Wesco International (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the third quarter of 2024.
“We had a strong close to our third quarter, with sales slightly up compared to the second quarter driven by accelerating momentum in our Communications and Security Solutions segment, including double-digit sales growth in our global data center business. The continued weakness in Utility and Broadband Solutions offset what would have been a return to organic growth in the quarter. Adjusted EBITDA margin was flat compared to the second quarter and better than the expectations reviewed during our Investor Day last month, primarily driven by a sequential increase in gross margin,” said John Engel, Chairman, President and CEO.
Mr. Engel added, “I am pleased with our free cash flow generation of $280 million in the third quarter and $777 million year-to-date, or 154% of adjusted net income. We have placed a particular focus on working capital management and are beginning to see the benefits, particularly in our Communications & Security Solutions business. Financial leverage was stable at 2.9X trailing twelve-month adjusted EBITDA as we reduced our net debt $188 million and repurchased $25 million of shares in the third quarter. Our pipeline of strategic acquisitions remains strong and is aligned with our goal to increase service offerings to our customers.”
Mr. Engel concluded, “Quoting, bid activity levels, and backlog remain healthy across our Wesco enterprise. We are reaffirming our 2024 full-year outlook for sales, profitability and free cash flow. While end markets remain mixed, in the fourth quarter we expect to continue to benefit from double-digit growth in the data center space as well as some large projects in our electrical and industrial end markets. As we look ahead, I like Wesco’s leadership position and exposure to the long-term trends we have consistently described in detail. While the macro-economic environment will inevitably present challenges, I believe Wesco will continue to outperform our competitors under all market conditions. Our commitment to value creation from operational improvements, digital transformation and our capital allocation strategy, including focused M&A, is clear and resolute as outlined during our recent Investor Day. The Wesco team will continue to strive to execute on those plans to deliver outsized returns for our shareholders.”
The following are results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023:
- Net sales were $5.5 billion for the third quarter of 2024 compared to $5.6 billion for the third quarter of 2023, a decrease of 2.7%. On an organic basis, which removes the impact of the Wesco Integrated Supply (“WIS”) divestiture, differences in foreign exchange rates, and the impact from the number of workdays, sales for the third quarter of 2024 declined by 0.6%. The decrease in organic sales reflects volume declines in the EES and UBS segments, partially offset by a volume increase in the CSS segment, and price inflation in the EES and UBS segments. Sequentially, net sales increased 0.2% and organic sales grew by 0.1% as fluctuations in foreign exchange rates positively impacted reported net sales by 0.1%.
- Cost of goods sold for the third quarter of 2024 was $4.3 billion compared to $4.4 billion for the third quarter of 2023, and gross profit was $1.2 billion for the third quarter of 2024 and 2023. As a percentage of net sales, gross profit was 22.1% and 21.6% for the third quarter of 2024 and 2023, respectively. The increase in gross profit as a percentage of net sales for the third quarter of 2024 primarily reflects the impact of the divestiture of the WIS business. Sequentially, gross profit as a percentage of net sales increased 20 basis points from 21.9% in the second quarter of 2024.
- Selling, general and administrative (“SG&A”) expenses were $831.1 million, or 15.1% of net sales, for the third quarter of 2024, compared to $796.4 million, or 14.1% of net sales, for the third quarter of 2023. SG&A expenses for the third quarter of 2024 include $5.4 million of digital transformation costs and $0.5 million of restructuring costs. SG&A expenses for the third quarter of 2023 include $12.9 million of digital transformation costs, $5.6 million of restructuring costs, and $2.1 million of merger-related and integration costs. Adjusted for these costs, SG&A expenses were $825.2 million, or 15.0% of net sales, for the third quarter of 2024 and $775.8 million, or 13.7% of net sales, for the third quarter of 2023. Adjusted SG&A expenses for the third quarter of 2024 reflect higher payroll and payroll-related expenses, costs to operate our facilities and transportation costs, partially offset by the impact of the divestiture of the WIS business.
- Depreciation and amortization for the third quarter of 2024 was $46.0 million compared to $45.1 million for the third quarter of 2023, an increase of $0.9 million.
- Operating profit was $335.6 million for the third quarter of 2024 compared to $380.5 million for the third quarter of 2023, a decrease of $44.9 million, or 11.8%. Operating profit as a percentage of net sales was 6.1% for the current quarter compared to 6.7% for the third quarter of the prior year. Adjusted for digital transformation costs and restructuring costs, operating profit was $341.5 million, or 6.2% of net sales, for the third quarter of 2024. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, and accelerated trademark amortization expense, operating profit was $401.5 million, or 7.1% of net sales, for the third quarter of 2023.
