Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - WESCO INTERNATIONAL INC | wcc-4q2017earnings8k.htm |
| EX-99.1 - NEWS RELEASE - WESCO INTERNATIONAL INC | wcc-4q2017earningsrelease.htm |
Webcast Presentation – February 1, 2018
Q4 & Full Year 2017 Earnings
2 Q4 & FY 2017 Earnings Webcast 2/1/18
Safe Harbor Statement
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; supply chain disruptions,
changes in supplier strategy or loss of key suppliers; product or other cost fluctuations; expansion of
business activities; personnel turnover or labor cost increases; tax law changes or challenges to tax
matters; increase in competition; risks related to acquisitions, including the integration of acquired
businesses; exchange rate fluctuations; legal or regulatory matters; litigation, disputes, contingencies or
claims; debt levels, terms, financial market conditions or interest rate fluctuations; goodwill or intangible
asset impairment; stock market, economic or political instability; and other factors described in detail in
the Form 10-K for WESCO International, Inc. for the year ended December 31, 2016 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.
3 Q4 & FY 2017 Earnings Webcast 2/1/18
Q4 2017 Highlights
…performance exceeded outlook
• Fourth quarter results exceeded our expectations
• Positive business momentum and growth across all end
markets and geographies
• Reported sales were up 11%, organic sales were up 10%
‒ Highest organic growth rate since 2011
‒ Organic sales were up 9% in the U.S.
‒ Organic sales were up 13% in Canada
‒ Organic sales were up 19% in International
• Sequentially, reported sales were flat and organic sales
were up 2%, better than normal seasonality
• Estimated pricing impact +2%
• January MTD sales up high single digits
• Q4 backlog grew 5% sequentially versus typical seasonal
decline, and expanded to an all-time record level in the
quarter
• Tax act provides potential stimulus for increased business
and capex spending in 2018
(6.7)
(3.1)
(6.2)
(3.6)
(1.7)
1.0
8.6
10.1
Organic Growth
(%)
Oct 9%
Nov 10%
Dec 11%
Note: Organic growth excludes the impact of acquisitions in the first year of
ownership, foreign exchange rates and number of workdays. See appendix for
non-GAAP reconciliations.
Q4Q1
2016
Q2 Q3 Q4 Q1
2017
Q2 Q3
4 Q4 & FY 2017 Earnings Webcast 2/1/18
Industrial End Market
• Q4 2017 Sales
− Organic sales were up 14% versus prior year
(up 12% in the U.S. and up 15% in Canada in local
currency)
− Up 4% sequentially
• Increasing business momentum with industrial
customers
• Sales growth was broad-based across the U.S. and
Canada
• Global Account and Integrated Supply opportunity
pipeline and bidding activity levels remain strong
• Customer trends include continued high expectations
for supply chain process improvements, cost
reductions, and supplier consolidation
Organic Sales Growth versus Prior Year
37%
Industrial
• Global Accounts
• Integrated Supply
• OEM
• General Industrial
Renewed a multi-year contract to supply electrical MRO materials and support capital
projects for the upstream, midstream and downstream operations of a large global oil and
gas company.
Note: See appendix for non-GAAP reconciliations.
(10.2%)
1.2%
6.0%
11.2%
13.9%
FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2017
8.0%
5 Q4 & FY 2017 Earnings Webcast 2/1/18
(2.2%)
(3.6%) (4.4%)
6.0% 8.9%
• Q4 2017 Sales
− Organic sales were up 9% versus prior year
(up 7% in the U.S. and up 13% in Canada in local
currency)
− Up 2% sequentially
• Increasing business momentum with
construction/contractor customers
• Sales growth was broad-based across the U.S. and
Canada
• Backlog is up 20% versus prior year and is up 5% from
Q3, versus a typical seasonal decline
• Expecting moderate growth and uptrend in non-
residential construction market to continue
• Non-Residential
• Contractors
Construction
33%
Organic Sales Growth versus Prior Year
Construction End Market
Awarded a contract to provide electrical equipment for the renovation and expansion of a
water treatment facility in Canada.
