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): August 2, 2018
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||||
Emerging growth company o | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o | ||||
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 August 2, 2018, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the second quarter of 2018. 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 2018 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.
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) | ||
August 2, 2018 | 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 Second Quarter 2018 Results
Second quarter highlights:
• | Record consolidated net sales of $2.1 billion, up 10% versus prior year |
– | Organic sales growth of 9% |
• | Operating profit of $91.2 million, up 10% versus prior year |
• | Earnings per diluted share of $1.22, up 20% versus prior year |
PITTSBURGH, August 2, 2018 /PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), 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 logistics services, announces its results for the second quarter of 2018.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, “Our broad-based return to growth, which began in mid-2017, continued in the second quarter. Organic sales grew 9%, with all end markets and geographies contributing to growth for the fourth consecutive quarter. Sales growth was consistently strong throughout the quarter and our backlog expanded to a record high level. Gross margin was sequentially stable, and we delivered double digit growth in operating profit and EPS for the second quarter in a row.”
The following are results for the three months ended June 30, 2018 compared to the three months ended June 30, 2017:
• | Net sales were $2.1 billion for the second quarter of 2018, compared to $1.9 billion for the second quarter of 2017, an increase of 10.2%. Organic sales for the second quarter of 2018 grew by 9.0% as foreign exchange rates impacted net sales by 1.2%. Sequentially, net sales increased 5.5% and organic sales increased 6.1%. |
• | Cost of goods sold for the second quarter of 2018 was $1.7 billion and gross profit was $399.9 million, compared to cost of goods sold and gross profit of $1.5 billion and $366.1 million, respectively, for the second quarter of 2017. As a percentage of net sales, gross profit was 19.0% and 19.2% for the second quarter of 2018 and 2017, respectively. A reclassification of certain labor costs from selling, general and administrative expenses and the mix impact of growth in the International and Utility businesses collectively reduced gross margin for the second quarter of 2018 by 30 basis points. |
• | Selling, general and administrative ("SG&A") expenses were $292.9 million, or 13.9% of net sales, for the second quarter of 2018, compared to $267.8 million, or 14.0% of net sales, for the second quarter of 2017. SG&A for the second quarter of 2018 included the restoration of incentive compensation of approximately $8.0 million and a bad debt charge of $2.5 million related to a Canadian customer that ceased operations. |
• | Operating profit was $91.2 million for the second quarter of 2018, compared to $82.6 million for the second quarter of 2017, an increase of 10.4%. Operating profit as a percentage of net sales was 4.3% for the second quarter of 2018 and 2017. Excluding the aforementioned bad debt charge, operating profit as a percentage of net sales was 4.5% for the second quarter of 2018. |
• | Net interest and other for the second quarter of 2018 was $17.7 million, compared to $16.3 million for the second quarter of 2017. For the three months ended June 30, 2018, net interest and other includes accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments on our term loan facility. |
• | The effective tax rate for the second quarter of 2018 was 21.5%, compared to 25.3% for the second quarter of 2017. The lower effective tax rate in the current quarter is primarily due to the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018. |
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• | Net income attributable to WESCO International, Inc. was $58.0 million for the second quarter of 2018, compared to $49.5 million for the second quarter of 2017, an increase of 17.0%. |
• | Earnings per diluted share for the second quarter of 2018 was $1.22, based on 47.6 million diluted shares, compared to $1.02 for the second quarter of 2017, based on 48.8 million diluted shares, an increase of 19.6%. |
• | Operating cash flow for the second quarter of 2018 was $33.8 million, compared to $19.1 million for the second quarter of 2017. Free cash flow for the second quarter of 2018 was $25.1 million, or 44% of net income, compared to $13.8 million, or 28% of net income, for the second quarter of 2017. |
