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 Exchange Act of 1934
Date of Report (Date of earliest event reported): January 26, 2017
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation) | 001-14989 (Commission File Number) | 25-1723342 (IRS Employer Identification No.) | ||
225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania (Address of principal executive offices) | 15219 (Zip Code) | |||
(412) 454-2200
(Registrant's telephone number, including area code)
Not applicable.
(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 January 26, 2017, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and full year 2016. 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 fourth quarter and full year 2016 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.
The following are furnished as exhibits to this report.
99.1 Press Release, dated January 26, 2017
99.2 Slide presentation for investors
SIGNATURES
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.
WESCO International, Inc. | ||
(Registrant) | ||
January 26, 2017 | By: | /s/ David S. Schulz |
(Date) | David S. Schulz | |
Senior 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 Fourth Quarter 2016 Results
Fourth quarter highlights:
•Consolidated net sales of $1.8 billion
•Operating profit of $82 million
•Earnings per diluted share of $0.96
•Operating cash flow of $83 million; free cash flow of $78 million, or 164% of net income
Full year results:
•Consolidated net sales of $7.3 billion
•Operating profit of $332 million
•Earnings per diluted share of $2.10; adjusted earnings per diluted share of $3.80, excluding third quarter convertible debt redemption charge of $1.70 per share
•Operating cash flow of $300 million; free cash flow of $282 million, or 154% of adjusted net income
PITTSBURGH, January 26, 2017/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, announces its results for the fourth quarter and full year 2016.
Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, "Fourth quarter results were in line with our expectations, and results for the full year were within the outlook range provided in December 2015. Normalized organic sales declined versus prior year but grew sequentially, reflecting improving momentum in our business, and our first Q4 sequential sales growth in five years. Operating margin was also in line with our expectations, as we took additional actions to reduce our costs and improve productivity. Free cash flow generation remained strong, enabling us to reduce our debt and get back within our target financial leverage range.”
The following are results for the three months ended December 31, 2016 compared to the three months ended December 31, 2015:
• | Net sales were $1.79 billion for the fourth quarter of 2016, compared to $1.86 billion for the fourth quarter of 2015, a decrease of 3.7%. Acquisitions had a 1.8% positive impact on net sales and were offset by a 1.6% impact from number of workdays and a 0.3% impact from foreign exchange rates, resulting in a 3.6% decrease in normalized organic sales. Sequentially, net sales decreased 3.3% and normalized organic sales increased 0.3%. |
• | Cost of goods sold for the fourth quarter of 2016 was $1.44 billion and gross profit was $348.6 million, compared to cost of goods sold and gross profit of $1.50 billion and $363.5 million for the fourth quarter of 2015, respectively. As a percentage of net sales, gross profit was 19.4% and 19.5% for the fourth quarters of 2016 and 2015, respectively. |
• | Selling, general, and administrative ("SG&A") expenses were $249.9 million, or 13.9% of net sales for the fourth quarter of 2016, compared to $256.9 million, or 13.8% of net sales, for the fourth quarter of 2015. |
• | Operating profit was $82.1 million for the current quarter, compared to $90.0 million for the fourth quarter of 2015. Operating profit as a percentage of net sales was 4.6% for the fourth quarter of 2016, compared to 4.8% for the fourth quarter of 2015. |
• | Interest expense for the fourth quarter of 2016 was $17.5 million, compared to $9.9 million for the fourth quarter of 2015. Non-cash interest expense for the fourth quarter of 2016 and 2015, which includes amortization of debt discounts and deferred financing fees, and interest related to uncertain tax positions, was expense of $1.7 million and income of $6.5 |
1
million, respectively. In the fourth quarter of 2015, the resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income.
