Canadian Electrical Wholesaler

Jan 31, 2020

CEW WESCO logo 400WESCO International announces its results for the fourth quarter and full year 2019.

Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, "We achieved record fourth quarter and full year sales results against end market conditions that were more challenging than expected. Notably, all of our end markets and geographies grew on a year-over-year basis for the third consecutive year. Gross margin was down versus prior year driven by business mix and the impact of supplier price increases, which we continue to work into the market. Operating margin was within our expected range, after adjusting for Anixter merger-related transaction costs, and was driven by effective cost management. EPS grew 8% to a record $5.20 in 2019, after adjusting for the Anixter-related costs. Free cash flow generation was also strong in the quarter and financial leverage ended the year at 2.8 times net debt to EBITDA after completing $150 million of share repurchases in 2019."

Mr. Engel continued, "As announced earlier this month, the transformational combination of WESCO and Anixter will create a premier electrical and data communications distribution and supply chain services company. As a result, we expect 2020 to be a watershed year for WESCO and we look forward to the substantial value creation for our stockholders, customers, suppliers, and people. We continue to expect to close this transaction in the second or third quarter of 2020 after receiving approvals from Anixter stockholders and certain regulatory authorities."

Mr. Engel added, "Our end market outlook for 2020 provided last quarter remains unchanged. We expect to outperform the market by leveraging our full range of WESCO services and supply chain solutions, by making investments in our people and digital capabilities, and by maintaining our cash and cost management discipline. As a result, we continue to expect sales growth in the range of zero to 4% this year, and provide our full year 2020 outlook for operating margin of 4.1% to 4.4%, EPS of $5.10 to $5.70 per diluted share, and free cash flow generation of at least 90% of net income excluding any impacts of the announced merger with Anixter."

The following are results for the three months ended December 31, 2019 compared to the three months ended December 31, 2018:

  • Net sales were $2.1 billion for the fourth quarter of 2019, up 4.4% compared to the fourth quarter of 2018. Organic sales for the fourth quarter of 2019 grew by 3.9% as foreign exchange rates negatively impacted net sales by 0.3%, and acquisitions positively impacted net sales by 0.8%.
  • Cost of goods sold for the fourth quarter of 2019 was $1.7 billion and gross profit was $389.8 million, compared to cost of goods sold and gross profit of $1.6 billion and $390.3 million, respectively, for the fourth quarter of 2018. As a percentage of net sales, gross profit was 18.6% and 19.4% for the fourth quarter of 2019 and 2018, respectively. Sequentially, gross profit as a percentage of net sales was flat. Gross profit as a percentage of net sales for the fourth quarter of 2019 was negatively impacted by a challenging pricing environment, as well as business mix.
  • Selling, general and administrative ("SG&A") expenses were $289.9 million, or 13.8% of net sales, for the fourth quarter of 2019, compared to $284.2 million, or 14.1% of net sales, for the fourth quarter of 2018. SG&A expenses for the fourth quarter of 2019 include $3.1 million of transaction costs related to WESCO's merger with Anixter International, as announced on January 10, 2020.
  • Operating profit was $83.8 million for the fourth quarter of 2019, compared to $90.5 million for the fourth quarter of 2018. Operating profit as a percentage of net sales was 4.0% for the current quarter, compared to 4.5% for the fourth quarter of the prior year. Adjusted for merger-related transaction costs of $3.1 million, operating profit was $86.9 million for the fourth quarter of 2019, or 4.1% of net sales.
  • Net interest and other for the fourth quarter of 2019 was $16.2 million, compared to $16.8 million for the fourth quarter of 2018.
  • The effective tax rate for the fourth quarter of 2019 was 22.0%, compared to 21.2% for the fourth quarter of 2018. The higher effective tax rate in the current quarter is primarily due to the full application of the international provisions of U.S. tax reform.
  • Net income attributable to WESCO International, Inc. was $53.1 million for the fourth quarter of 2019, compared to $58.1 million for the fourth quarter of 2018.
  • Earnings per diluted share for the fourth quarter of 2019 and 2018 was $1.26, based on 42.2 million and 46.2 million diluted shares, respectively. Adjusted earnings per diluted share for the fourth quarter of 2019 was $1.32.
  • Operating cash flow for the fourth quarter of 2019 was $107.7 million, compared to $122.3 million for the fourth quarter of 2018. Free cash flow for the fourth quarter of 2019 was $94.0 million, or 178% of net income, compared to $109.8 million, or 189% of net income, for the fourth quarter of 2018.

The following are results for the year ended December 31, 2019 compared to the year ended December 31, 2018:

  • Net sales were $8.4 billion for 2019, compared to $8.2 billion for 2018, an increase of 2.2%. Organic sales for 2019 grew by 2.6% as foreign exchange rates and the number of workdays negatively impacted net sales by 0.8% and 0.4%, respectively, and were partially offset by the positive 0.8% impact from acquisitions.
  • Cost of goods sold for 2019 was $6.8 billion, compared to $6.6 billion for 2018. Gross profit was $1.6 billion for 2019 and 2018. As a percentage of net sales, gross profit was 18.9% and 19.2% for 2019 and 2018, respectively. Gross profit as a percentage of net sales for 2019 was negatively impacted by a challenging pricing environment, as well as business mix.
  • SG&A expenses were $1.2 billion for 2019 and 2018. SG&A expenses were 14.0% and 14.1% of net sales for 2019 and 2018, respectively.
  • Operating profit was $346.2 million for 2019, or 4.1% of net sales, compared to $352.5 million for 2018, or 4.3% of net sales. Adjusted for merger-related transaction costs of $3.1 million, operating profit was $349.3 million for 2019, or 4.2% of net sales.
  • Net interest and other for 2019 was $64.2 million, compared to $71.4 million for 2018. The resolution of transfer pricing matters associated with the Canadian taxing authority resulted in non-cash interest income of $3.7 million for the year ended December 31, 2019. For the year ended December 31, 2018, net interest and other includes a foreign exchange loss of $3.0 million from the remeasurement of a financial instrument, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments of our then outstanding term loan facility.
  • The effective tax rate for 2019 was 21.2%, compared to 19.8% for 2018. The higher effective tax rate in the current year is primarily due to the full application of the international provisions of U.S. tax reform.
  • Net income attributable to WESCO International, Inc. was $223.4 million and $227.3 million for 2019 and 2018, respectively.
  • Earnings per diluted share for 2019 was $5.14, based on 43.5 million diluted shares, compared to $4.82 for 2018, based on 47.2 million diluted shares. Adjusted earnings per diluted share for 2019 was $5.20.
  • Operating cash flow for 2019 was $224.4 million, compared to $296.7 million for 2018. Free cash flow for 2019 was $180.3 million, or 81% of net income, compared to $260.5 million, or 116% of net income, for 2018. The Company repurchased $150.0 million of shares during 2019.

Source

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