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WESCO INTERNATIONAL INC (WCC)·Q3 2025 Earnings Summary

Executive Summary

  • Record Q3 revenue of $6.20B (+12.9% YoY; +5.1% QoQ) driven by broad-based volume growth and ~60% YoY surge in data center sales to $1.2B; adjusted EBITDA rose to $423M with margin up 10 bps sequentially to 6.8% .
  • Results beat Street on revenue, adj. EPS and EBITDA: $6.20B vs $5.90B*, $3.92 vs $3.83*, and $423M vs $413M*; gross margin down 80 bps YoY on large project mix but improved 20 bps QoQ .
  • Guidance raised: FY25 organic growth to 8–9% (from 5–7%), revenue to $23.3–$23.6B, adjusted EPS to $13.10–$13.60; FCF cut to $400–$500M on higher working capital to support growth .
  • Utilities returned to growth (UBS +3% YoY) on investor-owned utility strength; public power remains weak, expected to recover in 2026; management flagged supplier rebates as a margin tailwind into Q4 and 2026 .
  • Near-term stock narrative: accelerating AI-led data center demand and raised topline/EPS guidance are positives; lower FCF and mixed gross margin from large projects may temper near-term enthusiasm pending Q4 conversion .

What Went Well and What Went Wrong

What Went Well

  • Data center momentum: $1.2B in Q3 sales (~19% of company sales) and ~60% YoY growth; TTM ~$4.0B. “Total data center sales were $1.2B… up about 60% versus the prior year.” .
  • Outperformance and guidance raise: “We are raising our full-year outlook for organic sales growth, adjusted EBITDA, and adjusted EPS” to 8–9% organic growth and $13.10–$13.60 EPS, citing “increasing business momentum.” .
  • Utilities inflecting: UBS returned to growth (+3% YoY) on investor-owned utilities; management expects continued improvement and cited backlog +11% YoY; broadband up >20% YoY .

Quoted management:

  • CEO: “We delivered very strong results… Sales growth accelerated… Adjusted EPS grew 9.5% versus the prior year… We are building on our positive business momentum” .
  • CFO: “Adjusted EPS was up 9.5% year over year… gross margin increased sequentially by 20 basis points driven by mix, higher supplier volume rebates, and execution of our enterprise-wide margin improvement program.” .

What Went Wrong

  • Margin mix pressure: Gross margin 21.3% (−80 bps YoY) on increased large project activity with lower margins; adjusted EBITDA margin 6.8% (−50 bps YoY) .
  • Free cash flow and working capital: Q3 operating cash flow $(82.7)M and FCF $(89.3)M vs +$302.1M and +$279.5M in Q3’24; FY25 FCF guide lowered to $400–$500M due to AR/inventory to support demand .
  • Slight GAAP EPS decline YoY and higher interest: Diluted GAAP EPS $3.79 (−0.5% YoY) and interest expense +$12.5M tied to 2033 Notes; adjusted EPS lift offset by FX and rates .

Financial Results

Headline Results (YoY and QoQ comparison)

MetricQ3 2024Q2 2025Q3 2025
Revenue ($B)$5.489 $5.900 $6.199
GAAP Diluted EPS ($)$3.81 $3.83 $3.79
Adjusted EPS ($)$3.58 $3.39 $3.92
Gross Margin (%)22.1% 21.1% 21.3%
Adjusted EBITDA ($M)$398.1 $394.2 $423.0
Adjusted EBITDA Margin (%)7.3% 6.7% 6.8%

Segment Performance

SegmentSales ($B) Q3 2024Sales ($B) Q2 2025Sales ($B) Q3 2025Adj. EBITDA Margin Q3 2024Adj. EBITDA Margin Q2 2025Adj. EBITDA Margin Q3 2025
Electrical & Electronic Solutions (EES)$2.110 $2.258 $2.360 8.6% 8.1% 8.4%
Communications & Security Solutions (CSS)$1.996 $2.265 $2.411 9.0% 8.8% 9.1%
Utility & Broadband Solutions (UBS)$1.383 $1.377 $1.429 11.3% 10.4% 10.4%

Cash Flow KPIs

KPIQ3 2024Q3 2025
Operating Cash Flow ($M)$302.1 $(82.7)
Free Cash Flow ($M)$279.5 $(89.3)
Effective Tax Rate (%)25.3% 23.5%

Consensus vs. Actual – Q3 2025

MetricConsensusActualSurprise
Revenue ($B)$5.902*$6.199 +$0.297B (beat)
Adjusted EPS ($)$3.83*$3.92 +$0.09 (beat)
Adjusted EBITDA ($M)$412.8*$423.0 +$10.2M (beat)

*Values retrieved from S&P Global.

Consensus details: Revenue and EPS consensus mean for Q3 2025 were ~$5.90B and $3.83; EBITDA consensus ~$412.8M; estimates count: EPS (11), Revenue (10).*

