WESCO International, Inc. Reports Fourth Quarter and Full Year 2020 Results

Fourth quarter summary:

  • Net sales of $4.1 billion, up 97% due to the Anixter merger
  • Operating profit of $93 million; operating margin of 2.2%

    • Adjusted operating profit of $172 million; adjusted operating margin of 4.2%
  • Earnings per diluted share of $0.11

    • Adjusted earnings per diluted share of $1.22
  • Operating cash flow of $125 million

    • Free cash flow of 161% of adjusted net income
  • Leverage of 5.3x; net debt reduction of $109 million

Full year results:

  • Net sales of $12.3 billion, up 48% due to the Anixter merger
  • Operating profit of $347 million; operating margin of 2.8%

    • Adjusted operating profit of $522 million; adjusted operating margin of 4.2%
  • Earnings per diluted share of $1.51

    • Adjusted earnings per diluted share of $4.37
  • Operating cash flow of $544 million

    • Free cash flow of 251% of adjusted net income
  • Net debt reduction of $389 million; leverage improvement of 0.4x since Anixter merger

PITTSBURGH–(BUSINESS WIRE)–WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the fourth quarter and full year 2020.

Fiscal 2020 will be remembered as one of the most important in WESCO’s history. We completed the transformational acquisition of Anixter, doubling our size and changing our trajectory for years to come. We designed and launched a three-year integration plan which in just six months has delivered synergies in excess of our initial targets,” said John Engel, Chairman, President and CEO. “And at the same time, we delivered operating results during a global pandemic which demonstrate the strength of our franchise, the commitment of our extraordinary team of associates, and position us well for future growth as the economy continues its recovery and the secular trends supporting our future growth generate momentum across our business units.”

In the six months since completing the acquisition of Anixter we have already reduced net debt by $389 million. We are confident that we will exceed the synergy targets that we’ve set for our three-year plan. The combination of WESCO and Anixter creates cross-selling opportunities, with initiatives underway that have already delivered early successes. We enter 2021 with a record backlog, a new organizational structure, and the strongest management team we’ve fielded during my time with the Company.”

For 2021, WESCO is exceptionally well positioned to support our customers with an expanded set of products and differentiated services. The efficiencies we capture through our larger scale will combine with growth in electrification, automation, communications and security across our three global business units to drive our performance this year. As such, we expect to outperform in our end markets with sales increasing from 3% to 6% in all three of our business units. We also see our adjusted EBITDA margins expanding to 5.4% to 5.7% and adjusted EPS growing to between $5.50 to $6.00, with free cash flow generation reaching 100% or more of net income.”

The following are results for the three months ended December 31, 2020 compared to the three months ended December 31, 2019:

  • Net sales were $4.1 billion for the fourth quarter of 2020 compared to $2.1 billion for the fourth quarter of 2019, an increase of 96.7% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the impact of weakened demand from the COVID-19 pandemic. Net sales for the fourth quarter of 2020 were up 4.4% sequentially compared to the third quarter that had an additional three work days.
  • Cost of goods sold for the fourth quarter of 2020 was $3.4 billion compared to $1.7 billion for the fourth quarter of 2019, and gross profit was $772.0 million and $389.8 million, respectively. As a percentage of net sales, gross profit was 18.7% and 18.6% for the fourth quarter of 2020 and 2019, respectively. Cost of goods sold for the fourth quarter of 2020 includes merger-related fair value adjustments of $15.7 million, as well as an out-of-period adjustment of $23.3 million related to inventory absorption accounting. Adjusted for these amounts, gross profit as a percentage of net sales for the fourth quarter of 2020 was 19.6%.
  • Selling, general and administrative expenses were $637.9 million, or 15.5% of net sales, for the fourth quarter of 2020, compared to $289.9 million, or 13.8% of net sales, for the fourth quarter of 2019. SG&A expenses for the fourth quarter of 2020 include merger-related costs of $40.1 million. Adjusted for this amount, SG&A expenses were $597.8 million, or 14.5% of net sales, for the fourth quarter of 2020. SG&A expenses for the fourth quarter of 2019 include $3.1 million of merger-related costs.
  • Operating profit was $92.8 million for the fourth quarter of 2020, compared to $83.8 million for the fourth quarter of 2019. Operating profit as a percentage of net sales was 2.2% for the current quarter, compared to 4.0% for the fourth quarter of the prior year. Operating profit for the fourth quarter of 2020 includes merger-related costs and the out-of-period adjustment described above. Adjusted for these amounts, operating profit was $171.8 million, or 4.2% of net sales. Adjusted for merger-related costs of $3.1 million, operating profit was $86.9 million for the fourth quarter of 2019, or 4.1% of net sales.
  • Net interest expense for the fourth quarter of 2020 was $74.3 million, compared to $16.4 million for the fourth quarter of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
  • The effective tax rate was a benefit of 4.7% for the fourth quarter of 2020 compared to expense of 22.0% for the fourth quarter of 2019. The lower effective tax rate in the current quarter was primarily due to one-time impacts from the merger with Anixter.
  • Net income attributable to common stockholders was $5.6 million for the fourth quarter of 2020, compared to $53.1 million for the fourth quarter of 2019. Adjusted for the items mentioned above, net income attributable to common stockholders was $62.4 million for the fourth quarter of 2020.
  • Earnings per diluted share for the fourth quarter of 2020 was $0.11, based on 51.1 million diluted shares, compared to $1.26 for the fourth quarter of 2019, based on 42.2 million diluted shares. As adjusted, earnings per diluted share for the fourth quarter of 2020 and 2019 was $1.22 and $1.32, respectively.
  • Operating cash flow for the fourth quarter of 2020 was $125.0 million, compared to $107.7 million for the fourth quarter of 2019. Free cash flow for the fourth quarter of 2020 was $124.0 million, or 161% of adjusted net income, compared to $94.0 million, or 170% of adjusted net income, for the fourth quarter of 2019.

The following are results for the year ended December 31, 2020 compared to the year ended December 31, 2019:

  • Net sales were $12.3 billion for 2020 compared to $8.4 billion for 2019, an increase of 47.6% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the impact of weakened demand from the COVID-19 pandemic.
  • Cost of goods sold for 2020 was $10.0 billion and gross profit was $2.3 billion, compared to $6.8 billion and $1.6 billion, respectively, for 2019. As a percentage of net sales, gross profit was 18.9% for both 2020 and 2019. Cost of goods sold for 2020 includes merger-related fair value adjustments of $43.7 million, as well as an out-of-period adjustment of $18.9 million related to inventory absorption accounting. Adjusted for these amounts, gross profit as a percentage of net sales for 2020 was 19.4%.
  • Selling, general and administrative expenses were $1.9 billion, or 15.1% of net sales, for 2020, compared to $1.2 billion, or 14.0% of net sales, for 2019. SG&A expenses for 2020 include merger-related costs of $132.2 million, as well as a gain on the sale of a U.S. operating branch. of $19.8 million. Adjusted for these amounts, SG&A expenses for 2020 were $1.7 billion, or 14.2% of net sales, reflecting lower sales and the merger with Anixter, partially offset by cost reduction actions taken in response to the COVID-19 pandemic. SG&A expenses for 2019 include $3.1 million of merger-related costs.
  • Operating profit was $347.0 million for 2020, or 2.8% of net sales, compared to $346.2 million for 2019, or 4.1% of net sales. Operating profit for 2020 includes merger-related costs, merger-related fair value adjustments, the out-of-period adjustment described above and gain on the sale of a U.S. operating branch. Adjusted for these amounts, operating profit was $522.0 million, or 4.2% of net sales. Adjusted for merger-related costs of $3.1 million, operating profit was $349.3 million for 2019, or 4.2% of net sales.
  • Net interest expense for 2020 was $226.6 million, compared to $65.7 million for 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
  • The effective tax rate for 2020 was 18.6%, compared to 21.2% for 2019. The lower effective tax rate in the current year was primarily due to one-time impacts from the merger with Anixter.
  • Net income attributable to common stockholders was $70.4 million for 2020, compared to $223.4 million for 2019. As adjusted for the items mentioned above, net income attributable to common stockholders was $203.6 million for 2020.
  • Earnings per diluted share for 2020 was $1.51, based on 46.6 million diluted shares, compared to $5.14 for 2019, based on 43.5 million diluted shares. As adjusted, earnings per diluted share for 2020 and 2019 was $4.37 and $5.20, respectively.
  • Operating cash flow for 2020 was $543.9 million, compared to $224.4 million for 2019. Free cash flow for 2020 was $586.1 million, or 251% of adjusted net income, compared to $180.3 million, or 80% of adjusted net income, for 2019.