The following are results for the six months ended June 30, 2018 compared to the six months ended June 30, 2017:
• | Net sales were $4.1 billion for the first six months of 2018, compared to $3.7 billion for the first six months of 2017, an increase of 11.3%. Organic sales for the first six months of 2018 grew by 9.9% as foreign exchange rates impacted net sales by 1.4%. |
• | Cost of goods sold for the first six months of 2018 was $3.3 billion and gross profit was $779.8 million, compared to cost of goods sold and gross profit of $3.0 billion and $716.1 million, respectively, for the first six months of 2017. As a percentage of net sales, gross profit was 19.0% and 19.4% for the first six months of 2018 and 2017, respectively. A reclassification of certain labor costs from selling, general and administrative expenses and the mix impact of growth in the International and Utility businesses collectively reduced gross margin for the first six months of 2018 by 30 basis points. |
• | Selling, general and administrative expenses were $583.7 million, or 14.2% of net sales, for the first six months of 2018, compared to $535.2 million, or 14.5% of net sales, for the first six months of 2017. SG&A for the first six months of 2018 included the restoration of incentive compensation of approximately $16.0 million. |
• | Operating profit was $164.4 million for the first six months of 2018, compared to $149.3 million for the first six months of 2017, an increase of 10.1%. Operating profit as a percentage of net sales was 4.0% for the current six month period, compared to 4.1% for the prior six month period. |
• | Net interest and other for the first six months of 2018 was $37.5 million, compared to $32.6 million for the first six months of 2017. For the six months ended June 30, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments on our term loan facility. |
• | The effective tax rate for the first six months of 2018 was 20.7%, compared to 25.1% for the first six months of 2017. The lower effective tax rate in the current year is primarily due to the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018. |
• | Net income attributable to WESCO International, Inc. was $102.3 million for the first six months of 2018, compared to $87.3 million for the first six months of 2017, an increase of 17.2%. |
• | Earnings per diluted share for the first six months of 2018 was $2.15, based on 47.6 million diluted shares, compared to $1.78 for the first six months of 2017, based on 49.1 million diluted shares, an increase of 20.8%. |
• | Operating cash flow for the first six months of 2018 was $86.8 million, compared to $66.8 million for the first six months of 2017. Free cash flow for the first six months of 2018 was $70.4 million, or 70% of net income, compared to $57.0 million, or 65% of net income, for the first six months of 2017. |
Mr. Engel continued, “We are pleased with our results in the first half and our focus remains on driving profitable growth in 2018. Sales growth momentum has continued into July, and we expect favorable economic conditions and the positive momentum in our end markets to continue this year. Based on our first half results and our positive view of the end markets, we have increased our full year expectation for sales growth to be in the range of 6% to 9% and raised the low end of our diluted EPS outlook $0.10 to a range of $4.60 to $5.00. We expect operating margin to be in the range of 4.2% to 4.5% and to generate free cash flow of at least 90% of net income.”
Mr. Engel added, “Our customers continue to look to WESCO to provide robust supply chain solutions to meet their MRO, OEM and capital project needs. Increasingly, customers are utilizing our portfolio of value-added services to ensure job site productivity, while our team of technical sales personnel is differentiating WESCO and driving above market growth rates. I am highly confident in our team’s ability to provide outstanding customer service and to deliver value to our customers and suppliers now and into the future.”
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Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the second quarter of 2018 earnings as described in this News Release on Thursday, August 2, 2018, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company's website at www.wesco.investorroom.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. 2017 annual sales were approximately $7.7 billion. The company employs approximately 9,100 people, maintains relationships with over 26,000 suppliers, and serves approximately 70,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates 10 fully automated distribution centers and approximately 500 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, 2017, as well as the Company's other reports filed with the Securities and Exchange Commission.