• | The effective tax rate for the current quarter was 26.0%, compared to 39.3% for the prior year fourth quarter. The resolution of the transfer pricing matter described above increased the effective tax rate for the fourth quarter of 2015. |
• | Net income attributable to WESCO International, Inc. was $47.4 million for the fourth quarter of 2016, compared to net income of $48.4 million for the fourth quarter of 2015. |
• | Earnings per diluted share was $0.96 for the fourth quarter of 2016, based on 49.2 million diluted shares, compared to earnings per diluted share of $1.03 for the fourth quarter of 2015, based on 47.2 million diluted shares. |
• | Operating cash flow for the fourth quarter of 2016 was $83.0 million, compared to $107.1 million for the fourth quarter of 2015. Free cash flow for the fourth quarter of 2016 was $78.2 million, or 164% of net income, compared to $101.6 million, or 209% of net income for the fourth quarter of 2015. |
The following are results for the year ended December 31, 2016 compared to the year ended December 31, 2015:
• | Net sales were $7.34 billion for 2016, compared to $7.52 billion for 2015, a decrease of 2.4%. Acquisitions and number of workdays had positive impacts on net sales of 3.1% and 0.4%, respectively, and were partially offset by a 1.0% impact from foreign exchange rates, resulting in a 4.9% decrease in normalized organic sales. |
• | Cost of goods sold for 2016 was $5.89 billion and gross profit was $1.45 billion, compared to cost of goods sold and gross profit of $6.02 billion and $1.49 billion for 2015, respectively. As a percentage of net sales, gross profit was 19.7% and 19.9% for 2016 and 2015, respectively. |
• | Selling, general, and administrative ("SG&A") expenses were $1.0 billion, or 14.3% of net sales for 2016, compared to $1.1 billion, or 14.0% of net sales, for 2015. |
• | Operating profit was $332.0 million for 2016, compared to $373.7 million for 2015. Operating profit as a percentage of net sales was 4.5% for 2016, compared to 5.0% for 2015. |
• | Interest expense for 2016 was $76.6 million, compared to $69.8 million for 2015. Non-cash interest expense for 2016 and 2015, which includes amortization of debt discounts and deferred financing fees, and interest related to uncertain tax positions, was $7.8 million and $3.5 million, respectively. In 2015, the resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income. |
• | Loss on debt redemption of $123.9 million for 2016 was the result of a non-cash charge from the early redemption of the Company's 6.0% Convertible Senior Debentures due 2029 in the third quarter of 2016. |
• | The effective tax rate for 2016 was 23.1%, compared to 31.4% for 2015. The effective tax rate for the current year was positively impacted by the loss on debt redemption, whereas the resolution of the transfer pricing matter described above resulted in incremental income tax expense in 2015. |
• | Net income attributable to WESCO International, Inc. was $101.6 million for 2016, compared to $210.7 million for 2015. Adjusted net income attributable to WESCO International, Inc. for 2016 was $184.3 million. |
• | Earnings per diluted share for 2016 was $2.10 per share, based on 48.3 million diluted shares, compared to $4.18 per share for 2015, based on 50.4 million diluted shares. Adjusted earnings per diluted share for 2016 was $3.80. |
• | Operating cash flow for 2016 was $300.2 million, compared to $283.1 million for 2015. Free cash flow for 2016 of $282.2 million, or 154% of adjusted net income, compared to $261.4 million, or 125% of net income for 2015. |
2
Mr. Engel continued, "On a full year basis, our 2016 results reflect the challenging economic and end market environment, as well as the impact of political uncertainty on spending in the industries we serve. We responded to these challenges by reducing our costs and streamlining our organization while ensuring continued strong free cash flow generation. These actions partially mitigated the impact of lower sales and business mix on earnings per share. We remain focused on executing our One WESCO strategy, and as a result of our organizational changes and continued execution of our business initiatives, we are entering 2017 with a stronger team focused on driving increased profitability as our end markets return to growth. The free cash flow generation capability of our business supports continued investment in our One WESCO growth initiatives, including acquisitions, along with our other cash allocation priorities. We reaffirm our expectation of 2017 sales in the range of flat to up 4%, EPS of $3.60 to $4.00 per diluted share, and free cash flow generation of at least 90% of net income, as we outlined in our investor outlook call in December."
Mr. Engel added, "After two years of industry sales declines and talk of an industrial recession, we are pleased to hear increased optimism from customers and see the beginning signs of a recovery. In this period of change and uncertainty, customers and suppliers need strong and reliable supply chain partners. WESCO provides leading supply chain solutions supported by our broad portfolio of products and value-added services. Our efforts are centered on providing outstanding customer service and delivering value to our customers' operations and supply chains. I am very proud of the extra effort demonstrated by all WESCO associates in serving our customers last year, and I am confident in our team's ability to improve our performance in 2017."
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the fourth quarter earnings as described in this News Release on Thursday, January 26, 2017, at 11:00 a.m. E.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) products, construction materials, and advanced supply chain management and logistic services. 2016 annual sales were approximately $7.3 billion. The company employs approximately 9,000 people, maintains relationships with over 25,000 suppliers, and serves over 80,000 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 500 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, 2015, as well as the Company's other reports filed with the Securities and Exchange Commission.