Guidance Changes

MetricPeriodPrevious Guidance (July)Current Guidance (Oct)Change
Organic Sales GrowthFY20255%–7% 8%–9% Raised
Reported Sales ($B)FY2025$22.7–$23.1 $23.3–$23.6 Raised
Adjusted EBITDA Margin (%)FY20256.6%–6.8% ~6.6% Narrowed/slightly lower top end
Adjusted EPS ($)FY2025$12.50–$14.00 $13.10–$13.60 Raised
Free Cash Flow ($M)FY2025$600–$800 $400–$500 Lowered
Depreciation & Amortization ($M)FY2025~$185–195 ~$195 Narrowed
Cloud Computing Amort. ($M)FY2025~$351 ~$351 Maintained
Interest Expense ($M)FY2025~$360–370 ~$375 Raised
Other Expense, net ($M)FY2025~$0 ~$(5) Lowered
Capex ($M)FY2025~$120 ~$100 Lowered
Share Count (diluted, M)FY202549–49.5 ~49.5 Narrowed
Effective Tax Rate (%)FY2025~26% ~25% Lowered
EES Reported GrowthFY2025Up MSD Up MSD+ Raised
CSS Reported GrowthFY2025Up LDD Up Mid-Teens Raised
UBS Reported GrowthFY2025Down LSD to Flat Down LSD to Flat Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Data center demand & mixQ1: DC sales up 70% . Q2: DC sales eclipsed $1B, up ~65% YoY; CSS +17% organic; backlog +36% YoY .Q3: $1.2B DC sales (~19% of sales), ~60% YoY; white space and gray space both >50% growth; sequential margin improvement in CSS .Accelerating volumes; margins improving sequentially despite project mix.
Utilities (IOU vs public power)Q1: Utility weakness persisted . Q2: IOU returned to growth; UBS still down YoY .Q3: UBS +3% YoY; IOU HSD growth; public power still soft; public power expected to return to growth in 2026 .Improving; IOU strength leading; broader recovery expected in 2026.
Tariffs & supplier pricingQ2: Supplier price increase notifications up >300% in count; limited impact due to timing .Q3: Q3 notices up >100%; price benefit <3%; modest GM benefit as pricing flows through .Manageable; pass-through strategy; modest near-term GM tailwind.
Gross margin drivers & rebatesQ2: GM ~flat QoQ; margin mix pressures noted .Q3: GM +20 bps QoQ; supplier volume rebates contributing; expected Q4 benefit as higher tiers hit .Sequential improvement with rebate tailwinds.
Working capital & FCFQ1: OCF $28M; inventory build for tariffs mitigation . Q2: OCF $107.8M; TTM FCF ~96% of adj. NI .Q3: OCF $(82.7)M; FCF $(89.3)M; FY25 FCF cut to $400–$500M; CFO expects near-100% conversion at mid-single-digit growth in 2026 .Near-term W/C investment; conversion improves as growth normalizes.
Digital transformation & cross-sellQ1: Highlighted; progress on tech-enabled transformation .Q3: Build and pilot in each SBU; scaled deployment in 2026; cross-sell continues to exceed post-merger plans .On track; expected execution benefits in 2026.

Management Commentary

  • Strategy and secular drivers: “We remain firmly focused on executing our cross-selling initiatives and enterprise-wide margin improvement program… secular trends of AI-driven data centers, increased power generation, electrification, automation, and reshoring fuel my confidence” (John Engel, CEO) .
  • Outlook upgrade rationale: “We are raising our full-year outlook… based on our increasing business momentum in the third quarter.” (CEO) .
  • Margin actions: “Gross margin increased sequentially by 20 basis points driven by mix, higher supplier volume rebates, and execution of our enterprise-wide margin improvement program.” (CFO) .
  • Cash flow context: “Q3 was the highest growth quarter… generated significant increases to accounts receivable, resulting in a use of cash… net working capital intensity declining to 19.8%” (CFO) .

Q&A Highlights

  • Price contribution by segment: Pricing <3% overall; EES ~4%, CSS ~2%, UBS ~1% (CFO) .
  • Supplier rebates: Higher volume tiers are aiding gross margin; expected to continue in Q4 and set up 2026 (CFO) .
  • Tariff pass-through and GM: Price increase notifications high; pricing not fully in market yet; as it does, expect modest gross margin benefit (CFO) .
  • Data center ROA and mix: Lower gross margins on direct-ship offset by lower operating costs; better asset velocity; CSS GM up 30 bps sequentially (CEO/CFO) .
  • UBS trajectory: Q4 growth confidence driven by IOU trends and easier comps (CFO) .
  • 2026 framing: Mid-single-digit organic growth with 20–30 bps EBITDA margin expansion; better setup as incentive comp normalizes and mix improves (CFO) .

Estimates Context

  • Q3 2025 beats across the board: Revenue $6.199B vs $5.902B*; Adjusted EPS $3.92 vs $3.83*; Adjusted EBITDA $423M vs $413M*. Surprise drivers: stronger data center volumes, sequential GM improvement from rebates, and operating leverage .
  • Estimate implications: Street models likely to lift FY25 revenue/EPS on raised guidance; some may reduce FCF estimates given the cut to $400–$500M and higher interest expense run-rate .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • AI-driven data center cycle is translating to outsized growth (Q3 DC $1.2B, ~60% YoY) and backlog, underpinning a higher FY25 topline/EPS outlook; sequential margin progress despite project mix should support sentiment .
  • Broad-based acceleration: Organic sales +12.1% with all SBUs growing; UBS inflected on IOU strength, positioning for broader utility recovery into 2026 .
  • Near-term margin mix dilemma is easing: Gross margin improved QoQ and supplier rebates are now a tailwind; Q4 guide calls for ~30 bps YoY EBITDA margin expansion .
  • Cash conversion is the watch item: Q3 FCF negative on AR/inventory to fund demand; FY25 FCF cut to $400–$500M, but management expects materially better conversion at normalized growth in 2026 .
  • Capital structure improved: Preferred stock redemption reduces annual financing costs (~$32M) and supports EPS/Cash flow; no major maturities until 2028 .
  • Trading lens: Expect revisions higher for revenue/EPS; gross margin and FCF trajectory will likely drive day‑to‑day moves as investors weigh durability of rebate tailwinds against large project mix and working capital investment .