Contact Information:
Will Ruthrauff, Director, Investor Relations
(412) 454-4220
http://www.wesco.com
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended | |||||||||||
June 30, 2018 | June 30, 2017 | ||||||||||
Net sales | $ | 2,104.0 | $ | 1,909.6 | |||||||
Cost of goods sold (excluding | 1,704.1 | 81.0 | % | 1,543.5 | 80.8 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses (1) | 292.9 | 13.9 | % | 267.8 | 14.0 | % | |||||
Depreciation and amortization | 15.8 | 15.7 | |||||||||
Income from operations | 91.2 | 4.3 | % | 82.6 | 4.3 | % | |||||
Net interest and other (1) | 17.7 | 16.3 | |||||||||
Income before income taxes | 73.5 | 3.5 | % | 66.3 | 3.5 | % | |||||
Provision for income taxes | 15.8 | 16.8 | |||||||||
Net income | 57.7 | 2.7 | % | 49.5 | 2.6 | % | |||||
Net loss attributable to noncontrolling interests | (0.3 | ) | — | ||||||||
Net income attributable to WESCO International, Inc. | $ | 58.0 | 2.8 | % | $ | 49.5 | 2.6 | % | |||
Earnings per diluted common share | $ | 1.22 | $ | 1.02 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing earnings per diluted | |||||||||||
share (in millions) | 47.6 | 48.8 | |||||||||
(1) | The Company adopted Accounting Standards Update (ASU) 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on a retrospective basis during the first quarter of 2018. This ASU requires the disaggregation of service cost from the other components of net periodic benefit cost. For the three months ended June 30, 2018 and 2017, the non-service cost components of net periodic benefit cost aggregated to a benefit of $0.5 million and are included in net interest and other. |
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Six Months Ended | |||||||||||
June 30, 2018 | June 30, 2017 | ||||||||||
Net sales | $ | 4,097.9 | $ | 3,682.2 | |||||||
Cost of goods sold (excluding | 3,318.1 | 81.0 | % | 2,966.1 | 80.6 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses (1) | 583.7 | 14.2 | % | 535.2 | 14.5 | % | |||||
Depreciation and amortization | 31.7 | 31.6 | |||||||||
Income from operations | 164.4 | 4.0 | % | 149.3 | 4.1 | % | |||||
Net interest and other (1) | 37.5 | 32.6 | |||||||||
Income before income taxes | 126.9 | 3.1 | % | 116.7 | 3.2 | % | |||||
Provision for income taxes | 26.3 | 29.3 | |||||||||
Net income | 100.6 | 2.5 | % | 87.4 | 2.4 | % | |||||
Net (loss) income attributable to noncontrolling interests | (1.7 | ) | 0.1 | ||||||||
Net income attributable to WESCO International, Inc. | $ | 102.3 | 2.5 | % | $ | 87.3 | 2.4 | % | |||
Earnings per diluted common share | $ | 2.15 | $ | 1.78 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing earnings per diluted | |||||||||||
share (in millions) | 47.6 | 49.1 | |||||||||
(1) | For the six months ended June 30, 2018 and 2017, the non-service cost components of net periodic benefit cost aggregated to benefits of $1.0 million and $0.9 million, respectively, and are included in net interest and other. |
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
June 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 110.9 | $ | 118.0 | |||
Trade accounts receivable, net | 1,257.3 | 1,170.1 | |||||
Inventories | 935.2 | 956.1 | |||||
Other current assets | 143.6 | 164.7 | |||||
Total current assets | 2,447.0 | 2,408.9 | |||||
Other assets | 2,268.0 | 2,326.6 | |||||
Total assets | $ | 4,715.0 | $ | 4,735.5 | |||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 818.2 | $ | 799.5 | |||
Short-term borrowings and current debt | 36.7 | 35.3 | |||||
Other current liabilities | 171.0 | 206.2 | |||||
Total current liabilities | 1,025.9 | 1,041.0 | |||||
Long-term debt, net | 1,261.7 | 1,313.3 | |||||
Other noncurrent liabilities | 261.6 | 265.1 | |||||
Total liabilities | 2,549.2 | 2,619.4 | |||||
Stockholders' Equity | |||||||
Total stockholders' equity | 2,165.8 | 2,116.1 | |||||
Total liabilities and stockholders' equity | $ | 4,715.0 | $ | 4,735.5 | |||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Six Months Ended | |||||||
June 30, 2018 | June 30, 2017 | ||||||
Operating Activities: | |||||||
Net income | $ | 100.6 | $ | 87.4 | |||
Add back (deduct): | |||||||
Depreciation and amortization | 31.7 | 31.6 | |||||
