Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - WESCO INTERNATIONAL INC | wcc4q2016earnings8-k.htm |
| EX-99.1 - NEWS RELEASE - WESCO INTERNATIONAL INC | wcc4q2016earningsrelease.htm |
Webcast Presentation
January 26, 2017
Q4 & Full Year 2016 Earnings
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Safe Harbor Statement
Note: All statements made herein that are not historical facts should be considered as “forward-
looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors that may cause
actual results to differ materially. Such risks, uncertainties and other factors include, but are not
limited to: adverse economic conditions; disruptions in operations or information technology
systems; product, labor or other cost fluctuations; supply chain disruptions or loss of key
suppliers; expansion of business activities; exchange rate fluctuations; tax law changes or
challenges to tax matters; increase in competition; risks related to acquisitions, including the
integration of acquired businesses; litigation, disputes, contingencies or claims; legal or
regulatory matters; debt levels, terms, financial market conditions or interest rate fluctuations;
goodwill or intangible asset impairment; common stock dilution; and other factors described in
detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2015
and any subsequent filings with the Securities & Exchange Commission. The following
presentation includes a discussion of certain non-GAAP financial measures. Information required
by Regulation G with respect to such non-GAAP financial measures can be found in the
appendix and obtained via WESCO’s website, www.wesco.com.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
2016 Highlights
…performance in-line with outlook
Q4
• Reported sales were down 4%
• Workday adjusted organic sales were down
4% in US and down 2% in Canada
• Workday adjusted organic sales were up
slightly sequentially
• Free cash flow of over 160% of net income
Full Year
• Reported sales were down 2%
• Workday adjusted organic sales were down
5% in US and down 6% in Canada
• Oil and gas sales down approximately 25%
• Cost controls partially mitigated sales and
margin declines
• Completed AED acquisition
• Successfully redeemed convertible bonds
• Free cash flow of over 150% of adjusted net
income
• January MTD sales down low single digits
3.2
(3.0)
(5.3)
(7.6)
(6.7)
(3.1)
(6.2)
(3.6)
Organic Growth
(%)
Oct (3)%
Nov (6)%
Dec (3)%
Note: See appendix for non-GAAP reconciliations.
Q1 Q2 Q3 Q4
2015
Q1
2016
Q2 Q3 Q4
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Industrial End Market
• Q4 2016 Sales
− Workday adjusted organic sales down 7%
versus prior year (down 5% in the U.S. and
down 14% in Canada in local currency)
− Up 2% sequentially
• Reduced demand outlook, weak commodity
prices, and strong U.S. dollar weighed on
manufacturing sector in 2016.
• Forward looking indicators have improved and
customers are becoming more optimistic
regarding 2017.
• Global Account and Integrated Supply opportunity
pipeline and bidding activity levels remain strong.
• Customer trends include high expectations for
supply chain process improvements, cost
reductions, and supplier consolidation.
Organic Sales Growth versus Prior Year
36%
Industrial
• Global Accounts
• Integrated Supply
• OEM
• General Industrial
Renewed a multi-year contract to supply OEM materials to a global
manufacturer of HVAC and air management systems.
Note: See appendix for non-GAAP reconciliations.
(8.6%)
(13.7%)
(10.1%) (10.1%)
(6.8%)
FY 2015 Q3 2016 Q2 2016 Q1 2016
2016
(10.2%)
Q4 2016
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Q4 & FY 2016 Earnings Webcast, 1/26/17
• Q4 2016 Sales
− Workday adjusted organic sales down 2%
versus prior year (down 3% in U.S. and flat
in Canada in local currency)
− Down 1% sequentially
− Growth with commercial contractors
partially offset weakness with contractors
serving the industrial market
• Core backlog declined 3% versus prior year.
• Expecting modest uptrend in non-residential
construction in 2017.
• Non-residential construction market still below its
prior peak in 2008.
Construction
• Non-
Residential
• Residential
34%
Organic Sales Growth versus Prior Year
Construction End Market
Awarded contracts to supply electrical bulk materials and cabling for
two international oil and gas customers (one for new construction of
a LNG facility, and one for electrical MRO for an existing facility).
Note: See appendix for non-GAAP reconciliations.
(1.7%)
(3.6%)
2.3%
(5.5%)
(1.9%)
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
2016
(2.2%)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Utility End Market
Organic Sales Growth versus Prior Year
16%
Utility
• Investor Owned
• Public Power
• Utility Contractors
• Q4 2016 Sales
− Workday adjusted organic sales up 3%
versus prior year (up 2% in U.S. and up 5%
in Canada in local currency)
− Up 4% sequentially
• Five consecutive years of sales growth.