Segment Results

In the third quarter of 2020, in connection with the acquisition of Anixter, the Company identified new segments, which have been organized around three strategic business units consisting of Electrical & Electronic Solutions (“EES”), Communications & Security Solutions (“CSS”) and Utility & Broadband Solutions (“UBS”).

Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Corporate expenses are not directly identifiable with our reportable segments and are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.

The following are results by segment for the three months ended December 31, 2020 compared to the three months ended December 31, 2019:

  • EES reported net sales of $1.7 billion for the fourth quarter of 2020, compared to $1.2 billion for the fourth quarter of 2019, an increase of 35.2%. Operating profit was $64.2 million for the fourth quarter of 2020, compared to $63.0 million for the fourth quarter of 2019. Adjusted EBITDA was $93.8 million for the fourth quarter of 2020, or 5.6% of net sales, compared to $70.5 million for the fourth quarter of 2019, or 5.7% of net sales.
  • CSS reported net sales of $1.4 billion for the fourth quarter of 2020, compared to $228.4 million for the fourth quarter of 2019, an increase of 499.5%. Operating profit was $85.4 million for the fourth quarter of 2020, compared to $11.3 million for the fourth quarter of 2019. Adjusted EBITDA was $111.8 million for the fourth quarter of 2020, or 8.2% of net sales, compared to $13.1 million for the fourth quarter of 2019, or 5.7% of net sales.
  • UBS reported net sales of $1.1 billion for the fourth quarter of 2020, compared to $636.9 million for the fourth quarter of 2019, an increase of 71.3%. Operating profit was $64.2 million for the fourth quarter of 2020, compared to $50.5 million for the fourth quarter of 2019. Adjusted EBITDA was $79.2 million for the fourth quarter of 2020, or 7.3% of net sales, compared to $54.0 million for the fourth quarter of 2019, or 8.5% of net sales.

The following are results by segment for the year ended December 31, 2020 compared to the year ended December 31, 2019:

  • EES reported net sales of $5.5 billion for 2020, compared to $4.9 billion for 2019, an increase of 12.7%. Operating profit was $260.2 million for 2020, compared to $261.8 million for 2019. Adjusted EBITDA was $294.9 million for 2020, or 5.4% of net sales, compared to $291.5 million for 2019, or 6.0% of net sales.
  • CSS reported net sales of $3.3 billion for 2020, compared to $909.5 million for 2019, an increase of 265.4%. Operating profit was $217.2 million for 2020, compared to $43.8 million for 2019. Adjusted EBITDA was $289.6 million for 2020, or 8.7% of net sales, compared to $51.1 million for 2019, or 5.6% of net sales.
  • UBS reported net sales of $3.5 billion for 2020, compared to $2.6 billion for 2019, an increase of 36.1%. Operating profit was $231.7 million for 2020, compared to $184.9 million for 2019. Adjusted EBITDA was $264.6 million for 2020, or 7.5% of net sales, compared to $198.7 million for 2019, or 7.7% of net sales.

Webcast and Teleconference Access

WESCO will conduct a webcast and teleconference to discuss the fourth quarter and full year 2020 earnings as described in this News Release on Tuesday, February 9, 2021, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company’s website at www.wesco.investorroom.com. The call will be archived on this internet site for seven days.

WESCO International, Inc. (NYSE: WCC), a publicly traded FORTUNE 500® company headquartered in Pittsburgh, Pennsylvania, is a leading provider of business-to-business distribution, logistics services and supply chain solutions. Pro forma 2020 annual sales were over $16 billion, including Anixter International Inc., which it acquired in June 2020. WESCO offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs over 18,000 people, maintains relationships with approximately 30,000 suppliers, and serves approximately 150,000 customers worldwide. With nearly 1.5 million products, end-to-end supply chain services, and leading digital capabilities, WESCO provides innovative solutions to meet customer needs across commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates approximately 800 branches, warehouses and sales offices in approximately 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.