Deferred income taxes | 6.1 | 6.4 | |||||
Change in trade receivables, net | (102.6 | ) | (96.0 | ) | |||
Change in inventories | 11.4 | (36.9 | ) | ||||
Change in accounts payable | 26.1 | 76.8 | |||||
Other | 13.5 | (2.5 | ) | ||||
Net cash provided by operating activities | 86.8 | 66.8 | |||||
Investing Activities: | |||||||
Capital expenditures | (16.4 | ) | (9.8 | ) | |||
Other | (8.7 | ) | 3.5 | ||||
Net cash used in investing activities | (25.1 | ) | (6.3 | ) | |||
Financing Activities: | |||||||
Debt repayments, net | (52.5 | ) | (30.0 | ) | |||
Equity activity, net | (1.9 | ) | (56.7 | ) | |||
Other | (9.4 | ) | 0.2 | ||||
Net cash used in financing activities | (63.8 | ) | (86.5 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (5.0 | ) | 3.7 | ||||
Net change in cash and cash equivalents | (7.1 | ) | (22.3 | ) | |||
Cash and cash equivalents at the beginning of the period | 118.0 | 110.1 | |||||
Cash and cash equivalents at the end of the period | $ | 110.9 | $ | 87.8 | |||
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NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, financial leverage, earnings before interest, taxes, depreciation and amortization (EBITDA), and free cash flow. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except organic sales data)
(Unaudited)
Three Months Ended | Six Months Ended | ||||
Organic Sales Growth: | June 30, 2018 | June 30, 2018 | |||
Change in net sales | 10.2 | % | 11.3 | % | |
Impact from acquisitions | — | % | — | % | |
Impact from foreign exchange rates | 1.2 | % | 1.4 | % | |
Impact from number of workdays | — | % | — | % | |
Organic sales growth | 9.0 | % | 9.9 | % | |
Three Months Ended | ||
Organic Sales Growth - Sequential: | June 30, 2018 | |
Change in net sales | 5.5 | % |
Impact from acquisitions | — | % |
Impact from foreign exchange rates | (0.6 | )% |
Impact from number of workdays | — | % |
Organic sales growth | 6.1 | % |
Note: Organic sales growth is a measure of sales performance. Organic sales growth 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 | Six Months Ended | ||||||||||||||
Gross Profit: | June 30, 2018 | June 30, 2017 | June 30, 2018 | June 30, 2017 | |||||||||||
Net sales | $ | 2,104.0 | $ | 1,909.6 | $ | 4,097.9 | $ | 3,682.2 | |||||||
Cost of goods sold (excluding depreciation and amortization) | 1,704.1 | 1,543.5 | 3,318.1 | 2,966.1 | |||||||||||
Gross profit | $ | 399.9 | $ | 366.1 | $ | 779.8 | $ | 716.1 | |||||||
Gross margin | 19.0 | % | 19.2 | % | 19.0 | % | 19.4 | % | |||||||
Note: Gross profit is a financial measure commonly used within the distribution industry. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended | |||||||
Financial Leverage: | June 30, 2018 | December 31, 2017 | |||||
Income from operations (1) | $ | 334.2 | $ | 319.2 | |||
Depreciation and amortization | 64.0 | 64.0 | |||||
EBITDA | $ | 398.2 | $ | 383.2 | |||
June 30, 2018 | December 31, 2017 | ||||||
Short-term borrowings and current debt | $ | 36.7 | $ | 35.3 | |||
Long-term debt | 1,261.7 | 1,313.3 | |||||
Debt discount and debt issuance costs (2) | 11.4 | 14.2 | |||||
Total debt | 1,309.8 | 1,362.8 | |||||
Less: cash and cash equivalents | 110.9 | 118.0 | |||||
Total debt, net of cash | $ | 1,198.9 | $ | 1,244.8 | |||
Financial leverage ratio | 3.3 | 3.6 | |||||
Financial leverage ratio, net of cash | 3.0 | 3.2 | |||||
(1) | Due to the adoption of ASU 2017-07 on a retrospective basis in the first quarter of 2018, the Company classified the non-service cost components of net periodic benefit cost as part of net interest and other for the twelve months ended June 30, 2018 and December 31, 2017. These components aggregated to a benefit of $1.9 million and $1.8 million, respectively. |
(2) | Long-term debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs. |
Note: Financial leverage measures the use of debt. Financial leverage ratio is calculated by dividing total debt, including debt discount and debt issuance costs, by EBITDA. Financial leverage ratio, net of cash is calculated by dividing total debt, including debt discount and debt issuance costs, net of cash, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.