• Scope expansion and value creation with investor
owned utility, public power, and generation
customers.
• Continued interest in Integrated Supply solution
offerings.
• Secular improvement in housing market,
renewables growth, and consolidation trend within
Utility industry expected to be positive catalysts for
future spending.
Awarded a multi-year contract to provide power delivery and
generation materials for a large public owned utility.
Note: See appendix for non-GAAP reconciliations.
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
5.1%
0.6% 0.6%
(1.7%)
2.6%
2016
0.5%
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Q4 & FY 2016 Earnings Webcast, 1/26/17
CIG End Market
• Q4 2016 Sales
− Workday adjusted organic sales down
6% versus prior year (down 10% in US
and up 17% in Canada in local
currency)
− Down 5% sequentially
• Customer focus remains on energy efficiency
(lighting, automation, metering), security and
FTTX (fiber-to-the-x) applications.
• Continued opportunities exist to support data
center construction and retrofits, cloud
technology projects, and cyber and physical
security for critical infrastructure protection.
Organic Sales Growth versus Prior Year
CIG
• Commercial
• Institutional
• Government
14%
Awarded a long term contract with a Canadian telecommunications
provider to supply product and supply chain services to support their
infrastructure expansion.
Note: See appendix for non-GAAP reconciliations.
1.6%
0.4%
0.8%
(1.6%)
(5.8%)
FY 2015 Q2 2016 Q1 2016 Q3 2016 Q4 2016
2016
(1.7%)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Results
Outlook Actual YOY
Sales (1)% to (4)% $1.79B (3.7)% growth
Gross Margin 19.4% Down 10 bps
SG&A $250M, 13.9% Down 3%, Up 10 bps (Core down 5%)
Operating Profit $82M Down 9%
Operating Margin 4.5% to 4.8% 4.6% Down 20 bps
Effective Tax Rate ~30% 26.0% Down 200 bps
180 bps
(3.8)%
Growth
40 bps 290 bps
$1.79B
$1.86B
Q4 2016
Sales
Acquisitions Workday
Impact
Rest of
World
Canada U.S. Q4 2015
Sales
160 bps 30 bps
(2.1)%
Growth
(5.6)%
Growth
(3.6)%
Organic
Growth
(3.7)%
Growth
*See appendix for non-GAAP reconciliations.
Foreign
Exchange
30 bps
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Full Year 2016 Results
Outlook Actual YOY
Sales (2)% to (3)% $7.34B (2.4)% growth
Gross Margin 19.7% Down 20 bps
SG&A $1,049M, 14.3% Down 1%, Up 30 bps (Core down 4%)
Operating Profit $332M Down 11%
Operating Margin 4.5% to 4.6% 4.5% Down 50 bps
Effective Tax Rate ~ 29% 28.0% Down 50 bps
310 bps
(4.5)%
Growth
120 bps
340 bps
$7.34B
$7.52B
FY 2016
Sales
Acquisitions Foreign
Exchange
Rest of
World
Canada U.S. FY 2015
Sales
100 bps 30 bps
(6.0)%
Growth
(5.8)%
Growth
(4.9)%
Organic
Growth
(2.4)%
Growth
*See appendix for non-GAAP reconciliations.
40 bps
Workday
Impact
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Diluted EPS Walk
Q4 FY
2015 $1.03) $4.18)
Core operations (0.12) (0.68)
Acquisitions 0.01) 0.15)
Foreign exchange impact 0.00) (0.07)
Tax 0.08) 0.07)
Share count (0.04) 0.15)
Q3 After tax loss on debt redemption (1.70)
2016 $0.96) $2.10)
Q3 Pretax loss on debt redemption 2.54)
Q3 Tax effect of loss debt on redemption (0.84)
Adjusted 2016 $0.96) $3.80)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
261.4
282.2
2015 2016
Cash Generation
Free Cash Flow
($ Millions)
See appendix for non-GAAP reconciliations.
154%
of
adjusted
net
income
125%
of net
income
> $1B of free
cash flow over
last 4 years
2014
Target
Leverage
2.0x – 3.5x
3.5X
Leverage
(Total Par Debt to TTM EBITDA)
2015 2016
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Q4 & FY 2016 Earnings Webcast, 1/26/17
2017 Outlook
Q1 FY
Sales (3)% to flat Flat to 4%
Operating Margin 3.8% to 4.1% 4.4% to 4.6%
Effective Tax Rate ~ 30% ~ 30%
Diluted EPS $3.60 to $4.00
Free Cash Flow >90% of net income
Notes: Excludes unannounced acquisitions.
Assumes a CAD/USD exchange rate of 0.75 in Q1.
