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WESCO INTERNATIONAL INC (WCC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue and earnings recovered: Net sales rose 0.5% year over year to $5.50B; diluted EPS was $3.03 and adjusted diluted EPS increased 19% YoY to $3.16, driven by strong Data Center (+70% YoY) and Broadband (+20%) within CSS, partly offset by UBS weakness and late-December industrial softness .
  • Margins mixed: Gross margin declined 20 bps YoY to 21.2% on lower CSS project mix; adjusted operating margin was 5.7% and adjusted EBITDA margin 6.7% in Q4 .
  • Cash generation and capital allocation: Record FY24 operating cash flow of $1.10B and free cash flow of $1.05B (154% of adjusted net income); net debt reduced by $431M; $425M of buybacks executed .
  • 2025 guidance and catalysts: Management guided to organic sales growth 2.5%–6.5%, adjusted EPS $12.00–$14.50, FCF $600–$800M, and expects H2 utility recovery; plans to redeem preferreds in June and increase common dividend ~10% to $1.82 per share; January sales per workday were preliminarily +5% YoY .
  • Street context: S&P Global Wall Street consensus estimates were unavailable at time of analysis; comparisons to consensus cannot be made.*

What Went Well and What Went Wrong

What Went Well

  • Data Center and Broadband strength: “More than 70% growth year-over-year in our global Data Center business” and “20% growth in Broadband Solutions,” fueling CSS double-digit growth .
  • Return to growth in EES: “Renewed positive sales momentum in Electrical and Electronic Solutions… our first quarter of growth since early 2023” .
  • Cash flow and working capital: Q4 free cash flow of $268M (156% of adjusted net income), FY24 FCF >$1B; net working capital intensity improved by 160 bps in 2024 .

What Went Wrong

  • CSS margin pressure: Lower gross margin due to large direct-ship project mix; CSS adjusted EBITDA margin down 150 bps YoY .
  • UBS softness: Utility market demand weakness (destocking, lower project activity) kept UBS down HSD in Q4; backlog down 25% YoY .
  • Late-December slowdown: Organic sales tracked mid-single-digit through November but dropped high-single digits in final two weeks of December, impacting Q4 .

Financial Results

Consolidated metrics across recent quarters

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD Billions)$5.480 $5.489 $5.500
Gross Margin (%)21.9% 22.1% 21.2%
Operating Margin (%)5.9% 6.1% 5.5%
Diluted EPS ($)$4.28 $3.81 $3.03
Adjusted Diluted EPS ($)$3.21 $3.58 $3.16
Adjusted EBITDA ($USD Millions)$400.1 $398.1 $370.5
Adjusted EBITDA Margin (%)7.3% 7.3% 6.7%

Segment sales and margins

SegmentQ4 2023 Sales ($MM)Q3 2024 Sales ($MM)Q4 2024 Sales ($MM)Q4 2023 Gross Margin (%)Q4 2024 Gross Margin (%)Q4 2023 Adj. EBITDA Margin (%)Q4 2024 Adj. EBITDA Margin (%)
EES$2,084.2 $2,151.2 $2,123.7 23.3% 23.2% 7.9% 8.0%
CSS$1,791.3 $1,955.1 $2,045.9 22.7% 20.8% 9.7% 8.2%
UBS$1,597.9 $1,383.1 $1,330.1 17.4% 18.5% 10.4% 10.8%

KPIs and balance sheet

KPIQ4 2024FY 2024
Operating Cash Flow ($MM)$276.6 $1,101.2
Free Cash Flow ($MM)$268.4 $1,045.2
Cash & Equivalents ($MM)$702.6 $702.6
Net Debt ($MM)$4,409.5 $4,409.5
Financial Leverage (Net Debt / Adjusted EBITDA, TTM)2.9x 2.9x

Estimates (S&P Global) vs actuals

  • S&P Global consensus for Q4 2024 EPS, Revenue, and EBITDA was unavailable at time of analysis; therefore, we cannot present a vs-consensus comparison.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY 2025Not previously disclosed2.5%–6.5% Initiated
Reported Sales GrowthFY 2025Not previously disclosed0%–4% (FX -1.5%, net M&A & workday -1%) Initiated
Adjusted EBITDA MarginFY 2025Not previously disclosed6.7%–7.2% Initiated
Adjusted Diluted EPSFY 2025Not previously disclosed$12.00–$14.50 Initiated
Free Cash FlowFY 2025Not previously disclosed$600–$800MM Initiated
Interest ExpenseFY 2025Not previously disclosed~$340–$350MM Initiated
Cloud Computing AmortizationFY 2025~$14MM in 2024 ~$40MM (expensed in SG&A) Raised
CapexFY 2025Not previously disclosed~$120MM Initiated
Effective Tax RateFY 2025Not previously disclosed~27% Initiated
Share CountFY 2025Not previously disclosed49–50MM Initiated
Dividend (Common)FY 20252024 run-rate increased by 10% Plan to increase 10% again to ~$1.82 per share; Q1 declared $0.45375 Raised
Preferred Dividend / RedemptionFY 2025Ongoing preferred outstandingPay two quarters in H1, redeem preferreds in June New action