Three Months Ended | Six Months Ended | ||||||||||||||
Free Cash Flow: | June 30, 2018 | June 30, 2017 | June 30, 2018 | June 30, 2017 | |||||||||||
Cash flow provided by operations | $ | 33.8 | $ | 19.1 | $ | 86.8 | $ | 66.8 | |||||||
Less: Capital expenditures | (8.7 | ) | (5.3 | ) | (16.4 | ) | (9.8 | ) | |||||||
Free cash flow | $ | 25.1 | $ | 13.8 | $ | 70.4 | $ | 57.0 | |||||||
Percentage of net income | 44 | % | 28 | % | 70 | % | 65 | % | |||||||
Note: Free cash flow is a measure of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing and financing activities.
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Q2 2018 Earnings Webcast Presentation – August 2, 2018
Safe Harbor Statement 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; increase in competition; expansion of business activities; supply chain disruptions, changes in supplier strategy or loss of key suppliers; personnel turnover or labor cost increases; risks related to acquisitions, including the integration of acquired businesses; tax law changes or challenges to tax matters, including uncertainties in the interpretation and application of the Tax Cuts and Jobs Act of 2017; exchange rate fluctuations; debt levels, terms, financial market conditions or interest rate fluctuations; stock market, economic or political instability; legal or regulatory matters; litigation, disputes, contingencies or claims; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2017 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. 2 Q2 2018 Earnings Webcast 8/2/18
Q2 2018 Highlights Apr 11% May 10% Organic Growth • Continued strong results in the second quarter June 7% ‒ Double digit operating profit and EPS growth versus (%) prior year 10.9 10.1 • Continued positive business momentum and growth across 8.6 9.0 all end markets and geographies • Reported sales were up 10%, organic sales were up 9%: ‒ Up 8% in the U.S. ‒ Up 8% in Canada 1.0 ‒ Up 30% in International (1.7) • Q2 monthly organic sales up 9%, 10% and 11% on a 2 year (3.1) (3.6) stack basis • Estimated pricing impact +2% (6.2) (6.7) • July preliminary workday adjusted sales up mid single digits Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 • Q2 backlog at an all-time record level, up 2% sequentially 2016 2017 2018 and up 10% versus prior year Note: Organic growth excludes the impact of acquisitions in the first year of • Free cash flow at 70% of net income YTD ownership, foreign exchange rates and number of workdays. See appendix for non-GAAP reconciliations. …double digit operating profit and EPS growth versus prior year 3 Q2 2018 Earnings Webcast 8/2/18
Industrial End Market Organic Sales Growth versus Prior Year • Q2 2018 Sales − Organic sales were up 6% versus prior year • Global Accounts (up 5% in the U.S. and up 7% in Canada in local 37% • Integrated Supply • OEM currency) • General Industrial Industrial 13.9% − Up 1% sequentially 11.2% 10.4% • Continued strong business momentum and positive future sentiment with industrial customers 2017 • Sales growth was broad-based across the U.S. and 8.0% 6.0% 5.8% Canada • Global Account and Integrated Supply opportunity 1.2% pipeline and bidding activity levels remain strong • Customer trends include continued high expectations Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 for supply chain process improvements, cost Note: See appendix for non-GAAP reconciliations. reductions, and supplier consolidation Awarded a multi-year contract to supply electrical MRO materials and support capital projects for a large food and beverage manufacturer in the U.S. 4 Q2 2018 Earnings Webcast 8/2/18
