Quantcast

WESCO (WCC) Beats Q4 Earnings Estimates, Lags Revenues


Shutterstock photo

WESCO International, Inc. 's WCC fourth quarter 2016 adjusted earnings per share (EPS) of 96 cents beat the Zacks Consensus Estimate by 2.1% or 2 cents. However, earnings decreased 9.4% sequentially and 7.3% year over year.

Over the last one year, the stock has outperformed the Zacks  Electronics - Parts Distribution industry. It gained 84.63% compared with the industry's gain of 39.70%.

Revenues of $1.79 billion missed the Zacks Consensus Estimate of $1.8 billion by a slight margin.

Sales were low on a year-over-year basis as a result of a weak construction market in the U.S. and Canada, and foreign exchange headwinds. However, the impact of lower sales on earnings was mitigated to a certain extent by the One WESCO strategy.

In the quarter, WESCO continued with its focus on supply chain process enhancements, cost reduction and supplier consolidations that are helping customers. The company has a comprehensive portfolio of products and services, and a sizable global footprint, which will help drive growth, going forward.

The quarterly numbers in detail:

Revenues

WESCO reported revenues of $1.79 billion, down 3.3% sequentially and 3.7% year over year.

Organic sales were down 7% attributable mainly to decreased pricing and foreign currency headwinds.

Acquisitions offset the decline in the core business, contributing 3% to the top line. Foreign exchange had a 1% negative impact on revenues. 

End Market Update

Industrial End Market: WESCO stated that sales from the Industrial end market were down 7% year over year. U.S. industrial production capacity utilization stayed flat, making customers defer capital spending.  Local currency sales were down 5% in the U.S. and 14% in Canada.

Construction End Market: The Construction market was down 2% year over year with U.S. down 3% and Canada staying flat on a local currency basis. Sales decline with industrial oriented contractors in the U.S. was partially offset by sales growth with commercial contractors.

Outside the industrial and construction markets, the company remains modestly positive about the non-residential construction market.

Utility End Market: Sales to the Utilities market were up 3% with the U.S. declining 2% and Canada down 5% in local currency. Sales to all customer groups - investor-owned utilities utility contractors and public power customers - were up. WESCO has witnessed sales growth for five years consecutively from value creation and scope expansion with utility customers. Last quarter, the company received a multiyear contract from its large publicly owned utility to provide power delivery and generation materials.

CIG End Market: Sales to the CIG market were down 6% year over year. The U.S. declined 10% while Canada was up 17% in local currency. During the quarter, solid growth in broadband partially made up for election related decline in government spending.

WESCO sees growth opportunities in data center construction; retrofits cloud technology projects as well as cyber and physical security for critical infrastructure protection.

WESCO International, Inc. Price, Consensus and EPS Surprise

WESCO International, Inc. Price, Consensus and EPS Surprise | WESCO International, Inc. Quote

Margins

Gross profit was $348.6 million, or 19.4% of sales. Gross margin was down 24 basis points (bps) sequentially and 9 bps from last year. The decline was mainly due to lower-than-expected revenues and unfavorable mix.

Operating expenses of $266.5 million were down 2.2% sequentially and 2.6% from the last year. However, both selling, general and administrative and depreciation and amortization expenses increased sequentially as a percentage of sales.

Operating profit of $82.1 million (or 4.6% of sales) was down 41 bps sequentially and 26 bps from a year ago.  

Balance Sheet

Cash and cash equivalents at the end of the fourth quarter was $110.1 million compared with $112.8 million at the end of the third quarter. Long-term debt was $1.36 billion compared with $1.42 billion in the third quarter.

The company generated $217.2 million in cash from operations. spending $13.2 million on capex.

Free cash flow stayed strong and surpassed 150% of net income.

Guidance

The company expects first quarter sales to be flat to down 3%. Operating margin is expected within 3.8% to 4.1%.

For 2017, the company expects sales to be flat to up 4% while EPS is expected in a range of $3.60 to $4. The company targets increasing its free cash flow to at least 90% of net income.

Zacks Rank

Currently, WESCO has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA , Linear Technology Corporation LLTC and Intersil Corporation ISIL , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

For the current year, the estimates for NVIDIA stayed unchanged while the same for Intersil and Linear Technology went up 1.75% and 1.83%, respectively in the past 60 days.

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today's most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

WESCO International, Inc. (WCC): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Linear Technology Corporation (LLTC): Free Stock Analysis Report

Intersil Corporation (ISIL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: WCC , NVDA ,



More from Zacks.com

Subscribe






Zacks.com
Contributor:

Zacks.com

Equity Research










Research Brokers before you trade

Want to trade FX?