Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WESCO International Inc (WCC, Financial) reported strong growth in its data center solutions business, with sales up more than 40% year-over-year.
- The company generated $280 million in free cash flow during the third quarter, representing 145% of adjusted net income.
- WESCO International Inc (WCC) has maintained its full-year 2024 outlook for sales, profitability, and free cash flow.
- The company has repurchased $375 million worth of common shares and reduced net debt by $475 million this year.
- WESCO International Inc (WCC) continues to benefit from secular growth trends in electrification, automation, and green energy, which are expected to drive future growth.
Negative Points
- The utility and broadband segments experienced continued weakness, impacting overall sales growth.
- The divestiture of the integrated supply business posed a headwind of approximately 350 basis points.
- The company expects to be within the lower half of its outlook range for sales and adjusted EBITDA margin if current trends continue.
- Inventory levels have not decreased as expected due to lower-than-anticipated sales in certain segments.
- The macroeconomic environment remains mixed, with challenges in the industrial and solar markets impacting performance.
Q & A Highlights
Q: Can you provide insights on the impact of storm activity in October and the backlog erosion in the UBS segment?
A: David Schulz, CFO, explained that the hurricane impact was neutral in September, with utility benefits offset by branch shutdowns. The UBS backlog is not being replenished at the same rate due to current market conditions, but this is seen as temporary. John Engel, CEO, added that large contracts, like a $2 billion UBS contract, don't immediately reflect in backlog figures, indicating strong long-term prospects.
Q: What is the pricing outlook for 2025, especially with recent price announcements from manufacturers?
A: John Engel, CEO, noted that while the number of products with price increases is stable, the magnitude of increases is lower than a year ago but stable compared to last quarter. This suggests a steady pricing environment moving into 2025.
Q: How significant is storm demand versus planned upgrades in utility sales, and what is the current mix of UBS towards distribution versus transmission?
A: John Engel, CEO, stated that storm impacts were nominal, around $15 million, and emphasized the strategic focus on transmission and substation growth. The mix has not been updated recently but is planned for 2025 disclosures, with strong growth in transmission noted.
Q: Can you elaborate on the impressive 40% growth in the data center segment and the mix of services versus product sales?
A: John Engel, CEO, highlighted that the growth is driven by a comprehensive solution offering, including consulting services, which differentiates Wesco. The backlog growth also supports future momentum, with Gen AI-driven data centers requiring more content.
Q: What are the expectations for CSS and EES margins in the fourth quarter, and how does this relate to sales trends?
A: David Schulz, CFO, indicated that CSS margins are expected to improve sequentially due to strong sales, particularly in data centers. However, EES and UBS may see margin pressure due to expected sales declines, with overall adjusted EBITDA margins flat to slightly down sequentially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
