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WESCO International, Inc. Reports First Quarter 2021 Results

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WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the first quarter of 2021.

“We’re off to a great start to the year and delivered excellent results across the board that exceeded our expectations. I am very proud of our team and the work that they are doing in executing our integration plan, delivering the synergies, and capturing the value of the transformational combination of WESCO and Anixter,” said John Engel, Chairman, President and CEO. “We’re outperforming our markets, delivering significant margin expansion, and generating very strong free cash flow. With over $500 million of debt reduction over the last three quarters, our financial leverage is now below 5.0X, showing the power of our business model. The first quarter is another strong proof point of the substantial value creation potential of WESCO plus Anixter.”

“We are seeing positive sales and margin momentum across each of our three global business units. Backlog has reached a new all-time record level, our margin improvement programs are generating results, and structural cost takeout has increased our operating leverage. As a result of our strong first quarter results and accelerated synergy realization to start the year, we are raising our full-year 2021 outlook for sales, synergies, and profitability. We now expect sales to increase 4.5% to 7.5%, adjusted EBITDA margin to expand to 5.8% to 6.1%, and adjusted EPS to grow to $6.80 to $7.30.”

“The strength of our franchise, power of our industry-leading value proposition, and benefits of our increased scale, is now more evident than ever. As the economic recovery accelerates, we are exceptionally well positioned to capitalize on the secular growth trends of electrification, automation, communications and security.”

The following are results for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

  • Net sales were $4.0 billion for the first quarter of 2021 compared to $2.0 billion for the first quarter of 2020, an increase of 105.3% due to the merger with Anixter that was completed on June 22, 2020. On a pro forma basis, and adjusted for two fewer workdays, net sales for the first quarter of 2021 were up 3.2% compared to the first quarter of the prior year. This increase reflects growth across all segments. At the end of the first quarter of 2021, WESCO's book-to-bill ratio was above 1.0 and backlog has grown double digits since the end of the fourth quarter of 2020.
  • Cost of goods sold for the first quarter of 2021 was $3.2 billion compared to $1.6 billion for the first quarter of 2020, and gross profit was $811.0 million and $376.4 million, respectively. As a percentage of net sales, gross profit was 20.1% for the first quarter of 2021, an increase of 100 basis points compared to 19.1% for the first quarter of 2020. Gross profit as a percentage of sales for the first quarter of 2021 reflects the favorable impact of margin improvement initiatives, partially offset by a write-down to the carrying value of certain personal protective equipment products, which had a negative impact of 20 basis points. Sequentially, gross profit as a percentage of net sales increased 50 basis points from 19.6% for the fourth quarter of 2020, as adjusted for merger-related fair value adjustments of $15.7 million, as well as an out-of-period adjustment of $23.3 million related to inventory absorption accounting.
  • Selling, general and administrative expenses were $636.6 million, or 15.8% of net sales, for the first quarter of 2021, compared to $299.4 million, or 15.2% of net sales, for the first quarter of 2020. SG&A expenses for the first quarter of 2021 include merger-related costs of $46.3 million, as well as a net gain of $8.9 million resulting from the sale of WESCO's legacy utility and data communications businesses in Canada, which were divested in connection with the merger. Adjusted for these amounts, SG&A expenses were $599.2 million, or 14.8% of net sales, for the first quarter of 2021. SG&A expenses for the first quarter of 2020 include $4.6 million of merger-related costs. Adjusted for these costs, SG&A expenses were $294.8 million, or 15.0% of net sales for the first quarter of 2020.
  • Operating profit was $133.3 million for the first quarter of 2021, compared to $60.9 million for the first quarter of 2020. Operating profit as a percentage of net sales was 3.3% for the current quarter, compared to 3.1% for the first quarter of the prior year. Operating profit for the first quarter of 2021 includes merger-related costs and the net gain on the Canadian divestitures, as described above. Adjusted for these amounts, operating profit was $170.6 million, or 4.2% of net sales. Adjusted for merger-related costs of $4.6 million, operating profit was $65.5 million for the first quarter of 2020, or 3.3% of net sales. Adjusted operating margin was up 90 basis points compared to the prior year.
  • Net interest expense for the first quarter of 2021 was $70.4 million, compared to $16.6 million for the first quarter of 2020. The increase in interest expense was driven by financing activity related to the Anixter merger.
  • The effective tax rate for the first quarter of 2021 was 9.9%, compared to 23.1% for the first quarter of 2020. The lower effective tax rate in the current quarter was primarily due to a discrete income tax benefit associated with a change in valuation allowance related to foreign tax credit carryforwards, which impacted the effective tax rate by approximately 12.7 percentage points.
  • Net income attributable to common stockholders was $44.8 million for the first quarter of 2021, compared to $34.4 million for the first quarter of 2020. Adjusted for merger-related costs and interest, the net gain on the Canadian divestitures, and the related income tax effects, net income attributable to common stockholders was $74.1 million and $38.3 million for the first quarter of 2021 and 2020, respectively, an increase of 93.2%.
  • Earnings per diluted share for the first quarter of 2021 was $0.87, based on 51.7 million diluted shares, compared to $0.82 for the first quarter of 2020, based on 42.1 million diluted shares. Adjusted for merger-related costs and interest, the net gain on the Canadian divestitures, and the related income tax effects, earnings per diluted share for the first quarter of 2021 and 2020 was $1.43 and $0.91, respectively, an increase of 57.1%.
  • Operating cash flow for the first quarter of 2021 was $120.5 million, compared to $31.5 million for the first quarter of 2020. Free cash flow for the first quarter of 2021 was $124.8 million, or 141% of adjusted net income, compared to $15.8 million, or 41% of adjusted net income, for the first quarter of 2020.