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
AI-driven Data CentersQ2: Double-digit WDCS growth; Q3: accelerating momentum, CSS organic +10% Data Center +70% YoY; now ~40% of CSS; robust backlog; multi-year project cycles (4–7 years) Accelerating growth, rising mix; margin normalization expected as services attach
CSS MarginsQ2/Q3: Sequential gross margin expansion; mix effects noted Lower margin from direct-ship project mix; plan to improve CSS margins in 2025 Short-term pressure; medium-term improvement targeted
Utility MarketQ2: Significant slowdown; Q3: continued weakness, destocking Expect H2 2025 recovery; new customer wins ramping; public power and IOUs mid-single-digit down in Q4 Bottoming in H1; improvement in H2
Broadband (Canada)Q3: Signs of improving momentum +20% YoY in Q4, especially Canada Reaccelerating
Industrial MacroQ2/Q3: Mixed multi-speed; softnessLate-December slowdown; industrial softness noted Still mixed; watch sequential cadence
Tariffs & InflationNot a focus in Q2/Q3 documentsPlaybook ready; price pass-through, margin protection; inflation may stay higher Prepared stance; manageable risk
Digital TransformationQ2: Cloud amortization; FY24 loss on abandonment; record FCF “More than halfway complete”; 2025 cloud amortization ~$40MM in SG&A Continued investment; opex visibility
Working Capital/FCFQ2/Q3: Strong FCF YTD Q4 FCF $268M; FY FCF >$1B; January book-to-bill >1 Sustained strength

Management Commentary

  • “We’re pleased with our return to sales growth in the fourth quarter sparked by more than 70% growth year-over-year in our global Data Center business, 20% growth in Broadband Solutions, and renewed positive sales momentum in Electrical and Electronic Solutions.” — John Engel, CEO .
  • “Gross margin was stable on a full-year basis although we experienced some pressure in Communication and Security Solutions as sales ramped to customers on project deployments.” — John Engel .
  • “Adjusted earnings per share of $3.16 was up 19% from prior year… Gross margin was down 20 basis points from the prior year, including a headwind of approximately 30 basis points from lower supplier volume rebates.” — David Schulz, CFO .
  • “We expect adjusted EBITDA margin to be in the range of 6.7% to 7.2%… cloud computing expense will be approximately $40 million in 2025, up from $14 million in 2024.” — David Schulz .

Q&A Highlights

  • Utility recovery timing: New customer wins ramp in H1, with purchasing resuming and H2 growth expected amid secular power demand; visibility supported by customer discussions and inventory normalization .
  • Gross margin outlook: Management expects gross margins up slightly in 2025, aided by higher supplier volume rebates and mix improvement .
  • Segment disclosure: New SEC requirement to disclose segment-level gross profit and adjusted SG&A; will include three years in 10-K .
  • Preferreds: Outlook assumes two quarters of preferred dividends then redemption in June; funding options include cash, facilities, or notes, with interest cost range assumptions baked in .
  • January cadence and mix: Preliminary January sales/workday +5% ex-M&A; stable mix; strong bookings (book-to-bill >1.0) and FX headwinds noted .
  • Tariffs: Proven playbook to pass through supplier-driven inflation; margin protection history reiterated .
  • Data center margins: Early-phase direct-ship projects carry lower margins; margins normalize as services/products attach over time .
  • Working capital: Expect NWK to grow at half the rate of sales in 2025; some lumpiness in Q1 to seed new utility accounts .

Estimates Context

  • S&P Global Wall Street consensus estimates for Q4 2024 EPS, Revenue, and EBITDA were unavailable at time of analysis; we cannot assess beats/misses vs Street.*
  • Implication: Given adjusted EPS +19% YoY and segment mix, Street may lift 2025 CSS margin recovery assumptions and H2 UBS volume trajectory; but confirmation awaits updated consensus.

Key Takeaways for Investors

  • Data Center secular tailwind is intensifying, now a ~40% mix in CSS with multi-year project visibility; expect near-term margin normalization as service attachment rises .
  • Watch CSS margins: Management targeting improvements in 2025 after Q4 mix-driven compression; supplier volume rebates are a tailwind .
  • UBS is poised for H2 inflection as destocking ends and new wins ramp; first-half likely remains soft, aligning with guidance phasing .
  • Strong FCF and balance sheet flexibility underpin capital allocation (dividend increase, buybacks, preferred redemption), supporting EPS accretion and lower financing costs .
  • 2025 guidance (organic 2.5%–6.5%, adj EPS $12–$14.50) implies operating leverage on modest growth and margin recovery; January +5% per workday is a constructive start .
  • Risks to monitor: Tariff/inflation pass-through execution, FX headwinds (~1.5% to sales), and timing of utility recovery; management cites a tested playbook and confidence in H2 trajectory .
  • Near-term trading setup: Positive data center narrative and dividend/preferred catalysts vs margin-watch in CSS and macro utility timing; any confirmation of H1-to-H2 phasing could re-rate shares toward upper end of guidance assumptions .

Footnotes:

  • S&P Global consensus data was unavailable at time of analysis; therefore, estimate comparisons could not be performed.