See appendix for non-GAAP reconciliations.
…sales and EPS outlook in line with 2017 Outlook Call range
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Appendix
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures
include normalized organic sales growth, gross profit, financial leverage, free cash flow, adjusted net
income and adjusted earnings per diluted share. The Company believes that these non-GAAP
measures are useful to investors in order to provide a better understanding of the Company's organic
growth trends, capital structure position and liquidity on a comparable basis. Additionally, certain of
the aforementioned non-GAAP measures either focus on or exclude transactions impacting
comparability of results, allowing investors to more easily compare the Company's financial
performance from period to period. Management does not use these non-GAAP financial measures
for any purpose other than the reasons stated above.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
WESCO Profile 2016
36%
34%
16%
14%
40%
15%
14%
12%
11%
8%
Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis.
Products & Services Markets & Customers
Utility
CIG
Industrial
Construction
Investor Owned | Public Power
Utility Contractors
Commercial | Institutional | Government
Global Accounts | Integrated Supply
OEM | General Industrial
Non-Residential | Contractors
Automation, Controls & Motors
Lighting & Sustainability
General Supplies
Communications & Security
Wire, Cable & Conduit
Electrical Distribution & Controls
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Sales Growth
2014 2015 2016
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Change in Net Sales 0.2 5.9 7.6 6.1 5.0 0.3 (4.4) (7.4) (6.7) (4.7) (2.2) (0.3) (3.6) (3.7) (2.4)
Acquisition Impact 0.5 1.6 1.8 1.6 1.4 1.2 1.6 2.0 3.0 2.0 3.9 3.7 2.9 1.8 3.1
Core (0.3) 4.3 5.8 4.5 3.6 (0.9) (6.0) (9.4) (9.7) (6.7) (6.1) (4.0) (6.5) (5.5) (5.5)
FX Impact (1.9) (1.7) (0.9) (2.0) (1.6) (2.5) (3.0) (4.1) (3.7) (3.4) (2.6) (0.9) (0.3) (0.3) (1.0)
Organic 1.6 6.0 6.7 6.5 5.2 1.6 (3.0) (5.3) (6.0) (3.3) (3.5) (3.1) (6.2) (5.2) (4.5)
Workday Impact (1.6) (0.4) (1.6) 1.6 3.2 (1.6) 0.4
Normalized Organic 1.6 6.0 6.7 8.1 5.6 3.2 (3.0) (5.3) (7.6) (3.3) (6.7) (3.1) (6.2) (3.6) (4.9)
(%)
Note: Core sales growth excludes acquisitions during the first year ownership.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Sales Growth – Geography
U.S. Canada International Total
Change in net sales (USD) (3.0) (4.1) (10.9) (3.7)
Impact from acquisitions 2.4 - - 1.8
Impact from foreign exchange rates - (0.3) (3.7) (0.3)
Impact from number of workdays (1.6) (1.6) (1.6) (1.6)
Normalized organic sales growth (3.8) (2.2) (5.6) (3.6)
(%)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation.
($ Millions)
Sales Growth-End Markets
Q4 2016 vs. Q4 2015 Q4 2016 vs. Q3 2016 Full Year 2016 vs. 2015
Q4 Q4 Q4 Q3
2016 2015
%
Growth 2016 2016
%
Growth 2016 2015
%
Growth
Industrial Core 645 707 (8.7) % 647 658 (1.7)% 2,641 2,958 (10.7)%
Construction Core 584 607 (3.7) % 613 642 (4.6)% 2,320 2,401 (3.4)%
Utility Core 294 291 0.9 % 293 292 0.5% 1,163 1,158 0.4%
CIG Core 243 263 (7.7) % 247 270 (8.5)% 1,008 1,029 (2.1)%
Total Core Gross Sales 1,766 1,868 (3.7) % 1,800 1,862 (3.3)% 7,132 7,546 (5.5)%
Total Gross Sales from Acquisitions 34 - - - - -00 232 - -00
Total Gross Sales 1,800 1,868 (3.7) % 1,800 1,862 (3.3)% 7,364 7,546 (2.4)%
Gross Sales Reductions/Discounts (7) (7) - (7) (7) -00 (28) (27) -00
Total Net Sales 1,793 1,861 (3.7) % 1,793 1,855 (3.3)% 7,336 7,519 (2.4)%
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Q4 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (8.7) (3.7) 0.9 (7.7) (5.5)
Workday Impact (1.6) (1.6) (1.6) (1.6) (1.6)
Workday Adjusted Core Growth (7.1) (2.1) 2.5 (6.1) (3.9)
FX Impact (0.3) (0.2) (0.1) (0.3) (0.3)
Workday Adjusted Organic Growth (6.8) (1.9) 2.6 (5.8) (3.6)
(%)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
