WESCO (WCC) Q2 Earnings Miss Estimates, Sales Increase Y/Y
WESCO International, Inc. WCC reported second-quarter 2023 adjusted earnings of $3.71 per share, which reflected a year-over-year decline of 11.5%. Also, the bottom line missed the Zacks Consensus Estimate by 16.8%.
Quarterly net sales of $5.75 billion rose 5% year over year. The figure missed the Zacks Consensus Estimate of $5.95 billion.
The top-line growth was driven by a strong demand environment and improvement in supply-chain conditions.
Further, strong momentum across Communications & Security Solutions (CSS) and Utility & Broadband Solutions (UBS) segments contributed well.
However, the company witnessed softness in Electrical & Electronic Solutions (EES) unit.
Notably, WESCO has returned 15.6% on a year-to-date basis, outperforming the industry’s growth of 8.8%.
WESCO International, Inc. Price, Consensus and EPS Surprise
WESCO International, Inc. price-consensus-eps-surprise-chart | WESCO International, Inc. Quote
Top-Line Details
EES (38.3% of net sales): Sales in the segment were $2.2 billion, down 5.6% from the year-ago period’s level. This was due to the softness in construction business. Further, the OEM business declined due to continued weakness in manufactured structures.
CSS (32.2% of net sales): Sales in the segment were $1.85 billion, up 15.5% from the year-ago period’s level. This was attributed to the well-performing security solution and network infrastructure business, as well as the strong demand for professional A/V and in-building wireless applications. Further, Rahi acquisition contributed positively to the top-line growth within the segment. This was attributed to strong demand from global hyperscale data center customers.
UBS (29.5% of net sales): Sales in the segment were $1.69 billion, up 9.2% from the year-ago period’s number. This was driven by strong momentum in utility sales driven by investments in electrification, green energy and grid modernization. Further, strong growth in the integrated supply business was a plus.
Operating Details
The gross margin expanded 10 basis points (bps) from the year-ago period’s level to 21.6%.
Selling, general and administrative expenses were $831.7 million, up 7.6% from the year-ago quarter’s reading. As a percentage of net sales, the figure expanded 40 bps year over year to 14.5%.
The adjusted operating margin was 6.7%, which contracted 40 bps from the prior-year quarter’s reading.
Balance Sheet & Cash Flow
As of Jun 30, 2023, cash and cash equivalents were $529 million, up from $349.1 million as of Mar 31, 2023.
Long-term debt was $5.52 billion at the second-quarter end compared with $5.6 billion in the prior quarter.
The company generated $317.6 million of cash from operations against $255.4 million of cash used in operations in the previous quarter.
For the second quarter, WESCO reported a free cash flow of $293.2 million.
Guidance
For 2023, management lowered its expectation for sales growth from 6-9% to 5-7% on a reported basis due to market weakness in EES segment. The Zacks Consensus Estimate for sales is pegged at $23.1 billion.
Adjusted EBITDA margin is anticipated between 7.8% and 8%.
The company also revised its guidance for adjusted earnings per share downward from $16.80-$18.30 to $15.00-$16.00. The Zacks Consensus Estimate for earnings is pegged at $17.44 per share.
Also, free cash flow is expected in the band of $500-$700 million.
Zacks Rank & Stocks to Consider
Currently, WESCO carries a Zacks Rank #3 (Hold).
Investors interested in the broader technology sector can consider some better-ranked stocks like CACI International CACI and BILL Holdings, Inc. BILL, each carrying a Zacks Rank #2 (Buy) and Super Micro Computer SMCI, which carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CACI is set to report fourth-quarter fiscal 2023 results on Aug 9. The Zacks Consensus Estimate for CACI’s earnings is pegged at $4.85 per share, implying growth of 6.83% from the year-ago quarter’s reported figure. CACI shares have gained 18% in the year-to-date period.
BILL Holdings is set to report its fourth-quarter fiscal 2023 results on Aug 17. The Zacks Consensus Estimate for BILL’s earnings is pegged at 41 cents per share. BILL shares have gained 5.8% in the year-to-date period.
Super Micro Computer is scheduled to release its fiscal fourth-quarter fiscal 2023 results on Aug 8. The Zacks Consensus Estimate for SMCI’s earnings is pegged at $3.4 per share, suggesting an increase of 29.77% from the year-ago quarter’s reported figure.
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