Contact: Mary Ann Bell, Vice President, Investor Relations
WESCO International, Inc. (412) 454-4220, Fax: (412) 222-7409
http://www.wesco.com
3
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended | |||||||||||
December 31, 2016 | December 31, 2015 | ||||||||||
Net sales | $ | 1,793.3 | $ | 1,861.5 | |||||||
Cost of goods sold (excluding | 1,444.7 | 80.6 | % | 1,498.0 | 80.5 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 249.9 | 13.9 | % | 256.9 | 13.8 | % | |||||
Depreciation and amortization | 16.6 | 16.6 | |||||||||
Income from operations | 82.1 | 4.6 | % | 90.0 | 4.8 | % | |||||
Interest expense, net | 17.5 | 9.9 | |||||||||
Income before income taxes | 64.6 | 3.6 | % | 80.1 | 4.3 | % | |||||
Provision for income taxes | 16.8 | 31.5 | |||||||||
Net income | 47.8 | 2.7 | % | 48.6 | 2.6 | % | |||||
Net income attributable to noncontrolling interests | 0.4 | 0.2 | |||||||||
Net income attributable to WESCO International, Inc. | $ | 47.4 | 2.6 | % | $ | 48.4 | 2.6 | % | |||
Diluted earnings per common share | $ | 0.96 | $ | 1.03 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing diluted earnings per | |||||||||||
share (in millions) | 49.2 | 47.2 | |||||||||
4
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Twelve Months Ended | |||||||||||
December 31, 2016 | December 31, 2015 | ||||||||||
Net sales | $ | 7,336.0 | $ | 7,518.5 | |||||||
Cost of goods sold (excluding | 5,887.8 | 80.3 | % | 6,024.8 | 80.1 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 1,049.3 | 14.3 | % | 1,055.0 | 14.0 | % | |||||
Depreciation and amortization | 66.9 | 65.0 | |||||||||
Income from operations | 332.0 | 4.5 | % | 373.7 | 5.0 | % | |||||
Interest expense, net | 76.6 | 69.8 | |||||||||
Loss on debt redemption | 123.9 | — | |||||||||
Income before income taxes | 131.5 | 1.8 | % | 303.9 | 4.0 | % | |||||
Provision for income taxes | 30.4 | 95.5 | |||||||||
Net income | 101.1 | 1.4 | % | 208.4 | 2.8 | % | |||||
Net loss attributable to noncontrolling interests | (0.5 | ) | (2.3 | ) | |||||||
Net income attributable to WESCO International, Inc. | $ | 101.6 | 1.4 | % | $ | 210.7 | 2.8 | % | |||
Diluted earnings per common share | $ | 2.10 | $ | 4.18 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing diluted earnings per | |||||||||||
share (in millions) | 48.3 | 50.4 | |||||||||
5
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
December 31, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 110.1 | $ | 160.3 | |||
Trade accounts receivable, net | 1,034.4 | 1,075.3 | |||||
Inventories | 821.4 | 810.1 | |||||
Current deferred income taxes (1) | — | 8.5 | |||||
Other current assets | 206.5 | 203.4 | |||||
Total current assets | 2,172.4 | 2,257.6 | |||||
Other assets (2) | 2,318.5 | 2,312.2 | |||||
Total assets | $ | 4,490.9 | $ | 4,569.8 | |||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 684.7 | $ | 715.5 | |||
Current debt and short-term borrowings | 22.1 | 44.3 | |||||
Other current liabilities | 190.0 | 188.0 | |||||
Total current liabilities | 896.8 | 947.8 | |||||
Long-term debt (2) | 1,363.1 | 1,439.1 | |||||
Other noncurrent liabilities | 221.0 | 409.0 | |||||
Total liabilities | 2,480.9 | 2,795.9 | |||||
Stockholders' Equity | |||||||
Total stockholders' equity | 2,010.0 | 1,773.9 | |||||
Total liabilities and stockholders' equity | $ | 4,490.9 | $ | 4,569.8 | |||
(1) | The Company early adopted Accounting Standards Update (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes, on a prospective basis during the first quarter of 2016. This guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. |
(2) | The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, on a retrospective basis during the first quarter of 2016. These ASUs simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As a result of adopting this guidance, the Company reclassified approximately $17.7 million of deferred financing fees from other noncurrent assets to long-term debt in the balance sheet as of December 31, 2015. |
6
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended | |||||||
December 31, 2016 | December 31, 2015 | ||||||
Operating Activities: | |||||||
Net income | $ | 101.1 | $ | 208.4 | |||
Add back (deduct): | |||||||
Depreciation and amortization | 66.9 | 65.0 | |||||
Deferred income taxes | (45.2 | ) | 42.9 | ||||
Change in trade receivables, net | 56.8 | 40.1 | |||||
Change in inventories | (1.6 | ) | 2.4 | ||||
Change in accounts payable | (40.6 | ) | (55.9 | ) | |||
Other (1) | 162.8 | (19.8 | ) | ||||
Net cash provided by operating activities | 300.2 | 283.1 | |||||
Investing Activities: | |||||||
Capital expenditures | (18.0 | ) | (21.7 | ) | |||
Acquisition payments | (50.9 | ) | (151.6 | ) | |||
Other | (1.6 | ) | 3.0 | ||||
Net cash used in investing activities | (70.5 | ) | (170.3 | ) | |||
Financing Activities: | |||||||
Debt (repayments) borrowings, net | (262.5 | ) | 91.8 | ||||
Equity activity, net | (2.9 | ) | (154.2 | ) | |||
Other | (10.8 | ) | (5.4 | ) | |||
Net cash used in financing activities | (276.2 | ) | (67.8 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (3.7 | ) | (13.0 | ) | |||
Net change in cash and cash equivalents | (50.2 | ) | 32.0 | ||||
Cash and cash equivalents at the beginning of the period | 160.3 | 128.3 | |||||
Cash and cash equivalents at the end of the period | $ | 110.1 | $ | 160.3 | |||
(1) | Other operating cash flow activities for the year ended December 31, 2016 includes a $123.9 million loss on redemption of the Company's 6.0% Convertible Senior Debentures due 2029. |
7
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include normalized organic sales change, gross profit, financial leverage, free cash flow, adjusted net income and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's organic sales trends, capital structure position and liquidity on a comparable basis. Additionally, certain of the aforementioned non-GAAP measures either focus on or exclude transactions impacting comparability of results, 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.