Note: See appendix for non-GAAP reconciliations.
FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2017
1.7%
6 Q4 & FY 2017 Earnings Webcast 2/1/18
Utility End Market
Organic Sales Growth versus Prior Year
16%
Utility
• Investor Owned
• Public Power
• Utility Contractors
• Q4 2017 Sales
− Organic sales were up 9% versus prior year (up 10%
in the U.S. and up 7% in Canada in local currency)
− Up 4% sequentially
− Excluding exited contract, organic sales up 18%
versus prior year (up 20% in the U.S.)
• Continued scope expansion and value creation with
investor-owned utility, public power, and generation
customers
• Continued interest in Integrated Supply solution
offerings
• Favorable economic conditions, continued improvement
in construction market, renewables growth, and
consolidation trend within Utility industry remain
positive catalysts for future spending
Awarded a contract to provide high voltage materials to a publicly owned utility for a
hydropower transmission line.
0.5%
(4.5%) (4.4%)
8.6% 9.1%
FY 2016 Q1 2017 Q2 2017 Q3 2017
Note: See appendix for non-GAAP reconciliations.
Q4 2017
2017
2.3%
7 Q4 & FY 2017 Earnings Webcast 2/1/18
CIG End Market
• Q4 2017 Sales
− Organic sales were up 5% versus prior year
(up 5% in the U.S. and up 11% in Canada in local
currency)
− Down 9% sequentially
• Technical expertise and supply chain solutions
driving positive momentum in datacenter,
broadband, and cloud technology projects
• Increasing momentum seen in LED lighting retrofits,
FTTX deployments, broadband build outs, and cyber
and physical security for critical infrastructure
protection
Organic Sales Growth versus Prior Year
CIG
• Commercial
• Institutional
• Government
14%
Awarded a contract for a turnkey lighting retrofit program for a government
installation.
Note: See appendix for non-GAAP reconciliations.
(1.7%) (2.0%)
7.4%
9.0%
4.8%
FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2017
4.8%
8 Q4 & FY 2017 Earnings Webcast 2/1/18
Q4 2017 Results
Outlook Actual YOY
Sales 5% to 8% $2.00B Up 11.3%
Gross Margin 19.2% Down 20 bps
SG&A $285M, 14.3% Up 14%, Up 40 bps
Operating Profit $81M Flat
Operating Margin 3.9% to 4.3% 4.1% Down 50 bps
Effective Tax Rate ~27% 23.9%, as adjusted Down 210 bps, as adjusted
8.9%
Growth
240 bps
680 bps
$2.00B
$1.79B
Q4 2017
Sales
InternationalCanadaU.S.Q4 2016
Sales
12.8%
Growth
19.3%
Growth
10.1%
Organic
Growth
11.3%
Growth
Note: See appendix for non-GAAP reconciliations.
Foreign
Exchange
120 bps
90 bps
9 Q4 & FY 2017 Earnings Webcast 2/1/18
Full Year 2017 Results
Outlook Actual YOY
Sales 3% to 4% $7.68B Up 4.7%
Gross Margin 19.3% Down 40 bps
SG&A $1.10B, 14.3% Up 5%, Flat in bps
Operating Profit $321M Down 3%
Operating Margin 4.1% to 4.3% 4.2% Down 30 bps
Effective Tax Rate ~26% 24.9%, as adjusted Down 310 bps, as adjusted
EPS $3.75 to $3.95 $3.93, as adjusted Up 3%, as adjusted
Note: See appendix for non-GAAP reconciliations.