Segment Results

The Company has operating segments that are organized around three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").

Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Corporate expenses are not directly identifiable with our reportable segments and are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.

The following are results by segment for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, which primarily reflect the impact of the merger with Anixter. For the first quarter of 2021, adjusted EBITDA margin improved for all segments (EES, CSS and UBS) and reflects the favorable impact of margin improvement initiatives, as well as lower operating expenses due to cost reduction actions, synergy capture and integration initiatives.

  • EES reported net sales of $1.7 billion for the first quarter of 2021, compared to $1.1 billion for the first quarter of 2020, an increase of 54.4%. In addition to the impact from the merger, the increase reflects sales growth in our construction and original equipment manufacturer businesses. Operating profit was $100.1 million for the first quarter of 2021, compared to $43.3 million for the first quarter of 2020. Adjusted EBITDA was $112.0 million for the first quarter of 2021, or 6.5% of net sales, compared to $51.0 million for the first quarter of 2020, or 4.6% of net sales.
  • CSS reported net sales of $1.3 billion for the first quarter of 2021, compared to $223.7 million for the first quarter of 2020, an increase of 459.0%. The increase reflects the impact of the merger. Operating profit was $74.0 million for the first quarter of 2021, compared to $9.9 million for the first quarter of 2020. The inventory write-down described above negatively impacted the operating profit of the CSS segment for the first quarter of 2021. Adjusted EBITDA was $90.7 million for the first quarter of 2021, or 7.3% of net sales, compared to $11.9 million for the first quarter of 2020, or 5.3% of net sales.
  • UBS reported net sales of $1.1 billion for the first quarter of 2021, compared to $630.5 million for the first quarter of 2020, an increase of 69.7%. Along with the impact of the merger, the increase reflects sales growth in our utility and broadband businesses, partially offset by lower sales from integrated supply programs due to the disruption caused by the COVID-19 pandemic. Operating profit was $87.0 million for the first quarter of 2021, compared to $41.8 million for the first quarter of 2020. Operating profit for the first quarter of 2021 includes the benefit from the Canadian divestitures, as described above. Adjusted EBITDA was $83.7 million for the first quarter of 2021, or 7.8% of net sales, compared to $45.6 million for the first quarter of 2020, or 7.2% of net sales.

Webcast and Teleconference Access

WESCO will conduct a webcast and teleconference to discuss the first quarter of 2021 earnings as described in this News Release on Thursday, May 6, 2021, 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® company headquartered in Pittsburgh, Pennsylvania, is a leading provider of business-to-business distribution, logistics services and supply chain solutions. Pro forma 2020 annual sales were over $16 billion, including Anixter International Inc., which it acquired in June 2020. 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 nearly 18,000 people, maintains relationships with approximately 30,000 suppliers, and serves more than 125,000 customers worldwide. With nearly 1,500,000 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, institutions, telecommunications providers, and utilities. WESCO operates approximately 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 multi-national corporations.

Forward-Looking Statements

All statements made herein that are not historical facts should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company's plans, objectives, expectations and intentions, statements that address the combined company's expected future business and financial performance, and other statements identified by words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," "will" and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of WESCO's management, as well as assumptions made by, and information currently available to, WESCO's management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of WESCO's and WESCO's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, or the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the proposed transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial conditions, and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC").

WESCO INTERNATIONAL, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

March 31, 2021

 

 

March 31, 2020

 

Net sales

$

4,041,477

 

 

 

$

1,968,647

 

 

Cost of goods sold (excluding depreciation and amortization)

3,230,441

 

79.9

%

 

1,592,249

 

80.9

%

Selling, general and administrative expenses

636,576

 

15.8

%

 

299,392

 

15.2

%

Depreciation and amortization

41,209

 

 

 

16,093

 

 

Income from operations

133,251

 

3.3

%

 

60,913

 

3.1

%

Interest expense, net

70,373

 

 

 

16,592

 

 

Other, net

(2,807

)

 

 

(120

)

 

Income before income taxes

65,685

 

1.6

%

 

44,441

 

2.3

%

Provision for income taxes

6,531

 

 

 

10,266

 

 

Net income

59,154

 

1.5

%

 

34,175

 

1.7

%

Net loss attributable to noncontrolling interests

(24

)

 

 

(232

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WESCO International, Inc.

NYSE:WCC

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About WCC

since 1922, wesco has grown from a division of westinghouse electric into a global leader of supply chain solutions. if there’s one thing that’s defined our nearly century-long history, it’s our commitment to providing superior products, services and solutions. we ensure that our customers have the resources to meet their electrical, original equipment manufacturer (oem), capital project, and maintenance, repair and operating (mro) needs. we have approximately 500 branches and nine distribution centers around the world that provide easy access to products from industry-leading brands. whatever the project is, our customers – from fortune 500s to small businesses – know that our experienced and dedicated team will help them see it through.