) fourth quarter 2013 earnings of $1.26 per share missed the
Zacks Consensus Estimate of $1.32 by 6 cents.
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WESCO INTL INC (WCC): Free Stock Analysis
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WESCO reported revenues of $1.88 billion, down 2.7% sequentially
but up 14.3% year over year. The year-over-year increase was
attributable to the positive impact of acquisitions, partially
offset by a reduction in organic sales and unfavorable currency
movements (weaker Canadian to U.S. dollar conversion). Revenues,
however, missed the Zacks Consensus Estimate of $1.90 billion.
End Market Update
WESCO is seeing signs of strength across end markets, with an
expanding pipeline, higher bidding activity and growing backlog.
The Utilities market remains the strongest.
WESCO stated that sales from the Industrial end market were down
in the reported quarter mainly on account of non-repeating
Industrial capital projects in the quarter, and customers
maintaining tight controls on their capital spending. Channel
inventories seemed to be in balance with current demand and the
bid activity levels remained strong in the quarter.
The company is seeing a mixed Construction market. While still
weak, the non-residential construction market in the U.S. and
Canada is starting to show signs of improvement. Sales to
construction customers remained flat in the quarter. The
residential construction story remains positive, although WESCO's
limited exposure to the segment means that there will be no
material impact on its results.
The Utilities business continues to see good growth, which
management attributed to WESCO's integrated supply model. The
model is particularly helpful for utilities looking for
efficiency and effectiveness in their supply chains. WESCO has
steadily improved its offerings on the transmission side, which
have seen it through the recession. However, the current strength
is also attributable to new wins and an improving distribution
business. Construction markets typically provide the impetus for
greater spending by utilities, so stronger construction markets
will further add to this strength.
Sales in the CIG market (schools, hospitals, property management
firms, retailers, financial institutions, cable companies and
governmental agencies) registered improvement of about 5.0% in
the quarter. Sales growth was driven by broadband communications
and improvements in commercial and institutional, partially
offset by declines in government due to budget constraints and
WESCO remains focused on providing a one-stop shop for its
customer supply chain needs.
Gross profit was $376.2 million, or 20.0% of sales, compared with
$337.3 million, or 20.5% of sales, in the year ago quarter. WESCO
has maintained steady gross margins over the past few years owing
to its integrated model and tight cost control.
Operating profit of $110.6 million was up 120.0% from the
year-ago quarter. Operating margin of 5.9% expanded 280 bps from
the year-ago quarter.
On a non-GAAP basis, WESCO's net income was $67.0 million, up
22.7% from the year-ago quarter.
Cash balance at the end of the quarter was $123.7 million,
compared with $98.6 million in the prior quarter. Trade accounts
receivable were 1.05 billion compared with $1.04 in the prior
quarter. Long term debt in the fourth quarter was $1.45 billion
compared with $1.53 billion in the third quarter.
For the first quarter of 2014, WESCO expects year-over-year
revenue increase of at least 0-3%. Gross margin is expected to be
in the range of 20.8-21% while operating margin is expected to be
in the range of 5.3-5.5%. The tax rate is expected to be in the
For full year 2014, sales are expected to be up 3-6% on a
consolidated basis. Gross margin is expected to be approximately
20.9%, while operating margin is expected in the range of
6.1-6.3%. The tax rate is likely to be around 26-28%. All this is
expected to result in earnings per share of $5.30-$5.70 for the
WESCO's business is currently being driven by strengthening end
markets and its integrated supply model, which increase
efficiencies for its customers. For the longer term, we continue
to believe in WESCO's solid strategies, strong operating model,
market position and customer clout.
However, near-term results will continue to be impacted by
economic activity, given the company's exposure to core markets,
such as industrial, utility, construction and government that
should contain share price appreciation.
Currently, WESCO has a Zacks Rank #3 (Hold). Its closest peers
Richardson Electronics Ltd