2.9%
Growth
140 bps
220 bps
$7.68B
$7.34B
2017
Sales
InternationalCanadaU.S.2016
Sales
40 bps
7.8%
Growth
18.8%
Growth
4.5%
Organic
Growth
4.7%
Growth
Foreign
Exchange
40 bps
Workday
Impact
90 bps
Acquisitions
20 bps
10 Q4 & FY 2017 Earnings Webcast 2/1/18
Diluted EPS Walk
Q4 FY
2016 Adjusted (1) $0.96 $3.80
Core
operations
(Reflects favorable operating leverage, offset by the planned
restoration of variable compensation versus prior year) (0.01)) (0.11)
Foreign exchange 0.02 0.08
Tax 0.03 0.16
Share count 0.03 0.00
2017 Adjusted (1) $1.03 $3.93
(1) Earnings per share for Q4 2016 is as reported. See appendix for non-GAAP reconciliations of adjusted EPS for FY 2016, Q4 2017 and FY 2017.
11 Q4 & FY 2017 Earnings Webcast 2/1/18
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Free Cash Flow & Leverage
282.2
127.6
2016 FY 2017 FY
Free Cash Flow
($ Millions)
Note: See appendix for non-GAAP reconciliations.
67%
of adjusted
net income
154%
of adjusted
net income
~ $1B of free
cash flow over
last 4 years
Target
Leverage
2.0x – 3.5x
3.5X
Leverage
(Total Debt to TTM EBITDA)
2015 2016 2017
Lower free cash
flow driven by an
increase in working
capital due to sales
growth
12 Q4 & FY 2017 Earnings Webcast 2/1/18
2018 Outlook
Q1
FY
(Current)
FY
(Previous)
Sales 6% to 9% 3% to 6% 3% to 6%
Operating Margin 3.5% to 3.8% 4.2% to 4.6% 4.2% to 4.6%
Effective Tax Rate ~ 22% 21% to 23% ~ 28%
Diluted EPS $4.40 to $4.90 $4.05 to $4.55
Free Cash Flow >90% of net income >90% of net income
Notes: Excludes unannounced acquisitions.
Assumes a CAD/USD exchange rate of 0.80.
See appendix for non-GAAP reconciliations.
13 Q4 & FY 2017 Earnings Webcast 2/1/18
Appendix
NON-GAAP FINANCIAL MEASURES
This presentation includes certain non-GAAP financial measures. These financial measures include organic
sales growth, gross margin, financial leverage, earnings before interest, taxes, depreciation and amortization
(EBITDA), free cash flow, adjusted net income, adjusted earnings per diluted share and adjusted effective tax
rate. Management believes that these non-GAAP measures are useful to investors as they provide a better
understanding of sales performance, the use of debt and liquidity on a comparable basis. Additionally, certain
of the aforementioned non-GAAP measures either focus on or exclude transactions impacting comparability
of our results, allowing investors to more easily compare the Company’s financial results from period to
period. Management does not use these non-GAAP financial measures for any purpose other than the
reasons stated above.
14 Q4 & FY 2017 Earnings Webcast 2/1/18
WESCO Profile 2017
37%
33%
16%
14%
40%
15%
15%
12%
10%
8%
Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis.
Products & ServicesMarkets & 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
15 Q4 & FY 2017 Earnings Webcast 2/1/18
Sales Growth
2015 2016 2017
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Change in Net Sales 0.3 (4.4) (7.4) (6.7) (4.7) (2.2) (0.3) (3.6) (3.7) (2.4) (0.2) (0.1) 7.8 11.3 4.7
Acquisition Impact 1.2 1.6 2.0 3.0 2.0 3.9 3.7 2.9 1.8 3.1 0.9 0.2
Core (0.9) (6.0) (9.4) (9.7) (6.7) (6.1) (4.0) (6.5) (5.5) (5.5) (1.1) (0.1) 7.8 11.3 4.5
FX Impact (2.5) (3.0) (4.1) (3.7) (3.4) (2.6) (0.9) (0.3) (0.3) (1.0) 0.6 (1.1) 0.8 1.2 0.4
Workday Impact (1.6) 1.6 3.2 (1.6) 0.4 (1.6) (0.4)
Organic 3.2 (3.0) (5.3) (7.6) (3.3) (6.7) (3.1) (6.2) (3.6) (4.9) (1.7) 1.0 8.6 10.1 4.5
(%)
Note: Core sales growth excludes acquisitions during the first year of ownership.