8
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except normalized organic sales data)
(Unaudited)
Three Months Ended | Twelve Months Ended | ||||
Normalized Organic Sales Change - Year-Over-Year: | December 31, 2016 | December 31, 2016 | |||
Change in net sales | (3.7 | )% | (2.4 | )% | |
Impact from acquisitions | 1.8 | % | 3.1 | % | |
Impact from foreign exchange rates | (0.3 | )% | (1.0 | )% | |
Impact from number of workdays | (1.6 | )% | 0.4 | % | |
Normalized organic sales change | (3.6 | )% | (4.9 | )% | |
Three Months Ended | ||
Normalized Organic Sales Change - Sequential: | December 31, 2016 | |
Change in net sales | (3.3 | )% |
Impact from acquisitions | — | % |
Impact from foreign exchange rates | (0.5 | )% |
Impact from number of workdays | (3.1 | )% |
Normalized organic sales change | 0.3 | % |
Note: Normalized organic sales change is provided by the Company as an additional financial measure to provide a better understanding of the Company's organic sales trends. Normalized organic sales change is calculated by deducting the percentage impact from acquisitions in the first year of ownership, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
Three Months Ended | Twelve Months Ended | ||||||||||||||
Gross Profit: | December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||
Net sales | $ | 1,793.3 | $ | 1,861.5 | $ | 7,336.0 | $ | 7,518.5 | |||||||
Cost of goods sold (excluding depreciation and amortization) | 1,444.7 | 1,498.0 | 5,887.8 | 6,024.8 | |||||||||||
Gross profit | $ | 348.6 | $ | 363.5 | $ | 1,448.2 | $ | 1,493.7 | |||||||
Gross margin | 19.4 | % | 19.5 | % | 19.7 | % | 19.9 | % | |||||||
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.
9
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended | |||||||
Financial Leverage: | December 31, 2016 | December 31, 2015 | |||||
Income from operations | $ | 332.0 | $ | 373.7 | |||
Depreciation and amortization | 66.9 | 65.0 | |||||
EBITDA | $ | 398.9 | $ | 438.7 | |||
December 31, 2016 | December 31, 2015 | ||||||
Current debt and short-term borrowings | $ | 22.1 | $ | 44.3 | |||
Long-term debt | 1,363.1 | 1,439.1 | |||||
Debt discount and deferred financing fees(1) | 17.3 | 182.0 | |||||
Total debt | $ | 1,402.5 | $ | 1,665.4 | |||
Financial leverage ratio | 3.5 | 3.8 | |||||
(1) | Long-term debt is presented in the condensed consolidated balance sheets net of deferred financing fees and debt discount related to the convertible debentures and term loan. |
Note: Financial leverage is a non-GAAP financial measure provided by the Company to illustrate its capital structure position. Financial leverage ratio is calculated by dividing total debt, including debt discount and deferred financing fees, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.
Three Months Ended | Twelve Months Ended | ||||||||||||||
Free Cash Flow: | December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||
Cash flow provided by operations | $ | 83.0 | $ | 107.1 | $ | 300.2 | $ | 283.1 | |||||||
Less: Capital expenditures | (4.8 | ) | (5.5 | ) | (18.0 | ) | (21.7 | ) | |||||||
Free cash flow | $ | 78.2 | $ | 101.6 | $ | 282.2 | $ | 261.4 | |||||||
Percent of adjusted net income (1) | 164 | % | 209 | % | 154 | % | 125 | % | |||||||
(1) | See the following page for a reconciliation of adjusted net income. |
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's other investing and financing activities.