- Net interest expense for the third quarter of 2024 was $86.5 million compared to $98.5 million for the third quarter of 2023. The decrease is primarily attributable to lower borrowings and a decrease in variable interest rates.
- Other non-operating income for the third quarter of 2024 was $24.9 million compared to expense of $3.7 million for the third quarter of 2023. During the third quarter, we finalized the divestiture of our WIS business, and recognized an additional gain from the sale of $19.3 million. We also recognized income of $2.2 million as a result of the finalization of the liabilities transferred related to the settlement of the Anixter Inc. Pension Plan. Adjusted for the gain on the divestiture of our WIS business as well as the reduction to pension settlement costs, other non-operating income was $3.4 million for the third quarter of 2024.
- The effective tax rate for the third quarter of 2024 was 25.3% compared to 15.9% for the third quarter of 2023. The higher effective tax rate for the third quarter of 2024 is due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year. The corresponding quarter of the prior year also reflected discrete income tax benefits relating to the reversal of certain valuation allowances and return-to-provision adjustments.
- Net income attributable to common stockholders was $189.9 million for the third quarter of 2024 compared to $219.0 million for the third quarter of 2023. Adjusted for digital transformation costs, restructuring costs, the gain recognized on the divestiture of our WIS business, the reduction to pension settlement cost, and the related income tax effects, net income attributable to common stockholders was $178.1 million for the third quarter of 2024. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $234.4 million for the third quarter of 2023.
- Earnings per diluted share for the third quarter of 2024 was $3.81, based on 49.8 million diluted shares, compared to $4.20 for the third quarter of 2023, based on 52.2 million diluted shares. Adjusted for digital transformation costs, restructuring costs, the gain recognized on the divestiture of our WIS business, the reduction to pension settlement cost, and the related income tax effects, earnings per diluted share for the third quarter of 2024 was $3.58. Adjusted for digital transformation costs, restructuring costs, merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the third quarter of 2023 was $4.49. Adjusted earnings per diluted share decreased 20.3% year-over-year.
- Operating cash flow for the third quarter of 2024 was an inflow of $302.1 million compared to $361.7 million for the third quarter of 2023. Free cash flow for the third quarter of 2024 was $279.5 million, or 144.9% of adjusted net income. The net cash inflow in the third quarter of 2024 was primarily driven by net income of $204.7 million, as well as an improvement in net working capital. Fluctuations in accounts payable resulted in a cash inflow of $136.1 million for the third quarter of 2024, primarily due to the timing of payments to suppliers as well as inventory purchases. A decrease in trade accounts receivable of $40.9 million primarily due to the timing of receipts from customers also contributed to the cash inflow. An increase in inventories resulted in a use of cash of $103.9 million.
The following are results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
- Net sales were $16.3 billion for the first nine months of 2024 compared to $16.9 billion for the first nine months of 2023, a decrease of 3.5%. On an organic basis, which removes the impact of the WIS divestiture, differences in foreign exchange rates, and the impact from the number of workdays, sales for the first nine months of 2024 declined by 1.5%. The decrease in organic sales reflects volume declines in the EES and UBS segments, partially offset by a volume increase in the CSS segment, and price inflation in the EES and UBS segments.
- Cost of goods sold for the first nine months of 2024 was $12.8 billion compared to $13.2 billion for the first nine months of 2023, and gross profit was $3.5 billion and $3.7 billion, respectively. As a percentage of net sales, gross profit was 21.7% for the first nine months of 2024 and 2023.
- SG&A expenses were $2,488.9 million, or 15.3% of net sales, for the first nine months of 2024, compared to $2,445.8 million, or 14.5% of net sales, for the first nine months of 2023. SG&A expenses for the first nine months of 2024 include a $17.8 million loss on abandonment of assets, $17.5 million of digital transformation costs, $9.5 million of restructuring costs, and $4.8 million of excise taxes on excess pension plan assets. SG&A expenses for the first nine months of 2023 include $28.5 million of digital transformation costs, $16.9 million of merger-related and integration costs, and $15.4 million of restructuring costs. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets, SG&A expenses were $2,439.3 million, or 14.9% of net sales, for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, and restructuring costs, SG&A expenses were $2,385.0 million, or 14.1% of net sales for the first nine months of 2023. The increase in adjusted SG&A expenses for the first nine months of 2024 compared to the first nine months of 2023 reflects higher costs to operate our facilities, an increase in IT costs, and an increase in payroll and payroll-related costs.