Construction End Market Organic Sales Growth versus Prior Year • Q2 2018 Sales − Organic sales were up 8% versus prior year 33% • Non-Residential • Contractors (up 8% in the U.S. and up 9% in Canada in local Construction currency) 8.9% 9.4% 7.9% 6.0% − Up 8% sequentially • Continued strong business momentum with 2017 construction/contractor customers 1.7% • Sales growth was broad-based across the U.S. and Canada (3.6%) • Backlog up 10% versus prior year and is up 2% from (4.4%) Q1 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 • Expecting moderate growth and uptrend in non- Note: See appendix for non-GAAP reconciliations. residential construction market to continue Awarded a contract to provide high voltage materials to a contractor for an upgrade to a wastewater treatment facility in the U.S. 5 Q2 2018 Earnings Webcast 8/2/18
Utility End Market Organic Sales Growth versus Prior Year • Q2 2018 Sales − Organic sales were up 19% versus prior year (up 18.8% 22% in the U.S. and down 2% in Canada in local • Investor Owned 17.9% currency) 16% • Public Power • Utility Contractors − Up 7% sequentially Utility • Continued scope expansion and value creation with 8.6% 9.1% investor-owned utility, public power, and generation customers 2017 2.3% • Continued interest in Integrated Supply solution offerings • Favorable economic conditions, continued improvement (4.5%) (4.4%) in construction market, renewables growth, and consolidation trend within Utility industry remain Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 positive catalysts for future spending Note: See appendix for non-GAAP reconciliations. Awarded a multi-year contract to provide material management logistic services for an existing IOU customer in support of an infrastructure improvement project. 6 Q2 2018 Earnings Webcast 8/2/18
CIG End Market • Q2 2018 Sales Organic Sales Growth versus Prior Year − Organic sales were up 9% versus prior year (flat in the U.S. and up 14% in Canada in local • Commercial 14% • Institutional currency; balance of growth in International) • Government CIG 9.4% − Up 15% sequentially 9.0% 8.5% 7.4% • Technical expertise and supply chain solutions 4.8% driving positive momentum in datacenter, 2017 broadband, and cloud technology projects 4.8% • Continued strong momentum seen in LED lighting retrofits, FTTX deployments, broadband build outs, and cyber and physical security for critical (2.0%) infrastructure protection Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Note: See appendix for non-GAAP reconciliations. Awarded a contract to provide outside plant materials in support of a fiber to the home network build out for an electric cooperative. 7 Q2 2018 Earnings Webcast 8/2/18
Q2 2018 Results Outlook Actual YOY Sales 7% to 10% $2.1B Up 10.2% Gross Margin 19.0% Down 20 bps (1) SG&A $293M, 13.9% Up 10%, improved 10 bps Operating Profit $91M Up 10% Operating Margin 4.2% to 4.5% 4.3% Flat (2) Effective Tax Rate ~21% 21.5% Down 380 bps EPS $1.22 Up 20% $2.1B 150 bps 120 bps 160 bps 590 bps $1.9B 9.0% 7.7% 8.3% 29.9% 10.2% Organic Growth Growth Growth Growth Growth Q2 2017 U.S. Canada International Foreign Q2 2018 Sales Exchange Sales Note: See appendix for non-GAAP reconciliations. (1) Includes the impact of a 15 bps reclassification of certain labor costs from selling, general and administrative expenses. (2) Operating profit was 4.5% excluding the impact of a bad debt charge related to a Canadian customer that ceased operations. …margins stabilizing, positive operating profit pull through 8 Q2 2018 Earnings Webcast 8/2/18