10
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except per share amounts)
(Unaudited)
Twelve Months Ended | |||||||
Adjusted Income Before Income Taxes: | December 31, 2016 | December 31, 2015 | |||||
Income before income taxes | $ | 131.5 | $ | 303.9 | |||
Loss on debt redemption | 123.9 | — | |||||
Adjusted income before income taxes | $ | 255.4 | $ | 303.9 | |||
Twelve Months Ended | |||||||
Adjusted Tax Provision: | December 31, 2016 | December 31, 2015 | |||||
Provision for income taxes | $ | 30.4 | $ | 95.5 | |||
Income tax benefit from loss on debt redemption (1) | 41.2 | — | |||||
Adjusted provision for income taxes | $ | 71.6 | $ | 95.5 | |||
Twelve Months Ended | |||||||
Adjusted Net Income Attributable to WESCO International, Inc.: | December 31, 2016 | December 31, 2015 | |||||
Adjusted income before income taxes | $ | 255.4 | $ | 303.9 | |||
Adjusted provision for income taxes | 71.6 | 95.5 | |||||
Adjusted net income | 183.8 | 208.4 | |||||
Net loss attributable to noncontrolling interests | (0.5 | ) | (2.3 | ) | |||
Adjusted net income attributable to WESCO | |||||||
International, Inc. | $ | 184.3 | $ | 210.7 | |||
Twelve Months Ended | |||
Adjusted Earnings Per Diluted Share: | December 31, 2016 | ||
Diluted earnings per common share | $ | 2.10 | |
Loss on debt redemption (2) | 2.54 | ||
Tax effect of loss on debt redemption (2) | (0.84 | ) | |
Adjusted diluted earnings per common share | $ | 3.80 | |
(1) | Represents the third quarter of 2016 income tax benefit related to the loss on debt redemption. |
(2) | The loss on debt redemption and related income tax benefit are based on the third quarter of 2016 diluted shares of 48.7 million. |
Note: Adjusted net income attributable to WESCO International, Inc. is defined as income before income taxes plus the third quarter loss on debt redemption, less the provision for income taxes excluding the third quarter benefit of such loss. Adjusted earnings per diluted share is computed by adding the loss per diluted share on debt redemption and deducting the related income tax benefit per diluted share recognized in the third quarter of 2016. The Company believes that these non-GAAP financial measures are useful to investors' overall understanding of the Company's current financial performance and provides a consistent measure for assessing the current and historical financial results.
11
Webcast Presentation
January 26, 2017
Q4 & Full Year 2016 Earnings
2
Q4 & FY 2016 Earnings Webcast, 1/26/17
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 economic conditions; disruptions in operations or information technology
systems; product, labor or other cost fluctuations; supply chain disruptions or loss of key
suppliers; expansion of business activities; exchange rate fluctuations; tax law changes or
challenges to tax matters; increase in competition; risks related to acquisitions, including the
integration of acquired businesses; litigation, disputes, contingencies or claims; legal or
regulatory matters; debt levels, terms, financial market conditions or interest rate fluctuations;
goodwill or intangible asset impairment; common stock dilution; and other factors described in
detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2015
and any subsequent filings with the Securities & Exchange Commission. 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 found in the
appendix and obtained via WESCO’s website, www.wesco.com.
3
Q4 & FY 2016 Earnings Webcast, 1/26/17
2016 Highlights
…performance in-line with outlook
Q4
• Reported sales were down 4%
• Workday adjusted organic sales were down
4% in US and down 2% in Canada
• Workday adjusted organic sales were up
slightly sequentially
• Free cash flow of over 160% of net income
Full Year
• Reported sales were down 2%
• Workday adjusted organic sales were down
5% in US and down 6% in Canada
• Oil and gas sales down approximately 25%
• Cost controls partially mitigated sales and
margin declines
• Completed AED acquisition
• Successfully redeemed convertible bonds
• Free cash flow of over 150% of adjusted net
income
• January MTD sales down low single digits
3.2
(3.0)
(5.3)
(7.6)
(6.7)
(3.1)
(6.2)
(3.6)
Organic Growth
(%)
Oct (3)%
Nov (6)%
Dec (3)%
Note: See appendix for non-GAAP reconciliations.
Q1 Q2 Q3 Q4
2015
Q1
2016
Q2 Q3 Q4
4
Q4 & FY 2016 Earnings Webcast, 1/26/17
Industrial End Market
• Q4 2016 Sales
− Workday adjusted organic sales down 7%
versus prior year (down 5% in the U.S. and
down 14% in Canada in local currency)
− Up 2% sequentially
• Reduced demand outlook, weak commodity
prices, and strong U.S. dollar weighed on
manufacturing sector in 2016.
• Forward looking indicators have improved and
customers are becoming more optimistic
regarding 2017.
• Global Account and Integrated Supply opportunity
pipeline and bidding activity levels remain strong.
• Customer trends include high expectations for
supply chain process improvements, cost
reductions, and supplier consolidation.
Organic Sales Growth versus Prior Year
36%
Industrial
• Global Accounts
• Integrated Supply
• OEM
• General Industrial
Renewed a multi-year contract to supply OEM materials to a global
manufacturer of HVAC and air management systems.
Note: See appendix for non-GAAP reconciliations.
(8.6%)
(13.7%)
(10.1%) (10.1%)
(6.8%)
FY 2015 Q3 2016 Q2 2016 Q1 2016
2016
(10.2%)
Q4 2016
5
Q4 & FY 2016 Earnings Webcast, 1/26/17
• Q4 2016 Sales
− Workday adjusted organic sales down 2%
versus prior year (down 3% in U.S. and flat
in Canada in local currency)
− Down 1% sequentially
− Growth with commercial contractors
partially offset weakness with contractors
serving the industrial market
• Core backlog declined 3% versus prior year.
• Expecting modest uptrend in non-residential
construction in 2017.
• Non-residential construction market still below its
prior peak in 2008.
Construction
• Non-
Residential
• Residential
34%
Organic Sales Growth versus Prior Year
Construction End Market
Awarded contracts to supply electrical bulk materials and cabling for
two international oil and gas customers (one for new construction of
a LNG facility, and one for electrical MRO for an existing facility).
