow (1) 103 265 108 Liquidity (2) 642 299 429 ($ Millions) V = Variable Rate Debt 1 = Operating cash flow less capital expenditures F = Fixed Rate Debt 2 = Asset-backed credit facilities total availability plus invested cash
17 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Notes: 1. Q2 2013 compared to prior year excludes Trydor, Conney and EECOL results. 2. The prior period end market amounts noted above may contain reclassifications to conform to current period presentation. Reconciliation of Non-GAAP Financial Measures ($ Millions) Unaudited Sales Full Year 2012 vs. 2011 Q2 2013 vs. Q2 2012 Q2 2013 vs. Q1 2013 Q2 Q2 Q2 Q1 2012 2011 % Growth 2013 2012 % Growth 2013 2013 % Growth Industrial Core 2,736 2,604 5.1 % 705 724 (2.7) % 813 813 0.0% Construction Core 2,088 2,071 0.9 % 519 556 (6.6) % 606 538 12.7% Utility Core 759 685 10.9 % 227 186 22.5 % 258 243 6.1% CIG Core 817 787 3.8 % 204 213 (4.3) % 224 220 1.7% Total Core Gross Sales 6,400 6,147 4.1 % 1,655 1,679 (1.4) % 1,901 1,814 4.8% Total Gross Sales from Acquisitions 201 - - 246 - - - - - Total Gross Sales 6,601 6,147 7.4 % 1,901 1,679 13.2 % 1,901 1,814 4.8% Gross Sales Reductions/Discounts (22) (21) - (7) (6) - (7) (6) - Total Net Sales 6,579 6,126 7.4 % 1,894 1,673 13.2 % 1,894 1,808 4.8%
18 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Convertible Debt Non-Cash Interest Expense ($ Millions) Maturity Par Value of Debt Debt Discount Debt per Balance Sheet 2029 344.9 (172.2) 172.7 ($ Millions) 2011 2012 Q2 YTD 2013 Convertible Debt 2.5 2.3 2.2 Amortization of Deferred Financing Fees 4.4 2.6 2.4 FIN 48 1.9 (3.4) (0.2) Total 8.8 1.5 4.4 Convertible Debt and Non-Cash Interest as of June 30, 2013
19 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Convertible Debt and SARs/Options EPS Dilution Weighted Average Quarterly Share Count Stock Price Incremental Shares from 2029 Convertible Debt (in millions)3 Incremental Shares from SARs/Option Awards (in millions) Total Diluted Share Count (in millions)4 $50.00 5.05 0.72 49.88 $60.00 6.20 0.83 51.14 $70.00 7.02 1.07 52.20 Q2 2013 Average $71.33 7.11 1.09 52.31 $80.00 7.64 1.23 52.98 $90.00 8.12 1.36 53.59 $100.00 8.50 1.48 54.09 2029 Convertible Debt Details Conversion Price $28.8656 Conversion Rate 34.6433 1 Underlying Shares 11,949,067 2 Footnotes: 2029 Convertible Debenture 1 1000/28.8656 2 $345 million/28.8656 3 (Underlying Shares x Avg. Quarterly. Stock Price) minus $345 million Avg. Quarterly Stock Price 4 Basic Share Count of 44.11 million shares
20 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Work Days Q1 Q2 Q3 Q4 FY 2012 64 64 63 63 254 2013 63 64 64 63 254
21 The information contained herein is confidential in nature and considered proprietary to WESCO Distribution, Inc. It is intended for the exclusive use of the employees, contractors and agents of client companies. We request that no oral or written disclosure of such information be made without the prior written approval by WESCO Distribution, Inc. Q2 2013 Earnings Webcast 7/25/2013 Free Cash Flow Reconciliation Q2 2012 Q2 2013 Q2 YTD 2012 Q2 YTD 2013 Cash flow provided by operations 56.9 39.4 115.2 119.8 Less: Capital expenditures (7.8) (5.8) (12.3) (11.8) Free Cash Flow 49.1 33.6 102.9 108.0 Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from cash flow from operations to determine free cash flow. Free cash flow is available to provide a source of funds for the Company’s financing needs. ($ Millions)