Attached files
| file | filename |
|---|---|
| EX-99.1 - PRESS RELEASE - WESCO INTERNATIONAL INC | wcc3q2016earningssrelease.htm |
| 8-K - FORM 8-K - WESCO INTERNATIONAL INC | wcc3q2016earnings8-k.htm |
Webcast Presentation
October 27, 2016
Q3 2016 Earnings
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Q3 2016 Earnings Webcast, 10/27/16
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. Any numerical or other
representations in this presentation do not represent guidance by management and should not
be construed as such. 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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Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Highlights
…operating margin in-line with outlook
• Reported sales were down 3.6%
• Organic sales were down 5% in
the US and down 7% in Canada
• Oil & gas sales down over 20%
• Operating margin was in-line with
expectations, driven by cost
management actions
• Strong free cash flow at 140% of
adjusted net income
• Successfully redeemed
convertible bonds
• Reported diluted EPS ($0.65);
adjusted EPS of $1.05
• October month-to-date reported
sales flat to prior year
1.6
6.0
6.7
8.1
3.2
(3.0)
(5.3)
(7.6)
(6.7)
(3.1)
(6.2)
Organic Growth
(%)
Jul (5)%
Aug (10)%
Sep (4)%
Note: See appendix for non-GAAP reconciliations.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015
Q1
2016
Q2 Q3
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Q3 2016 Earnings Webcast, 10/27/16
Industrial End Market
• Q3 2016 Sales
− Organic sales down 10% versus prior year
(down 7% in the U.S. and down 20% in
Canada in local currency)
− Down 3% sequentially
− Sales declines driven by oil and gas, metals
and mining, and OEM customers
• Reduced demand outlook, weak commodity prices,
and strong U.S. dollar are weighing on
manufacturing sector, causing deferred project and
maintenance spending.
• 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
Awarded a multi-year One WESCO integrated supply contract for
MRO materials by a North American chemical manufacturer and
services provider.
(1.8%)
(7.8%)
(10.9%)
(13.6%) (13.7%)
(10.1%) (10.1%)
Q3 2015 Q2 2015 Q1 2015
2015
(8.6%)
Q4 2015 Q1 2016 Q2 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
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Q3 2016 Earnings Webcast, 10/27/16
• Q3 2016 Sales
− Organic sales down 6% versus prior year
(down 6% in U.S. and down 4% in Canada
in local currency)
− Down 3% sequentially
− Continued weakness with contractors
serving the industrial market
• Core backlog declined 3% versus prior year, but
is up 2% from year-end.
• Outside of oil and gas, metals and mining,
expecting modest uptrend in non-residential
construction.
• Non-residential construction market still well
below its prior peak in 2008.
Construction
• Non-
Residential
• Residential
34%
Organic Sales Growth versus Prior Year
Construction End Market
Awarded a contract to provide an LED lighting package for a new
hospital in western Canada.
8.8%
(3.0%)
(4.2%)
(6.7%)
(3.6%)
2.3%
(5.5%)
Q2 2015 Q1 2015 Q3 2015 Q4 2015
2015
(1.7%)
Q2 2016 Q1 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
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Q3 2016 Earnings Webcast, 10/27/16
Utility End Market
Organic Sales Growth versus Prior Year
16%
Utility
• Investor Owned
• Public Power
• Utility Contractors
• Q3 2016 Sales
− Organic sales down 2% versus prior year
(down 2% in U.S. and up 5% in Canada in
local currency)
− Down 2% sequentially
• 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 catalyst for
future spending.
Renewed a multi-year contract to provide power delivery and
generation materials for a large municipal owned utility.
7.8%
7.2%
3.7%
1.9%
0.6% 0.6%
(1.7%)
2015
5.1%
Note: See appendix for non-GAAP reconciliations.
Q2 2015 Q1 2015 Q3 2015 Q4 2015 Q2 2016 Q1 2016 Q3 2016
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Q3 2016 Earnings Webcast, 10/27/16
CIG End Market
• Q3 2016 Sales
− Organic sales down 2% versus prior
year (down 2% in US and up 9% in
Canada in local currency)
− Down 2% 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 and cloud
technology projects.
Organic Sales Growth versus Prior Year
CIG
• Commercial
• Institutional
• Government
14%
Awarded a One WESCO contract to provide electrical and
communications products to multiple local government agencies.