16 Q4 & FY 2017 Earnings Webcast 2/1/18
Q4 2017 Organic Sales Growth by Geography
U.S. Canada International WESCO
Change in net sales (USD) 8.9 17.9 24.2 11.3
Impact from acquisitions - - - -
Impact from foreign exchange rates - 5.1 4.9 1.2
Impact from number of workdays - - - -
Organic sales growth 8.9 12.8 19.3 10.1
(%)
17 Q4 & FY 2017 Earnings Webcast 2/1/18
Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation.
($ Millions)
Sales Growth-End Markets
Q4 2017 vs. Q4 2016 Q4 2017 vs. Q3 2017 FY 2017 vs FY 2016
Q4 Q4 Q4 Q3 FY FY
2017 2016
%
Growth 2017 2017
%
Growth 2017 2016
%
Growth
Industrial Core 744 647 15.0% 744 726 2.5% 2,865 2,655 7.9%
Construction Core 679 613 10.7% 679 678 0.1% 2,558 2,493 2.6%
Utility Core 322 293 9.7% 322 314 2.6% 1,187 1,163 2.1%
CIG Core 261 247 5.8% 261 292 (10.6)% 1,104 1,054 4.7%
Total Core Gross Sales 2,006 1,800 11.4% 2,006 2,009 (0.2)% 7,713 7,364 4.7%
Total Gross Sales from Acquisitions - - - - - - - - -
Total Gross Sales 2,006 1,800 11.4% 2,006 2,009 (0.2)% 7,713 7,364 4.7%
Gross Sales Reductions/Discounts (9) (7) - (9) (9) - (34) (28) -
Total Net Sales 1,997 1,793 11.3% 1,997 2,000 (0.2)% 7,679 7,336 4.7%
18 Q4 & FY 2017 Earnings Webcast 2/1/18
Q4 2017 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth 15.0 10.7 9.7 5.8 11.3
FX Impact 1.1 1.8 0.6 1.0 1.2
Workday Impact - - - - -
Organic Growth 13.9 8.9 9.1 4.8 10.1
(%)
19 Q4 & FY 2017 Earnings Webcast 2/1/18
Gross Margin
($ Millions)
Three Months Ended Twelve Months Ended
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Net sales $1,997 $1,793 $7,679 $7,336
Cost of goods sold (excluding depreciation and amortization) 1,613 1,445 6,194 5,888
Gross profit $383 $349 $1,485 $1,448
Gross margin 19.2% 19.4% 19.3% 19.7%
20 Q4 & FY 2017 Earnings Webcast 2/1/18
Adjusted Diluted EPS
($ millions, except for EPS) FY 2016 Q4 2017 FY 2017
Reported
Results Adjustments
Adjusted
Results
Reported
Results Adjustments
Adjusted
Results
Reported
Results Adjustments
Adjusted
Results
Income from operations $ 332.0 - $ 332.0 $ 81.4 - $ 81.4 $ 321.0 - $ 321.0
Interest, net 76.6 - 76.6 17.6 - 17.6 68.5 - 68.5
Loss on debt redemption (1) 123.9 (123.9) - - - - - - -
Income before income taxes 131.5 123.9 255.4 63.8 - 63.8 252.5 - 252.5
Income taxes (1) (2) 30.4 41.2 71.6 41.6 (26.4) 15.2 89.3 (26.4) 62.9
Effective tax rate 23.1% 28.0% 65.2% 23.8% 35.4% 24.9%
Net income 101.1 82.7 183.8 22.2 26.4 48.6 163.2 26.4 189.6
Less: Non-controlling interests (0.5) - (0.5) (0.3) - (0.3) (0.3) - (0.3)
Net income attributable to WESCO $ 101.6 82.7 $ 184.3 $ 22.5 26.4 $ 48.9 $ 163.5 26.4 $ 189.9
Adjusted Earnings per Diluted Share:
Earnings per diluted share (as reported) $2.10 $0.47 $3.38
Impact of Tax Cuts and Jobs Act of 2017 (TCJA) (2) - 0.56 0.55
Loss on debt redemption (3) 2.54 - -
Tax effect of loss on debt redemption (3) (0.84) - -
Adjusted diluted earnings per common share $3.80 $1.03 $3.93
1 Represents the third quarter of 2016 income tax benefit related to the loss on debt redemption.
2 The application of the TCJA resulted in a provisional discrete income tax expense of $26.4 million, which is comprised of $82.8 million of expense associated with the deemed repatriation of undistributed earnings of foreign subsidiaries partially offset by a $56.4 million benefit from
the remeasurement of net deferred income tax liabilities.
3 The loss on debt redemption and related income tax benefit are based on third quarter diluted shares of 48.7 million.
21 Q4 & FY 2017 Earnings Webcast 2/1/18
Outstanding at
December 31, 2016
Outstanding at
December 31, 2017
Debt
Maturity Schedule
AR Revolver (V) 380 380 2020
Inventory Revolver (V) 4 12 2020
2019 Term Loans (V) 145 85 2019
2021 Senior Notes (F) 500 500 2021
2024 Senior Notes (F) 350 350 2024
Other (V) 24 36 N/A
Total Debt 1,403 1,363
Capital Structure
Key Financial Metrics
YE 2016 YE 2017
Cash 110 118
Capital Expenditures 18 22
Free Cash Flow (1) 282 128
Liquidity (2) 705 794
($ Millions)
(V) Variable Rate Debt (1) Cash flow provided by operations less capital expenditures.
(F) Fixed Rate Debt (2) Total availability under asset-backed credit facilities plus cash in investment accounts.
22 Q4 & FY 2017 Earnings Webcast 2/1/18
Financial Leverage
Twelve Months Ended
December 31, 2017
Financial leverage ratio:
Income from operations $ 321
Depreciation and amortization 64
EBITDA $ 385
December 31, 2017
Short-term borrowings and current debt $ 35
Long-term debt 1,314
Debt discount and debt issuance costs (1) 14
Total debt $ 1,363
Less: cash and cash equivalents $ 118
Total debt, net of cash $ 1,245
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, 2017 net of debt discount and debt issuance costs.
($ Millions)
Note: For financial leverage ratio in prior periods, see quarterly earnings webcasts as previously furnished to the Securities & Exchange Commission, which
can be obtained from the Investor Relations page of WESCO’s website at www.wesco.com.
23 Q4 & FY 2017 Earnings Webcast 2/1/18
2015 2016 2017
Amortization of Debt Discount(1) 6.1 3.0 0.3
Amortization of Debt Issuance Costs 6.1 3.6 3.7
Uncertain Tax Positions (8.7) 1.2 0.1
Total 3.5 7.8 4.1
Non-Cash Interest Expense
(1) Includes convertible debt and term loan; the convertible debt was redeemed in Q3 2016.
($ Millions)
24 Q4 & FY 2017 Earnings Webcast 2/1/18
Free Cash Flow Reconciliation
FY
2016
FY
2017
Cash flow provided by operations 300.2 149.1
Less: Capital expenditures (18.0) (21.5)
Free cash flow 282.2 127.6
Adjusted net income 183.8 189.6
Percentage of adjusted net income 154% 67%
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 other investing and financing activities.
($ Millions)
25 Q4 & FY 2017 Earnings Webcast 2/1/18
Work Days
Q1 Q2 Q3 Q4 FY
2016 64 64 64 62 254
2017 64 64 63 62 253
2018 64 64 63 62 253