Diluted EPS Walk Q2 2017 $1.02 Core operations (Includes the planned restoration of variable compensation versus prior year) 0.09 Foreign exchange 0.02 Tax 0.06 Share count 0.03 2018 $1.22 …20% EPS growth versus prior year 9 Q2 2018 Earnings Webcast 8/2/18
Free Cash Flow & Leverage Free Cash Flow Leverage ($ Millions) (Total Debt to TTM EBITDA) ~ $1.2B of free 4 cash flow over Target last 5 years Leverage 2.0x – 3.5x 70.4 3.5 57.0 3.3X 3 2.5 2 65% 70% of net of net 1.5 income income Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 YTD 2018 YTD 2016 2017 2018 Note: See appendix for non-GAAP reconciliations. 10 Q2 2018 Earnings Webcast 8/2/18
2018 Outlook FY FY Q3 (Current) (Previous) Sales 3% to 6% 6% to 9% 5% to 8% Operating Margin 4.5% to 4.8% 4.2% to 4.5% 4.2% to 4.6% Effective Tax Rate ~ 21% 21% to 23% 21% to 23% Diluted EPS $4.60 to $5.00 $4.50 to $5.00 Free Cash Flow >90% of net income >90% of net income Notes: Excludes unannounced acquisitions. Assumes a CAD/USD exchange rate of 0.76. See appendix for non-GAAP reconciliations. …raising sales and EPS outlook for 2018 11 Q2 2018 Earnings Webcast 8/2/18
Appendix NON-GAAP FINANCIAL MEASURES This presentation includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, financial leverage, earnings before interest, taxes, depreciation and amortization (EBITDA), and free cash flow. Management believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above. 12 Q2 2018 Earnings Webcast 8/2/18
WESCO Profile 2018 Markets & Customers Products & Services 8% 14% 10% 40% 16% 37% 12% 33% 15% 15% Industrial Global Accounts | Integrated Supply General Supplies OEM | General Industrial Communications & Security Construction Wire, Cable & Conduit Non-Residential | Contractors Utility Lighting & Sustainability Investor Owned | Public Power Electrical Distribution & Controls Utility Contractors Automation, Controls & Motors CIG Commercial | Institutional | Government Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis. 13 Q2 2018 Earnings Webcast 8/2/18
Sales Growth (%) 2016 2017 2018 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Change in Net Sales (2.2) (0.3) (3.6) (3.7) (2.4) (0.2) (0.1) 7.8 11.3 4.7 12.5 10.2 Acquisition Impact 3.9 3.7 2.9 1.8 3.1 0.9 0.2 Core (6.1) (4.0) (6.5) (5.5) (5.5) (1.1) (0.1) 7.8 11.3 4.5 12.5 10.2 FX Impact (2.6) (0.9) (0.3) (0.3) (1.0) 0.6 (1.1) 0.8 1.2 0.4 1.6 1.2 Workday Impact 3.2 (1.6) 0.4 (1.6) (0.4) Organic (6.7) (3.1) (6.2) (3.6) (4.9) (1.7) 1.0 8.6 10.1 4.5 10.9 9.0 Note: Core sales growth excludes acquisitions during the first year of ownership. 14 Q2 2018 Earnings Webcast 8/2/18
Q2 2018 Organic Sales Growth by Geography (%) U.S. Canada International WESCO Change in net sales (USD) 7.7 13.2 35.2 10.2 Impact from acquisitions - - - - Impact from foreign exchange rates - 4.9 5.3 1.2 Impact from number of workdays - - - - Organic sales growth 7.7 8.3 29.9 9.0 15 Q2 2018 Earnings Webcast 8/2/18