6.3%
1.5%
(0.3%)
(0.8%)
0.4%
0.8%
(1.6%)
Q2 2015 Q1 2015 Q3 2015 Q4 2015
2015
1.6%
Q1 2016 Q2 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
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Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Results
Outlook Actual YOY
Sales (3)% to Flat $1.86B (3.6)% growth
Gross Margin 19.7% Down 10 bps
SG&A $256M, 13.8% Down 1%, Up 40 bps; core down 4%
Operating Profit $93M Down 13%
Operating Margin 4.9% to 5.3% 5.0% Down 50 bps
Effective Tax Rate ~29% 28.0%* Up 60 bps
290 bps
(5.1)%
Growth
140 bps 390 bps
$1.86B
$1.92B
Q3 2016
Sales
Acquisitions Foreign
Exchange
Rest of
World
Canada U.S. Q3 2015
Sales
30 bps
90 bps
(6.9)%
Growth
(17.7)%
Growth
(6.2)%
Organic
Growth
(3.6)%
Growth
*See appendix for non-GAAP reconciliations.
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Q3 2016 Earnings Webcast, 10/27/16
Diluted EPS Walk
Q3
2015 $1.28)
Core operations (0.30)
Acquisitions 0.05)
Foreign exchange impact 0.01)
Tax (0.01)
Share count 0.02)
After tax loss on debt redemption (1.70)
2016 $(0.65)
Pretax loss on debt redemption 2.54)
Tax effect of loss debt on redemption (0.84)
Adjusted 2016 $1.05)
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Q3 2016 Earnings Webcast, 10/27/16
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
159.8
204.0
YTD 2015 YTD 2016
Cash Generation
Free Cash Flow
($ Millions)
See appendix for non-GAAP reconciliations.
150%
of
adjusted
net
income
100%
of net
income
> $1B of free
cash flow over
last 4 years
2014
Target
Leverage
2.0x – 3.5x
3.6X
Leverage
(Total Par Debt to TTM EBITDA)
2015 2016
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Q3 2016 Earnings Webcast, 10/27/16
2016 Outlook
Q4 FY (Current)
FY
(Previous)
Sales (1)% to (4)% (2)% to (3)% Flat to (2)%
Operating Margin 4.5% to 4.8% 4.5% to 4.6% 4.6% to 4.8%
Effective Tax Rate ~ 30% ~ 29% ~ 29%
Adjusted Diluted EPS $3.75 to $3.90 $3.85 to $4.10
Free Cash Flow >125% of adjusted net income >100% of net income
Notes: Excludes unannounced acquisitions.
Assumes a CAD/USD exchange rate of 0.76 in Q4.
Excludes the effects of the redemption of our 6.0% Convertible Senior Debentures due 2029.
See appendix for non-GAAP reconciliations.
…current sales and adjusted EPS outlook still in original 2016 Outlook range
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Q3 2016 Earnings Webcast, 10/27/16
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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Q3 2016 Earnings Webcast, 10/27/16
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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Q3 2016 Earnings Webcast, 10/27/16
Sales Growth
2014 2015 2016
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
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)
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
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)
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)
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)
Workday Impact (1.6) (0.4) (1.6) 1.6 3.2
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)
(%)
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Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Sales Growth – Geography
U.S. Canada International Total
Change in net sales (USD) (1.2) (7.9) (20.6) (3.6)
Impact from acquisitions 3.9 - - 2.9
Impact from foreign exchange rates - (1.0) (2.9) (0.3)
Impact from number of workdays - - - -
Normalized organic sales growth (5.1) (6.9) (17.7) (6.2)
(%)
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Q3 2016 Earnings Webcast, 10/27/16
Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation.
($ Millions)
Sales Growth-End Markets
Q3 2016 vs. Q3 2015 Q3 2016 vs. Q2 2016
Q3 Q3 Q3 Q2
2016 2015
%
Growth 2016 2016
%
Growth
Industrial Core 656 733 (10.5) % 658 680 (3.2)%
Construction Core 602 640 (6.0) % 642 666 (3.5)%
Utility Core 292 297 (1.8) % 292 298 (2.1)%
CIG Core 255 261 (2.0) % 270 275 (1.9)%
Total Core Gross Sales 1,805 1,931 (6.5) % 1,862 1,919 (3.0)%
Total Gross Sales from Acquisitions 57 - - - - -00
Total Gross Sales 1,862 1,931 (3.6) % 1,862 1,919 (3.0)%
Gross Sales Reductions/Discounts (7) (7) - (7) (7) -00
Total Net Sales 1,855 1,924 (3.6) % 1,855 1,912 (3.0)%
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Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (10.5) (6.0) (1.8) (2.0) (6.5)
Workday Impact - - - - -
Workday Adjusted Core Growth (10.5) (6.0) (1.8) (2.0) (6.5)
FX Impact (0.4) (0.5) (0.1) (0.4) (0.3)
Workday Adjusted Organic Growth (10.1) (5.5) (1.7) (1.6) (6.2)
(%)
Note: Core sales growth excludes acquisitions during the first year ownership.
