WESCO International, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. WESCO distributes products and provides logistics and supply-chain services through Electrical & Electronic Solutions (EES), Communications & Security Solutions (CSS), and Utility & Broadband Solutions (UBS).
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $4.932 billion | $4.041 billion |
| Income from operations | $284.0 million | $133.3 million |
| Net income attributable to WESCO | $181.2 million | $59.2 million |
| Net income attributable to common stockholders | $166.9 million | $44.8 million |
| Diluted EPS | $3.19 | $0.87 |
| Operating cash flow | $(171.9) million | $120.5 million |
- Sales increased 22.0%; organic sales growth was 21.2%. Segment sales growth was 21.5% for EES, 14.7% for CSS, and 31.6% for UBS.
- Gross margin rose to approximately 21.3% from 20.1%; operating margin increased to 5.8% from 3.3%. Adjusted operating margin, a non-GAAP measure, was 6.4% versus 4.2%.
- Adjusted EBITDA was $364.1 million, or 7.4% of sales, compared with $216.5 million, or 5.4%. Adjusted diluted EPS was $3.63 versus $1.43; these non-GAAP measures exclude specified items.
- Quarter-end cash was $201.5 million. Total debt was approximately $4.97 billion; debt net of cash was approximately $4.77 billion. Financial leverage was 3.6x, down from 3.9x at December 31, 2021.
- Current assets were $6.88 billion and current liabilities were $3.26 billion. Reported liquidity was $715.4 million, comprising $554.2 million of revolver availability, $100.0 million under the receivables facility, and $61.2 million of cash included in management’s liquidity calculation.
Changes and drivers
- Management attributed higher sales to strong demand, inflation-related pricing, expanded offerings following the Wesco-Anixter combination, and secular growth in electrification, automation, communications, and security. Inflation-related pricing increased sales by approximately 8%.
- Operating income more than doubled, reflecting volume growth, improved product margins, and integration synergies. Cost of goods sold fell to 78.7% of sales from 79.9%; SG&A fell to 14.6% from 15.8% of sales.
- Reported Q1 2022 results included $25.6 million of merger and integration costs and $5.3 million of accelerated trademark amortization. Q1 2021 included $46.3 million of merger and integration costs and an $8.9 million divestiture gain.
- Operating cash flow turned negative, primarily because of increases in receivables ($324.6 million) and inventory ($214.2 million), and payment of prior-year incentive compensation. Higher accounts payable partly offset these uses.
Outlook, liquidity, and risks
- The filing provides no specific numerical full-year earnings or sales guidance. Management expected supply-chain challenges and inflationary pressures to continue through the remainder of 2022 and potentially into 2023; it estimated supply constraints reduced Q1 sales by approximately 1%–2%.
- Management stated that cash and financing capacity should meet operating and business needs for at least the next 12 months. It expected excess liquidity to be directed primarily to debt reduction, integration activities, and potential acquisitions. WESCO reported compliance with debt covenants.
- On March 1, 2022, WESCO amended and expanded its revolving credit and receivables facilities, extended their maturities to March 2027 and March 2025, respectively, and replaced LIBOR-based options with SOFR-based options.
- Key uncertainties include supply availability, logistics and labor constraints, inflation, demand volatility, COVID-19 developments, and the Russia-Ukraine conflict. The filing said the conflict had not materially adversely affected operations as of the report, but its effects were uncertain. Pending commercial, product, and employment claims were not expected by management to materially affect financial condition or liquidity, though individual-period results could be affected.
Important facts for investors to verify
- Whether strong organic growth and margin gains persist as inflation, pricing, and supply constraints evolve.
- How quickly receivables and inventory convert to cash, given the Q1 operating cash outflow.
- Debt reduction, leverage, facility availability, and borrowing costs as interest rates and SOFR-based terms change.
- The recurrence and magnitude of integration costs, trademark amortization, and other adjustments used in non-GAAP results.
- Whether the anticipated supply-chain, inflation, geopolitical, and litigation risks materially affect future results.