Sales Growth-End Markets ($ Millions) Q2 2018 vs. Q2 2017 Q2 2018 vs. Q1 2018 Q2 Q2 Q2 Q1 % % 2018 2017 Growth 2018 2018 Growth Industrial Core 764 714 6.9% 764 762 0.2% Construction Core 686 626 9.6% 686 640 7.2% Utility Core 338 284 19.3% 338 317 6.8% CIG Core 324 293 10.4% 324 283 14.5% Total Core Gross Sales 2,112 1,918 10.2% 2,112 2,002 5.5% Total Gross Sales from Acquisitions - - - - Total Gross Sales 2,112 1,918 10.2% 2,112 2,002 5.5% Gross Sales Reductions/Discounts (8) (8) (8) (8) Total Net Sales 2,104 1,910 10.2% 2,104 1,994 5.5% Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation. 16 Q2 2018 Earnings Webcast 8/2/18
Q2 2018 Organic Sales by End Market (%) Industrial Construction Utility CIG WESCO Core Sales Growth 6.9 9.6 19.3 10.4 10.2 FX Impact 1.1 1.7 0.5 1.0 1.2 Workday Impact - - - - - Organic Growth 5.8 7.9 18.8 9.4 9.0 17 Q2 2018 Earnings Webcast 8/2/18
Gross Margin ($ Millions) Three Months Ended June 30, June 30, 2018 2017 Net sales $2,104 $1,910 Cost of goods sold (excluding depreciation and amortization) 1,704 1,544 Gross profit $400 $366 Gross margin 19.0% 19.2% Note: Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales. 18 Q2 2018 Earnings Webcast 8/2/18
Capital Structure ($ Millions) Outstanding at Outstanding at Debt December 31, 2017 June 30, 2018 Maturity Schedule AR Revolver (V) 380 395 2020 Inventory Revolver (V) 12 3 2020 2019 Term Loans (V) 85 25 2019 2021 Senior Notes (F) 500 500 2021 2024 Senior Notes (F) 350 350 2024 Other (V) 36 38 N/A Total Debt 1,363 1,310 Key Financial Metrics YE 2017 Q2 2018 Cash 118 111 Capital Expenditures 22 9 Free Cash Flow (1) 128 25 Liquidity (2) 794 772 (V) Variable Rate Debt (1) Cash flow provided by operations less capital expenditures. (F) Fixed Rate Debt (2) Total availability under asset-backed credit facilities plus cash in investment accounts. 19 Q2 2018 Earnings Webcast 8/2/18
Financial Leverage ($ Millions) Twelve Months Ended June 30, 2018 Income from operations (1) $ 334 Depreciation and amortization 64 EBITDA $ 398 June 30, 2018 Short-term borrowings and current debt $ 37 Long-term debt 1,262 Debt discount and debt issuance costs (2) 11 Total debt $ 1,310 Less: cash and cash equivalents $ 111 Total debt, net of cash $ 1,199 Financial leverage ratio 3.3X Financial leverage ratio, net of cash 3.0X (1) Due to the adoption of ASU 2017-07 on a retrospective basis in the first quarter of 2018, the Company classified the non-service cost components of net periodic benefit cost as part of net interest and other for the twelve months ended June 30, 2018. These components aggregate to a benefit of $1.9 million. (2) Long-term debt is presented in the condensed consolidated balance sheet as of June 30, 2018 net of debt discount and debt issuance costs. Note: For financial leverage ratio in prior periods, see quarterly earnings webcasts as previously furnished to the Securities & Exchange Commission, which can be obtained from the Investor Relations page of WESCO’s website at www.wesco.com. 20 Q2 2018 Earnings Webcast 8/2/18
Free Cash Flow Reconciliation ($ Millions) YTD YTD 2017 2018 Cash flow provided by operations 66.8 86.8 Less: Capital expenditures (9.8) (16.4) Free cash flow 57.0 70.4 Net income 87.4 100.6 Percentage of net income 65% 70% 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 investing and financing activities. 21 Q2 2018 Earnings Webcast 8/2/18
Work Days Q1 Q2 Q3 Q4 FY 2016 64 64 64 62 254 2017 64 64 63 62 253 2018 64 64 63 62 253 22 Q2 2018 Earnings Webcast 8/2/18