Forward-Looking Statements

All statements made herein that are not historical facts should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding the process to divest certain legacy WESCO businesses in Canada, including the expected length of the process, the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company’s plans, objectives, expectations and intentions, statements that address the combined company’s expected future business and financial performance, and other statements identified by words such as “anticipate,” “plan,” “believe,” “estimate,” “intend,” “expect,” “project,” “will” and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of WESCO’s management, as well as assumptions made by, and information currently available to, WESCO’s management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of WESCO’s and WESCO’s management’s control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, the risk that problems may arise in successfully integrating the businesses of the companies or that the combined company could be required to divest one or more businesses, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the proposed transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company’s business, results of operations and financial conditions, the risk that the divesture of certain legacy WESCO businesses in Canada may take longer than expected and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company’s control. Additional factors that could cause results to differ materially from those described above can be found in WESCO’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and WESCO’s other reports filed with the U.S. Securities and Exchange Commission (“SEC”).

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

December 31,

2020

 

 

December 31,

2019

 

Net sales

$

4,128,841

 

 

 

$

2,099,452

 

 

Cost of goods sold (excluding depreciation and amortization)

3,356,890

 

81.3

%

 

1,709,658

 

81.4

%

Selling, general and administrative expenses

637,912

 

15.5

%

 

289,914

 

13.8

%

Depreciation and amortization

41,276

 

 

 

16,072

 

 

Income from operations

92,763

 

2.2

%

 

83,808

 

4.0

%

Interest expense, net

74,310

 

 

 

16,415

 

 

Other, net

(931

)

 

 

(194

)

 

Income before income taxes

19,384

 

0.5

%

 

67,587

 

3.2

%

Provision for income taxes

(904

)

 

 

14,893

 

 

Net income

20,288

 

0.5

%

 

52,694

 

2.5

%

Net income (loss) attributable to noncontrolling interests

304

 

 

 

(404

)

 

Net income attributable to WESCO International, Inc.

19,984

 

0.5

%

 

53,098

 

2.5

%

Preferred stock dividends

14,352

 

 

 

 

 

Net income attributable to common stockholders

$

5,632

 

0.1

%

 

$

53,098

 

2.5

%

 

 

 

 

 

 

Earnings per share attributable to common stockholders

$

0.11

 

 

 

$

1.26

 

 

Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands)

51,069

 

 

 

42,210

 

 

 

 

 

 

 

 

Reportable Segments

 

 

 

 

 

Net sales:

 

 

 

 

 

Electrical & Electronic Solutions

$

1,668,325

 

 

 

$

1,234,118

 

 

Communications & Security Solutions

1,369,201

 

 

 

228,409

 

 

Utility & Broadband Solutions

1,091,315

 

 

 

636,925

 

 

 

$

4,128,841

 

 

 

$

2,099,452

 

 

Income from operations:

 

 

 

 

 

Electrical & Electronic Solutions

$

64,229

 

 

 

$

63,014

 

 

Communications & Security Solutions

85,448

 

 

 

11,334

 

 

Utility & Broadband Solutions

64,219

 

 

 

50,500

 

 

Corporate

(121,133

)

 

 

(41,040

)

 

 

$

92,763

 

 

 

$

83,808

 

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Twelve Months Ended

 

 

December 31,

2020

 

 

December 31,

2019

 

Net sales

$

12,325,995

 

 

 

8,358,917

 

 

Cost of goods sold (excluding depreciation and amortization)

9,998,329

 

81.1

%

 

6,777,456

 

81.1

%

Selling, general and administrative expenses

1,859,028

 

15.1

%

 

1,173,137

 

14.0

%

Depreciation and amortization

121,600

 

 

 

62,107

 

 

Income from operations

347,038

 

2.8

%

 

346,217

 

4.1

%

Interest expense, net

226,591

 

 

 

65,710

 

 

Other, net

(2,395

)

 

 

(1,554

)

 

Income before income taxes

122,842

 

1.0

%

 

282,061

 

3.4

%

Provision for income taxes

22,803

 

 

 

59,863

 

 

Net income

100,039

 

0.8

%

 

222,198

 

2.7

%

Net loss attributable to noncontrolling interests

(521

)

 

 

(1,228

)

 

Net income attributable to WESCO International, Inc.