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Q3 2016 Earnings Webcast, 10/27/16
2029 Debentures Loss Non-GAAP Reconciliation
(in millions, except for EPS)
Q3 2016 YTD 2016
Reported
Results Adjustments (1)
Adjusted
Results
Reported
Results Adjustments (1)
Adjusted
Results
Operating profit $ 92.6 - $ 92.6 $ 250.0 - $ 250.0
Interest 20.8 - 20.8 59.1 - 59.1
Loss on redemption of convertible
debentures
123.9 (123.9) 1 - 123.9 (123.9) 1 -
(Loss) income before income taxes (52.1) 123.9 71.8 67.0 123.9 190.9
Taxes (21.1) 41.2 1 20.1 13.7 41.2 1 54.9
Effective tax rate 40.5% 28.0% 20.4% 28.8%
Net (loss) income (31.0) 82.7 51.7 53.3 82.7 136.0
Less: Non-controlling interest 0.6 - 0.6 (0.9) - (0.9)
Net (loss) income attributable to WESCO $ (31.6) 82.7 $ 51.1 $ 54.2 82.7 $ 136.9
Diluted Shares 48.7 48.7 48.0 48.0
EPS $ (0.65) $ 1.05 $ 1.13 $ 2.85
(1) Loss on redemption of 2029 Debentures and related income tax benefit.
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Q3 2016 Earnings Webcast, 10/27/16
Outstanding at
December 31, 2015
Outstanding at
September 30, 2016
Debt
Maturity Schedule
AR Revolver (V) 525 426 2018
Inventory Revolver (V) 75 - 2020
2019 Term Loans (V) 175 160 2019
2021 Senior Notes (F) 500 500 2021
2024 Senior Notes (F) - 350 2024
2029 Convertible Bonds (F) 345 - 2029 (1)
Other (V) 45 38 N/A
Total Par Debt 1,665 1,474
Capital Structure
Key Financial Metrics
Q3 2015 YE 2015 Q3 2016
Cash 133 160 113
Capital Expenditures 16 22 13
Free Cash Flow (2) 160 261 204
Liquidity (3) 520 546 693
($ 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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Q3 2016 Earnings Webcast, 10/27/16
Financial Leverage
Twelve Months Ended
September 30, 2016
Financial leverage ratio:
Income from operations $ 340
Depreciation and amortization 67
EBITDA $ 407
September 30, 2016
Current debt and short-term borrowings $ 37
Long-term debt 1,419
Debt discount and deferred financing (1) 18
Total debt $ 1,474
Less: cash and cash equivalents $ 113
Total debt, net of cash $ 1,361
Financial leverage ratio 3.6X
Financial leverage ratio, net of cash 3.3X
(1)Long-term debt is presented in the condensed consolidated balance sheet as of September 30, 2016 net of deferred financing
fees and discount related to the term loan.
($ Millions)
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Q3 2016 Earnings Webcast, 10/27/16
($ Millions)
2014 2015
YTD
2016
Amortization of Debt Discount* 4.1 6.1 3.0
Amortization of Deferred Financing Fees 4.4 6.1 2.7
FIN 48 1.0 (8.7) 0.4
Accrued Interest (1.4) - 5.9
Total 8.1 3.5 12.0
Non-Cash Interest Expense
* Includes convertible debt and term loan.
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Q3 2016 Earnings Webcast, 10/27/16
Free Cash Flow Reconciliation
Q3
2015
Q3
2016
YTD
2015
YTD
2016
Cash flow provided by operations 43.3 78.6 176.0 217.2
Less: Capital expenditures (3.6) (6.1) (16.2) (13.2)
Free Cash Flow 39.7 72.5 159.8 204.0
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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Q3 2016 Earnings Webcast, 10/27/16
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