) announced fourth-quarter earnings that missed the Zacks
Consensus Estimate by $0.03, or 2.8%. The guidance for 2013 also
The Zacks Consensus Estimate for 2013 moved up 59 cents during
the last 60 days, but guidance missed by 14 cents. As a result,
the shares slid 1.35% in extended trading.
WESCO reported revenue of $1.64 billion, which was down 0.7%
sequentially and up 3.5% year over year.
Acquisitions and currency positively helped revenue by 4.3%
and 0.5%, respectively, excluding which there was a 1.3% decline
in organic revenue from the year-ago quarter. Management stated
that the 2.4% sequential decline in organic sales was in line
End Market Update
WESCO experienced weakness across all end markets, as demand
slowed down. Utilities were an exception, driven by Hurricane
Sandy-related expenses. Management reported two major customer
wins, one each in the industrial and utilities markets.
WESCO stated that although sales into the
market slowed down with respect to the first half of the year,
growth was helped by the company's global account and integrated
supply model, which helped score new multi-year distribution
), which reported last week, WESCO is seeing a mixed
market, with international remaining stronger than domestic
(backlog down 3% in the U.S. and up 10% internationally) in the
last quarter. The U.S. non-residential construction market
remains soft, but there are signs of improvement that should
benefit WESCO in the back half of the year. Here too, WESCO has
been able to buck the trend through its global account model. The
residential construction story has however turned positive,
although WESCO's limited exposure to the segment means that there
will be no material impact on WESCO's results.
business continues to see good growth, which management
attributed partly to WESCO's integrated supply model and partly
to its initiatives in the wind energy segment. The last quarter
also benefited from an additional $12 million in revenue as a
result of power restoration efforts related to Hurricane Sandy.
WESCO has steadily improved its offerings on the transmission
side, which has seen it through the recession. However, the
current strength is also attributable to an improving
distribution business, which is the natural result of stronger
construction markets. Construction markets typically provide the
impetus for greater spending by utilities, so any significant
growth at utilities is inevitably linked to the construction
Sales into the
market (schools, hospitals, property management firms, retailers,
financial institutions, cable companies and governmental
agencies) were down from last year due to more difficult comps
(WESCO shipped a large datacom government project in the year-ago
The gross margin was 20.5%, up 6 basis points (bps)
sequentially and down 12 bps year over year. WESCO has maintained
very steady gross margins over the past year or so, which is the
result of its global account model and tight cost control.
Operating expenses of $246.0 million were up 4.4% sequentially
and 4.0% from the year-ago quarter. As a result, the operating
margin of 5.6% shrunk 67 bps from the previous quarter and 20 bps
from the year-ago quarter. Significant headcount additions
contributed to the higher expenses (up 18.7% sequentially and
21.9% year over year) and management expects recruitments to
WESCO reported pro forma net income of $54.6 million, or a
3.3% net margin, compared to $63.4 million, or 3.8%, in the
previous quarter and $54.8 million, or 3.4% in the year-ago
quarter. Our calculation excludes acquisition-related charges and
a loss on debt extinguishment on a tax-adjusted basis in the
Excluding the special items, the GAAP net income was $48.6
million ($0.95 a share), compared to $63.4 million (1.25 a share)
in the previous quarter and $54.8 million ($1.12 a share) in the
Dec quarter of 2011.
Inventories were up 19.8% sequentially, with inventory turns
down from 8.0X to 6.6X. DSOs were up from 56 to over 57. The cash
balance at the end of the quarter was $86.1 million, down $21.5
million during the quarter.
WESCO generated $98.5 million in cash from operations and
spent $3.6 million on capex, resulting in free cash flow of $94.9
million during the quarter. The net debt position at quarter-end
was $1.62 billion, up $1.03 billion during the quarter.
For the first quarter of 2013, WESCO expects year-over-year
revenue increase of at least 12-14% (flat excluding the
contribution from EECOL), gross margin at or above 20.6% range
and operating margin at least 5.5%. The tax rate is expected to
be in the 27-29% range.
For the full year, WESCO expects sales to be up 16-18% on a
consolidated basis (flat in the first half and up
mid-single-digits in the second half excluding EECOL). The gross
margin is expected to be at least 20.7%, with the operating
margin at or above 6.2% and the tax rate at 27-29%. All this is
expected to result in an EPS of $5.75 for the year (well below
the Zacks Consensus Estimate of $5.89).
WESCO's business is currently being driven by international
strength. The guidance appears rather weak and is indicative of
softer-than-expected industrial markets. Utilities appear to be
doing quite well however, and the company continues to deliver on
its global account and integrated supply model.
While near-term results will be impacted by economic activity,
given the company's exposure to core segments, such as
industrial, utility, construction and government, we continue to
believe in WESCO's solid strategies, good operating model, market
position and customer clout.
WESCO shares carry a Zacks Rank #1 (Strong Buy). Other
technology distributors, such as
), with Zacks Ranks of #1 and #2, respectively are also worth
AVNET (AVT): Free Stock Analysis Report
HUBBELL INC -B (HUB.B): Free Stock Analysis
RICHARDSON ELEC (RELL): Free Stock Analysis
WESCO INTL INC (WCC): Free Stock Analysis
To read this article on Zacks.com click here.