100,560

 

0.8

%

 

223,426

 

2.7

%

Preferred stock dividends

30,139

 

 

 

 

 

Net income attributable to common stockholders

$

70,421

 

0.6

%

 

$

223,426

 

2.7

%

 

 

 

 

 

 

Earnings per share attributable to common stockholders

$

1.51

 

 

 

$

5.14

 

 

Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands)

46,625

 

 

 

43,487

 

 

 

 

 

 

 

 

Reportable Segments

 

 

 

 

 

Net sales:

 

 

 

 

 

Electrical & Electronic Solutions

$

5,479,760

 

 

 

$

4,860,541

 

 

Communications & Security Solutions

3,323,264

 

 

 

909,496

 

 

Utility & Broadband Solutions

3,522,971

 

 

 

2,588,880

 

 

 

$

12,325,995

 

 

 

$

8,358,917

 

 

Income from operations:

 

 

 

 

 

Electrical & Electronic Solutions

$

260,207

 

 

 

$

261,788

 

 

Communications & Security Solutions

217,163

 

 

 

43,835

 

 

Utility & Broadband Solutions

231,702

 

 

 

184,931

 

 

Corporate

(362,034

)

 

 

(144,337

)

 

 

$

347,038

 

 

 

$

346,217

 

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands)

(Unaudited)

 

 

December 31,
2020

 

December 31,
2019

Assets

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

449,135

 

 

$

150,902

 

Trade accounts receivable, net

2,466,903

 

 

1,187,359

 

Inventories

2,163,617

 

 

1,011,674

 

Other current assets

426,971

 

 

190,476

 

Total current assets

5,506,626

 

 

2,540,411

 

 

 

 

 

Goodwill and intangible assets

5,252,664

 

 

2,046,315

 

Other assets

1,120,924

 

 

430,909

 

Total assets

$

11,880,214

 

 

$

5,017,635

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Current Liabilities

 

 

 

Accounts payable

$

1,707,329

 

 

$

830,478

 

Short-term borrowings and current portion of long-term debt

528,830

 

 

26,685

 

Other current liabilities

750,298

 

 

226,896

 

Total current liabilities

2,986,457

 

 

1,084,059

 

 

 

 

 

Long-term debt, net

4,369,953

 

 

1,257,067

 

Other noncurrent liabilities

1,187,415

 

 

417,838

 

Total liabilities

8,543,825

 

 

2,758,964

 

 

 

 

 

Stockholders’ Equity

 

 

 

Total stockholders’ equity

3,336,389

 

 

2,258,671

 

Total liabilities and stockholders’ equity

$

11,880,214

 

 

$

5,017,635

 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

(Unaudited)

 

 

Twelve Months Ended

 

December 31,
2020

 

December 31,
2019

Operating Activities:

 

 

 

Net income

$

100,039

 

 

$

222,198

 

Add back (deduct):

 

 

 

Depreciation

55,086

 

 

26,579

 

Amortization of intangible assets

66,514

 

 

35,528

 

Deferred income taxes

(33,538

)

 

13,205

 

Change in trade receivables, net

47,879

 

 

11,453

 

Change in inventories

203,827

 

 

(47,297

)

Change in accounts payable

(54,127

)

 

23,505

 

Other, net

158,251

 

 

(60,804

)

Net cash provided by operating activities

543,931

 

 

224,367

 

 

 

 

 

Investing Activities:

 

 

 

Capital expenditures

(56,671

)

 

(44,067

)

Other(1)

(3,678,478

)

 

(16,733

)

Net cash used in investing activities

(3,735,149

)

 

(60,800

)

 

 

 

 

Financing Activities:

 

 

 

Debt borrowings, net(2)

3,589,904

 

 

58,207

 

Equity activity, net

(3,434

)

 

(153,049

)

Other(3)

(105,729

)

 

(14,924

)

Net cash provided by (used in) financing activities

3,480,741

 

 

(109,766

)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

8,710

 

 

758

 

 

 

 

 

Net change in cash and cash equivalents

298,233

 

 

54,559

 

Cash and cash equivalents at the beginning of the period

150,902

 

 

96,343

 

Cash and cash equivalents at the end of the period

$

449,135

 

 

$

150,902

 

Contacts

Will Ruthrauff

Director, Investor Relations and Corporate Communications

(412) 454-4220

http://www.wesco.com

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