Note: See appendix for non-GAAP reconciliations.
(1.7%)
(3.6%)
2.3%
(5.5%)
(1.9%)
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
2016
(2.2%)
6
Q4 & FY 2016 Earnings Webcast, 1/26/17
Utility End Market
Organic Sales Growth versus Prior Year
16%
Utility
• Investor Owned
• Public Power
• Utility Contractors
• Q4 2016 Sales
− Workday adjusted organic sales up 3%
versus prior year (up 2% in U.S. and up 5%
in Canada in local currency)
− Up 4% sequentially
• Five consecutive years of sales growth.
• Scope expansion and value creation with investor
owned utility, public power, and generation
customers.
• Continued interest in Integrated Supply solution
offerings.
• Secular improvement in housing market,
renewables growth, and consolidation trend within
Utility industry expected to be positive catalysts for
future spending.
Awarded a multi-year contract to provide power delivery and
generation materials for a large public owned utility.
Note: See appendix for non-GAAP reconciliations.
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
5.1%
0.6% 0.6%
(1.7%)
2.6%
2016
0.5%
7
Q4 & FY 2016 Earnings Webcast, 1/26/17
CIG End Market
• Q4 2016 Sales
− Workday adjusted organic sales down
6% versus prior year (down 10% in US
and up 17% in Canada in local
currency)
− Down 5% sequentially
• Customer focus remains on energy efficiency
(lighting, automation, metering), security and
FTTX (fiber-to-the-x) applications.
• Continued opportunities exist to support data
center construction and retrofits, cloud
technology projects, and cyber and physical
security for critical infrastructure protection.
Organic Sales Growth versus Prior Year
CIG
• Commercial
• Institutional
• Government
14%
Awarded a long term contract with a Canadian telecommunications
provider to supply product and supply chain services to support their
infrastructure expansion.
Note: See appendix for non-GAAP reconciliations.
1.6%
0.4%
0.8%
(1.6%)
(5.8%)
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
2016
(1.7%)
8
Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Results
Outlook Actual YOY
Sales (1)% to (4)% $1.79B (3.7)% growth
Gross Margin 19.4% Down 10 bps
SG&A $250M, 13.9% Down 3%, Up 10 bps (Core down 5%)
Operating Profit $82M Down 9%
Operating Margin 4.5% to 4.8% 4.6% Down 20 bps
Effective Tax Rate ~30% 26.0% Down 200 bps
180 bps
(3.8)%
Growth
40 bps 290 bps
$1.79B
$1.86B
Q4 2016
Sales
Acquisitions Workday
Impact
Rest of
World
Canada U.S. Q4 2015
Sales
160 bps 30 bps
(2.1)%
Growth
(5.6)%
Growth
(3.6)%
Organic
Growth
(3.7)%
Growth
*See appendix for non-GAAP reconciliations.
Foreign
Exchange
30 bps
9
Q4 & FY 2016 Earnings Webcast, 1/26/17
Full Year 2016 Results
Outlook Actual YOY
Sales (2)% to (3)% $7.34B (2.4)% growth
Gross Margin 19.7% Down 20 bps
SG&A $1,049M, 14.3% Down 1%, Up 30 bps (Core down 4%)
Operating Profit $332M Down 11%
Operating Margin 4.5% to 4.6% 4.5% Down 50 bps
Effective Tax Rate ~ 29% 28.0% Down 50 bps
310 bps
(4.5)%
Growth
120 bps
340 bps
$7.34B
$7.52B
FY 2016
Sales
Acquisitions Foreign
Exchange
Rest of
World
Canada U.S. FY 2015
Sales
100 bps 30 bps
(6.0)%
Growth
(5.8)%
Growth
(4.9)%
Organic
Growth
(2.4)%
Growth
*See appendix for non-GAAP reconciliations.
40 bps
Workday
Impact
10
Q4 & FY 2016 Earnings Webcast, 1/26/17
Diluted EPS Walk
Q4 FY
2015 $1.03) $4.18)
Core operations (0.12) (0.68)
Acquisitions 0.01) 0.15)
Foreign exchange impact 0.00) (0.07)
Tax 0.08) 0.07)
Share count (0.04) 0.15)
Q3 After tax loss on debt redemption (1.70)
2016 $0.96) $2.10)
Q3 Pretax loss on debt redemption 2.54)
Q3 Tax effect of loss debt on redemption (0.84)
Adjusted 2016 $0.96) $3.80)
11
Q4 & FY 2016 Earnings Webcast, 1/26/17
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
261.4
282.2
2015 2016
Cash Generation
Free Cash Flow
($ Millions)
See appendix for non-GAAP reconciliations.
154%
of
adjusted
net
income
125%
of net
income
> $1B of free
cash flow over
last 4 years
2014
Target
Leverage
2.0x – 3.5x
3.5X
Leverage
(Total Par Debt to TTM EBITDA)
2015 2016
12
Q4 & FY 2016 Earnings Webcast, 1/26/17
2017 Outlook
Q1 FY
Sales (3)% to flat Flat to 4%
Operating Margin 3.8% to 4.1% 4.4% to 4.6%
Effective Tax Rate ~ 30% ~ 30%
Diluted EPS $3.60 to $4.00
Free Cash Flow >90% of net income
Notes: Excludes unannounced acquisitions.
