Posted November 2, 2023

Wesco grows Q3 net sales 4% year over year

Wesco International, a provider of business-to-business distribution, logistics services and supply chain solutions, announced third quarter net sales of $5.6 billion, up 4% YOY. 

"We generated very strong free cash flow of $357 million, or 143% of adjusted net income, in the third quarter highlighting the strength of our B2B distribution business model," said Chairman, President, and CEO John Engel. "Over the past two years, global supply chain constraints required us to invest in inventory to service our customers. With supply chains healing, we are focused on reducing our inventory and returning to strong and consistent free cash flow generation. We saw this in the third quarter as we again reduced inventories and paid down debt, as well as bought back stock. Our financial leverage now stands at 2.7x, below the mid-point of our target range, and at the lowest level since the Anixter acquisition in June 2020. We expect our strong free cash flow generation to continue, and we remain in an excellent position to use that cash to invest in above market growth and increase return of capital to shareholders. 

"Our industry-leading customer value proposition, strong cross-sell execution and continued share gains drove record third quarter sales," Engel continued. "Overall results were in line with our expectations with sequential sales improvement in our EES business coupled with continued share capture and higher operating margins in our CSS and UBS businesses. The multi-speed economy has increased the importance of our internal initiatives and continued operational excellence as we drive outperformance versus our end markets. We again exceeded our expectations for cross selling and are raising our sales synergy target from $2.0 billion to $2.2 billion. Our long-term secular growth drivers remain intact and our portfolio mix-shift into higher-growth end markets has driven more consistent financial performance.

"The power of Wesco's scale, industry-leading positions, and expanded portfolio of products, services and solutions positions us to capture the benefits of enduring secular growth trends as well as anticipated increased infrastructure investments in North America. We remain focused on what we can control as we continue to invest in our digital transformation plan and work to deliver game-changing digital capabilities that benefit our customers and supplier partners. We are confident in delivering our full year outlook of record sales, record EBITDA and record free cash flow. And we remain committed to deliver the financial value-creation objectives presented at our Investor Day including our long-term margin expansion, profit growth and cash generation targets."

2023 Outlook Update:

Wesco is now expecting reported net sales growth of approximately 5%, near the low-end of the prior range of 5%-7% driven by moderating end market conditions. EBITDA margins are still forecast to be 7.8%-8.0% and adjusted EBITDA at the mid-point of the guidance range remains approximately $1.8 billion. Earnings per share is now forecast to be $15.60-$16.10 versus $15.00-$16.00 previously, primarily due to a lower full-year tax rate. The company's free cash flow outlook is unchanged at $500-$700 million.

The following are results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022:

Net sales were $5.6 billion for the third quarter of 2023 compared to $5.4 billion for the third quarter of 2022, an increase of 3.6%. Organic sales for the third quarter of 2023 grew by 2.8% as the acquisition of Rahi Systems, which closed in November of 2022, positively impacted reported net sales by 2.4%, while the number of workdays negatively impacted reported net sales by 1.6%. Backlog at the end of the third quarter of 2023 declined by 6% compared to the end of the third quarter of 2022. Sequentially, backlog declined by approximately 7%.

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