) third quarter 2013 earnings of $1.42 per share beat the Zacks
Consensus Estimate of $1.41 by a penny.
WESCO reported revenues of $1.93 billion, up 2.1% sequentially
and 16.6% 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
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 improved
in the reported quarter versus the first half of the year.
Channel inventories were more or less commensurate with market
demand and bid activity levels were strong. Management was
optimistic about the opportunity pipeline, which continued to
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 improved in the quarter, marking the first
quarter of growth in construction since the second quarter of
2012. 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
Sales in the CIG market (schools, hospitals, property management
firms, retailers, financial institutions, cable companies and
governmental agencies) registered improvement in the quarter.
Sales growth was driven by broadband communications and
improvements in commercial and institutional markets, which were
partially offset by continued declines in government due to
budget constraints and sequestration.
WESCO remains focused on providing a one-stop shop for its
customer supply chain needs. As a result, in the third quarter,
the company renewed a long-term contract with a large Canadian
Gross margin excluding depreciation and amortization was 20.5%,
flattish on a year-over-year basis. WESCO has maintained steady
gross margins over the past few years owing to its integrated
model and tight cost control.
Operating profit of $123.7 million was up 20.0% from the year-ago
quarter. The operating margin of 6.4% expanded 20 bps from the
On a non-GAAP basis, WESCO's net income was $74.7 million, up
17.8% from the year-ago quarter.
Balance Sheet & Cash Flow
Cash balance at the end of the quarter was $98.6 million, down
$12.5 million during the quarter. Trade accounts receivable were
1.1 billion, flat sequentially.
For the fourth quarter of 2013, WESCO expects year-over-year
revenue increase of at least 14-17% (including the contribution
from EECOL). The gross margin is expected to be 20.5% or above
while the operating margin is expected to be at least 6%. The tax
rate is expected to be in the 26-28% range.
For the full year, sales are expected to be up 14-15% on a
consolidated basis. The gross margin is expected to be at least
20.7%, with the operating margin in the range of 5.9-6% and the
tax rate at around 26-27%. All this is expected to result in
earnings per share of $5.00-$5.20 for the year.
WESCO's business is currently being driven by strengthening end
markets and its integrated supply model, which is increasing
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 segments,
such as industrial, utility, construction and government that
should contain share price appreciation.
Currently, WESCO shares have a Zacks Rank #3 (Hold). Investors
can also consider some other stocks with a positive Zacks Rank
INVENSENSE INC (INVN): Free Stock Analysis
GARTNER INC -A (IT): Free Stock Analysis
JARDEN CORP (JAH): Free Stock Analysis Report
WESCO INTL INC (WCC): Free Stock Analysis
To read this article on Zacks.com click here.
), Earnings ESP of +10.53% and a Zacks Rank #2 (Buy)
), Earnings ESP of +2.56% and a Zacks Rank #3 (Hold)
), Earnings ESP of +2.00% and a Zacks Rank # 1 (Strong