Assumes a CAD/USD exchange rate of 0.75 in Q1.
See appendix for non-GAAP reconciliations.
…sales and EPS outlook in line with 2017 Outlook Call range
13
Q4 & FY 2016 Earnings Webcast, 1/26/17
Appendix
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures
include normalized organic sales growth, gross profit, financial leverage, free cash flow, adjusted net
income and adjusted earnings per diluted share. The Company believes that these non-GAAP
measures are useful to investors in order to provide a better understanding of the Company's organic
growth trends, capital structure position and liquidity on a comparable basis. Additionally, certain of
the aforementioned non-GAAP measures either focus on or exclude transactions impacting
comparability of results, 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.
14
Q4 & FY 2016 Earnings Webcast, 1/26/17
WESCO Profile 2016
36%
34%
16%
14%
40%
15%
14%
12%
11%
8%
Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis.
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 | Contractors
Automation, Controls & Motors
Lighting & Sustainability
General Supplies
Communications & Security
Wire, Cable & Conduit
Electrical Distribution & Controls
15
Q4 & FY 2016 Earnings Webcast, 1/26/17
Sales Growth
2014 2015 2016
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Change in Net Sales 0.2 5.9 7.6 6.1 5.0 0.3 (4.4) (7.4) (6.7) (4.7) (2.2) (0.3) (3.6) (3.7) (2.4)
Acquisition Impact 0.5 1.6 1.8 1.6 1.4 1.2 1.6 2.0 3.0 2.0 3.9 3.7 2.9 1.8 3.1
Core (0.3) 4.3 5.8 4.5 3.6 (0.9) (6.0) (9.4) (9.7) (6.7) (6.1) (4.0) (6.5) (5.5) (5.5)
FX Impact (1.9) (1.7) (0.9) (2.0) (1.6) (2.5) (3.0) (4.1) (3.7) (3.4) (2.6) (0.9) (0.3) (0.3) (1.0)
Organic 1.6 6.0 6.7 6.5 5.2 1.6 (3.0) (5.3) (6.0) (3.3) (3.5) (3.1) (6.2) (5.2) (4.5)
Workday Impact (1.6) (0.4) (1.6) 1.6 3.2 (1.6) 0.4
Normalized Organic 1.6 6.0 6.7 8.1 5.6 3.2 (3.0) (5.3) (7.6) (3.3) (6.7) (3.1) (6.2) (3.6) (4.9)
(%)
Note: Core sales growth excludes acquisitions during the first year ownership.
16
Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Sales Growth – Geography
U.S. Canada International Total
Change in net sales (USD) (3.0) (4.1) (10.9) (3.7)
Impact from acquisitions 2.4 - - 1.8
Impact from foreign exchange rates - (0.3) (3.7) (0.3)
Impact from number of workdays (1.6) (1.6) (1.6) (1.6)
Normalized organic sales growth (3.8) (2.2) (5.6) (3.6)
(%)
17
Q4 & FY 2016 Earnings Webcast, 1/26/17
Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation.
($ Millions)
Sales Growth-End Markets
Q4 2016 vs. Q4 2015 Q4 2016 vs. Q3 2016 Full Year 2016 vs. 2015
Q4 Q4 Q4 Q3
2016 2015
%
Growth 2016 2016
%
Growth 2016 2015
%
Growth
Industrial Core 645 707 (8.7) % 647 658 (1.7)% 2,641 2,958 (10.7)%
Construction Core 584 607 (3.7) % 613 642 (4.6)% 2,320 2,401 (3.4)%
Utility Core 294 291 0.9 % 293 292 0.5% 1,163 1,158 0.4%
CIG Core 243 263 (7.7) % 247 270 (8.5)% 1,008 1,029 (2.1)%
Total Core Gross Sales 1,766 1,868 (3.7) % 1,800 1,862 (3.3)% 7,132 7,546 (5.5)%
Total Gross Sales from Acquisitions 34 - - - - -00 232 - -00
Total Gross Sales 1,800 1,868 (3.7) % 1,800 1,862 (3.3)% 7,364 7,546 (2.4)%
Gross Sales Reductions/Discounts (7) (7) - (7) (7) -00 (28) (27) -00
Total Net Sales 1,793 1,861 (3.7) % 1,793 1,855 (3.3)% 7,336 7,519 (2.4)%
18
Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (8.7) (3.7) 0.9 (7.7) (5.5)
Workday Impact (1.6) (1.6) (1.6) (1.6) (1.6)
Workday Adjusted Core Growth (7.1) (2.1) 2.5 (6.1) (3.9)
FX Impact (0.3) (0.2) (0.1) (0.3) (0.3)
Workday Adjusted Organic Growth (6.8) (1.9) 2.6 (5.8) (3.6)
(%)
19
Q4 & FY 2016 Earnings Webcast, 1/26/17
FY 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (10.7) (3.4) 0.4 (2.1) (5.5)
Workday Impact 0.4 0.4 0.4 0.4 0.4
Workday Adjusted Core Growth (11.1) (3.8) - (2.5) (5.9)
FX Impact (0.9) (1.6) (0.5) (0.8) (1.0)
Workday Adjusted Organic Growth (10.2) (2.2) 0.5 (1.7) (4.9)
(%)
20
Q4 & FY 2016 Earnings Webcast, 1/26/17
Adjusted Tax Rate
($ Millions)
Q4 2015 FY 2015
Reported
Results
Adjustments
(1)
Adjusted
Results
Reported
Results
Adjustments
(1)
Adjusted
Results
Income before income taxes 80.1 (9.4) 70.7 303.9 (9.4) 294.5
Provision for income taxes 31.5 (11.7) 19.8 95.5 (11.7) 83.8
Effective tax rate 39.3% 28.0% 31.4% 28.5%
(1) Relates to the resolution of transfer pricing matters.