FY 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (10.7) (3.4) 0.4 (2.1) (5.5)
Workday Impact 0.4 0.4 0.4 0.4 0.4
Workday Adjusted Core Growth (11.1) (3.8) - (2.5) (5.9)
FX Impact (0.9) (1.6) (0.5) (0.8) (1.0)
Workday Adjusted Organic Growth (10.2) (2.2) 0.5 (1.7) (4.9)
(%)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Adjusted Tax Rate
($ Millions)
Q4 2015 FY 2015
Reported
Results
Adjustments
(1)
Adjusted
Results
Reported
Results
Adjustments
(1)
Adjusted
Results
Income before income taxes 80.1 (9.4) 70.7 303.9 (9.4) 294.5
Provision for income taxes 31.5 (11.7) 19.8 95.5 (11.7) 83.8
Effective tax rate 39.3% 28.0% 31.4% 28.5%
(1) Relates to the resolution of transfer pricing matters.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
2029 Debentures Loss Non-GAAP Reconciliation
FY 2016
Reported
Results Adjustments
Adjusted
Results
Operating profit $ 332.0 - $ 332.0
Interest 76.6 - 76.6
Loss on debt redemption 123.9 (123.9) 1 -
Income before income taxes 131.5 123.9 255.4
Taxes 30.4 41.2 1 71.6
Effective tax rate 23.1% 28.0%
Net income 101.1 82.7 183.8
Less: Non-controlling interest (0.5) - (0.5)
Net income attributable to WESCO $ 101.6 82.7 $ 184.3
Adjusted Earnings per Diluted Shares:
Diluted earnings per common share (as reported) $2.10
Loss on debt redemption 2 2.54
Tax effect of loss on debt redemption 2 (0.84)
Adjusted diluted earnings per common share $3.80
(1) Represents the third quarter loss on debt redemption and related income tax benefit.
(2) The loss on debt redemption and related income tax benefits are based on third quarter diluted shares of 48.7 million.
($ Millions, except for EPS)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Outstanding at
December 31, 2015
Outstanding at
December 31, 2016
Debt
Maturity Schedule
AR Revolver (V) 525 380 2018
Inventory Revolver (V) 75 4 2020
2019 Term Loans (V) 175 145 2019
2021 Senior Notes (F) 500 500 2021
2024 Senior Notes (F) - 350 2024
2029 Convertible Bonds (F) 345 - 2029 (1)
Other (V) 45 24 N/A
Total Par Debt 1,665 1,403
Capital Structure
Key Financial Metrics
YE 2015 YE 2016
Cash 160 110
Capital Expenditures 22 18
Free Cash Flow (2) 261 282
Liquidity (3) 546 705
($ Millions)
V = Variable Rate Debt 1 = Redeemed on September 15, 2016.
F = Fixed Rate Debt 2 = Cash flow provided by operations less capital expenditures.
3 = Total availability under asset-backed credit facilities plus invested cash.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Financial Leverage
Twelve Months Ended
December 31, 2016
Financial leverage ratio:
Income from operations $ 332
Depreciation and amortization 67
EBITDA $ 399
December 31, 2016
Current debt and short-term borrowings $ 22
Long-term debt 1,363
Debt discount and deferred financing (1) 18
Total debt $ 1,403
Less: cash and cash equivalents $ 110
Total debt, net of cash $ 1,293
Financial leverage ratio 3.5X
Financial leverage ratio, net of cash 3.2X
(1)Long-term debt is presented in the condensed consolidated balance sheet as of December 31, 2016 net of deferred financing
fees and discount related to the term loan.
($ Millions)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
($ Millions)
2014 2015 2016
Amortization of Debt Discount* 4.1 6.1 3.0
Amortization of Deferred Financing
Fees 4.4 6.1 3.6
FIN 48 1.0 (8.7) 1.2
Total 9.5 3.5 7.8
Non-Cash Interest Expense
* Includes convertible debt and term loan.
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Free Cash Flow Reconciliation
Q4
2015
Q4
2016
YTD
2015
YTD
2016
Cash flow provided by operations 107.1 83.0 283.1 300.2
Less: Capital expenditures (5.5) (4.8) (21.7) (18.0)
Free Cash Flow 101.6 78.2 261.4 282.2
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are
deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's
other investing and financing activities.
($ Millions)
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Q4 & FY 2016 Earnings Webcast, 1/26/17
Work Days
Q1
Q2 Q3 Q4 FY
2014 63 64 64 62 253
2015 62 64 64 63 253
2016 64 64 64 62 254
2017 64 64 63 62 253