WESCO (WCC) Earnings And Revenues Surpass Estimates in Q3

WESCO International, Inc. WCC reported third-quarter 2019 earnings of $1.52 per share, beating the Zacks Consensus Estimate by 8 cents. The figure surged 7.8% from the year-ago quarter.

Net sales of $2.15 billion improved 3.9% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $2.14 billion. The top line also came within management’s guided range of 3-5%.

Top-line growth was driven by the company’s solid momentum across all end-markets, especially, industrial, datacom and utility markets. Further, the company witnessed improved performance in the United States where sales were up 4% from the year-ago quarter. In Canada, sales were up 1% year over year.

Additionally, positive contributions from acquisitions drove the results. The company’s organic sales in the reported quarter improved 3.4% from the prior-year quarter.

Following its better-than-expected third-quarter results, shares of the company have surged 8.2%.

Coming to price performance, WESCO has gained 13% on a year-to-date basis underperforming the industry’s growth of 19.9%.

Nevertheless, the company remains focused toward strategic investments and margin expansion initiatives. Further, WESCO stays confident about its product portfolio strength, value-added services and end-market momentum.

Top Line in Detail

WESCO operates in four organized end markets, namely Industrial, Construction, Utility and CIG.

Industrial Market: Sales in this market improved 5% from the year-ago quarter, on account of growth of 3% and 7% the United States and Canada, respectively. WESCO continued to gain traction across verticals like food processing, petrochemical, and metals and mining, which drove the year-over-year top-line growth within this market during the reported quarter. However, the company witnessed weak momentum across certain OEM customers.

Nevertheless, strong bidding activity levels acted as tailwinds for WESCO in the third quarter.

Construction Market: Organic sales improved 3% year over year, driven by 4% and 1% growth in the United States and Canada, respectively. Strong backlog and project activity levels contributed to the top-line growth in this market.

However, the company bore the brunt of shortage of skilled labor, which caused project delays with industrial contractors.

Utility Market: The company witnessed year-over-year sales growth of 3% in this market. This was driven by 6% growth in the United States. Growing traction among investor owned utility, public power and utility contractor customers acted as tailwinds throughout the reported quarter. Further, growing construction market, rising demand for renewable energy and grid hardening and reliability projects remain positives.

However, the company witnessed a decline of 28% in Canada on a year-over-year basis due to non-renewal of a contract.

CIG Market: The company witnessed year-over-year improvement of 1% in sales in this market, driven by strong performance in Canada and the United States where sales grew 6% and 2%, respectively. This can be attributed to solid momentum across datacom and security customers. Further, value-added services in retrofit applications, LED lighting renovations, Fiber-to-the-X deployments and broadband build outs remain positives.

WESCO International, Inc. Price, Consensus and EPS Surprise

 

WESCO International, Inc. Price, Consensus and EPS Surprise

WESCO International, Inc. price-consensus-eps-surprise-chart | WESCO International, Inc. Quote

Operating Details

Gross margin was 18.6% in the reported quarter, which contracted 60 bps compared with the year-ago quarter. This was due to unfavorable business mix and hike in supplier prices.

Selling, general and administrative expenses (SG&A), as a percentage of revenues, were 14.1%, remained flat on a year-over-year basis.

WESCO’s operating margin came in at 4.4%, contracting 30 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash & cash equivalents were $138.2 million, up from $87.2 million as of Jun 30, 2019. Long-term debt in third-quarter 2019 was $1.35 billion compared with $1.39 billion at the end of second-quarter 2019.

Additionally, WESCO generated $125.4 million of cash from operations in the reported quarter against $37.7 million of cash used in operations at the end of the second quarter.

Free cash flow in the quarter was $116.5 million.

Guidance

For fourth-quarter 2019, WESCO expects sales growth to be around 3.5% at the mid-point. The Zacks Consensus Estimate is pegged at $2.09 billion

Operating margin is pegged at 4.2%. Effective tax rate is projected at 21% for the fourth quarter.

For 2019, WESCO expects sales growth between 1% and 3%. The Zacks Consensus Estimate for 2019 sales is pegged at $8.34 billion.

Earnings are now anticipated to be in the range of $5.00-$5.40 per share. The Zacks Consensus Estimate is pegged at $5.15.

Operating margin is projected at 4.2%.

Zacks Rank & Key Picks

WESCO currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are NetEase, Inc. NTES, Itron, Inc. ITRI and Five9, Inc. FIVN. While NetEase and Itron sport a Zacks Rank #1 (Strong Buy), Five9 carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for NetEase, Itron and Five9 is currently pegged at 31.93%, 25 and 10%, respectively.

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