- Depreciation and amortization for the first nine months of 2024 was $137.6 million compared to $136.4 million for the first nine months of 2023, an increase of $1.2 million.
- Operating profit was $922.1 million for the first nine months of 2024 compared to $1,090.7 million for the first nine months of 2023, a decrease of $168.6 million, or 15.5%. Operating profit as a percentage of net sales was 5.7% for the first nine months of 2024 compared to 6.4% for the first nine months of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, and excise taxes on excess pension plan assets, operating profit was $971.7 million, or 6.0% of net sales, for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, and accelerated trademark amortization expense, operating profit was $1,152.7 million, or 6.8% of net sales, for the first nine months of 2023.
- Net interest expense for the first nine months of 2024 was $279.8 million compared to $292.3 million for the first nine months of 2023. The decrease is primarily attributable to lower borrowings and a decrease in variable interest rates.
- Other non-operating income for the first nine months of 2024 was $99.3 million compared to expense of $14.6 million for the first nine months of 2023. In the first nine months of 2024, we completed the divestiture of our WIS business and recognized a gain from the sale of $122.2 million. Additionally, in the first nine months of 2024, we recognized a $3.8 million loss on termination of a business arrangement. Due to fluctuations in the U.S. dollar against certain foreign currencies, a net foreign currency exchange loss of $18.2 million was recognized for the first nine months of 2024 compared to a net loss of $14.6 million for the first nine months of 2023. Net costs of $3.2 million, comprising pension settlement cost, and net benefits of $0.9 million associated with the non-service cost components of net periodic pension (benefit) cost were recognized for the first nine months of 2024 and 2023, respectively. Adjusted for the gain on divestiture of our WIS business, the loss on termination of a business arrangement, and pension settlement cost described above, other non-operating expense was $15.8 million for the first nine months of 2024.
- The effective tax rate for the first nine months of 2024 was 25.4% compared to 20.4% for the first nine months of 2023. The effective tax rate for the first nine months of 2024 was higher than the comparable prior year period due to lower discrete income tax benefits resulting from the exercise and vesting of stock-based awards as compared to the prior year period. The prior year period also reflected discrete income tax benefits relating to the reversal of certain valuation allowances and return-to-provision adjustments.
- Net income attributable to common stockholders was $509.1 million for the first nine months of 2024 compared to $580.5 million for the first nine months of 2023. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of the WIS business, the loss on termination of a business arrangement, pension settlement cost, and the related income tax effects, net income attributable to common stockholders was $461.0 million for the first nine months of 2024. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders for the first nine months of 2023 was $625.7 million.
- Earnings per diluted share for the first nine months of 2024 was $10.02, based on 50.8 million diluted shares, compared to $11.08 for the first nine months of 2023, based on 52.4 million diluted shares. Adjusted for the loss on abandonment of assets, digital transformation costs, restructuring costs, excise taxes on excess pension plan assets, the gain recognized on the divestiture of our WIS business, the loss on termination of a business arrangement, pension settlement cost, and the related income tax effects, earnings per diluted share for the first nine months of 2024 was $9.07. Adjusted for digital transformation costs, merger-related and integration costs, restructuring costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first nine months of 2023 was $11.94. Adjusted earnings per diluted share decreased 24.0% year-over-year.
- Operating cash flow for the first nine months of 2024 was an inflow of $824.6 million compared to $423.9 million for the first nine months of 2023. Free cash flow for the first nine months of 2024 was $776.8 million, or 153.7% of adjusted net income. The net cash inflow in the first nine months of 2024 was primarily driven by net income of $553.5 million and non-cash adjustments to net income totaling $66.3 million. Operating cash flow was positively impacted by net changes in assets and liabilities of $204.8 million, which primarily comprised an increase in accounts payable of $478.0 million, primarily due to the timing of payments to suppliers, as well as inventory purchases, partially offset by an increase in trade accounts receivable of $217.9 million due to the timing of receipts from customers and an increase in inventories of $85.0 million.
Wesco International (NYSE: WCC) builds, connects, powers and protects the world. Headquartered in Pittsburgh, Pennsylvania, Wesco is a FORTUNE 500® company with more than $22 billion in annual sales and a leading provider of business-to-business distribution, logistics services and supply chain solutions. Wesco offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs approximately 20,000 people, partners with the industry’s premier suppliers, and serves thousands of customers around the world. With millions of products, end-to-end supply chain services, and leading digital capabilities, Wesco provides innovative solutions to meet customer needs across commercial and industrial businesses, contractors, government agencies, educational institutions, telecommunications providers, and utilities. Wesco operates nearly 800 branches, warehouses and sales offices in more than 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and global corporations.