21
Q4 & FY 2016 Earnings Webcast, 1/26/17
2029 Debentures Loss Non-GAAP Reconciliation
FY 2016
Reported
Results Adjustments
Adjusted
Results
Operating profit $ 332.0 - $ 332.0
Interest 76.6 - 76.6
Loss on debt redemption 123.9 (123.9) 1 -
Income before income taxes 131.5 123.9 255.4
Taxes 30.4 41.2 1 71.6
Effective tax rate 23.1% 28.0%
Net income 101.1 82.7 183.8
Less: Non-controlling interest (0.5) - (0.5)
Net income attributable to WESCO $ 101.6 82.7 $ 184.3
Adjusted Earnings per Diluted Shares:
Diluted earnings per common share (as reported) $2.10
Loss on debt redemption 2 2.54
Tax effect of loss on debt redemption 2 (0.84)
Adjusted diluted earnings per common share $3.80
(1) Represents the third quarter loss on debt redemption and related income tax benefit.
(2) The loss on debt redemption and related income tax benefits are based on third quarter diluted shares of 48.7 million.
($ Millions, except for EPS)
22
Q4 & FY 2016 Earnings Webcast, 1/26/17
Outstanding at
December 31, 2015
Outstanding at
December 31, 2016
Debt
Maturity Schedule
AR Revolver (V) 525 380 2018
Inventory Revolver (V) 75 4 2020
2019 Term Loans (V) 175 145 2019
2021 Senior Notes (F) 500 500 2021
2024 Senior Notes (F) - 350 2024
2029 Convertible Bonds (F) 345 - 2029 (1)
Other (V) 45 24 N/A
Total Par Debt 1,665 1,403
Capital Structure
Key Financial Metrics
YE 2015 YE 2016
Cash 160 110
Capital Expenditures 22 18
Free Cash Flow (2) 261 282
Liquidity (3) 546 705
($ Millions)
V = Variable Rate Debt 1 = Redeemed on September 15, 2016.
F = Fixed Rate Debt 2 = Cash flow provided by operations less capital expenditures.
3 = Total availability under asset-backed credit facilities plus invested cash.
23
Q4 & FY 2016 Earnings Webcast, 1/26/17
Financial Leverage
Twelve Months Ended
December 31, 2016
Financial leverage ratio:
Income from operations $ 332
Depreciation and amortization 67
EBITDA $ 399
December 31, 2016
Current debt and short-term borrowings $ 22
Long-term debt 1,363
Debt discount and deferred financing (1) 18
Total debt $ 1,403
Less: cash and cash equivalents $ 110
Total debt, net of cash $ 1,293
Financial leverage ratio 3.5X
Financial leverage ratio, net of cash 3.2X
(1)Long-term debt is presented in the condensed consolidated balance sheet as of December 31, 2016 net of deferred financing
fees and discount related to the term loan.
($ Millions)
24
Q4 & FY 2016 Earnings Webcast, 1/26/17
($ Millions)
2014 2015 2016
Amortization of Debt Discount* 4.1 6.1 3.0
Amortization of Deferred Financing
Fees 4.4 6.1 3.6
FIN 48 1.0 (8.7) 1.2
Total 9.5 3.5 7.8
Non-Cash Interest Expense
* Includes convertible debt and term loan.
25
Q4 & FY 2016 Earnings Webcast, 1/26/17
Free Cash Flow Reconciliation
Q4
2015
Q4
2016
YTD
2015
YTD
2016
Cash flow provided by operations 107.1 83.0 283.1 300.2
Less: Capital expenditures (5.5) (4.8) (21.7) (18.0)
Free Cash Flow 101.6 78.2 261.4 282.2
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are
deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's
other investing and financing activities.
($ Millions)
26
Q4 & FY 2016 Earnings Webcast, 1/26/17
Work Days
Q1
Q2 Q3 Q4 FY
2014 63 64 64 62 253
2015 62 64 64 63 253
2016 64 64 64 62 254
2017 64 64 63 62 253