WESCO International, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement. Wesco distributes electrical, communications/security, utility and broadband products, and provides logistics and supply-chain services through EES, CSS and UBS.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $21.42 billion | $18.22 billion |
| Income from operations | $1.44 billion; approximately 6.7% of sales | $801.9 million; 4.4% of sales |
| Net income | $862.1 million | $466.4 million |
| Net income attributable to common stockholders | $803.1 million | $408.0 million |
| Diluted EPS | $15.33 | $7.84 |
| Adjusted diluted EPS (non-GAAP) | $16.42 | $9.98 |
| Net cash from operating activities | $11.0 million | $67.1 million |
| Capital expenditures | $99.4 million | $54.7 million |
- Sales rose 17.6%; organic sales growth was 18.2%. Inflation-related pricing contributed approximately 8% to 2022 sales growth. Foreign exchange reduced reported growth by 1.5%.
- All segments grew organically: EES 17.3%, CSS 11.5%, and UBS 27.2%. UBS reported sales growth of 26.9%, EES 15.8%, and CSS 12.0%.
- Gross margin improved: cost of goods sold declined to 78.2% of sales from 79.2%. Management cited value-based pricing, inflation cost pass-through, gross-margin initiatives and supplier rebates.
- Adjusted EBITDA, a non-GAAP measure, was $1.73 billion versus $1.18 billion; adjusted EBITDA margin was 8.1% versus 6.5%.
- Interest expense increased 9.8% to $294.4 million, reflecting higher borrowings and variable rates. The effective tax rate rose to 24.2% from 19.9%.
Liquidity, debt and cash flow
- Year-end debt was approximately $5.47 billion, compared with $4.78 billion in 2021; debt net of cash was $4.95 billion. The reported financial leverage ratio improved to 2.9 from 3.9, using the company’s non-GAAP definition.
- Year-end cash and cash equivalents were $527.3 million. The company separately reported approximately $1.0 billion of liquidity, comprising $664.9 million of revolving-credit availability, $50.0 million of receivables-facility availability and $294.5 million of available cash. The difference between reported balance-sheet cash and cash used in this liquidity calculation should be verified.
- Operating cash flow was weak despite higher earnings, primarily because inventories increased $817.0 million and trade receivables increased $690.6 million; higher accounts payable provided a $552.9 million offset. Operating cash flow less capital expenditures was approximately negative $88 million.
- Approximately 53% of debt was fixed-rate. Management estimated that a 100-basis-point rate move would change annual interest expense by $25.7 million.
- About $3.1 billion of debt was scheduled for repayment or refinancing over the next three years. The company expected to repay the $58.6 million 5.50% notes due March 2023 with revolver borrowings. It reported compliance with debt covenants at year-end.
Changes, outlook and material items
- Operating income increased 79.3% and net income increased 84.8% year over year. Results benefited from sales growth, improved gross margin and integration synergies; higher wages, commissions, volume-related costs and digital-transformation spending partly offset gains.
- Wesco acquired Rahi Systems on November 1, 2022, for preliminary total consideration of $255.4 million. Rahi contributed $111.5 million of sales and an immaterial amount of operating income in 2022. Purchase-price allocation remained preliminary.
- 2022 included $67.4 million of merger-related and integration costs and $9.8 million of accelerated trademark amortization. Comparisons with 2021 are also affected by 2021 merger and integration costs of $158.5 million, a $36.6 million pension curtailment gain and an $8.9 million gain on Canadian divestitures.
- Management said supply constraints and inflationary pressures could continue into 2023, though some supply-chain conditions had begun to improve. It did not provide quantified revenue or earnings guidance in the supplied filing text.
- Management expected approximately $100 million of 2023 capital expenditures and said it expected cash from operations and financing to cover business needs for at least 12 months. Excess liquidity was expected to go primarily toward debt reduction, integration, potential acquisitions or shareholder returns. A common-stock quarterly dividend was expected to begin in Q1 2023, subject to board approval and declaration.
- Key risks include supply and transportation disruptions, inflation and inability to pass on costs, economic or project-volume declines, rising rates and refinancing needs, customer credit, foreign exchange, cyber incidents, regulation and execution of acquisitions and integration. The company reported no material data breaches in 2022.
- Management and the auditor concluded internal control over financial reporting was effective at year-end; Rahi was excluded from the assessment. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether working-capital investment reverses and operating cash flow improves as inventory and receivables convert to cash.
- The definition and components of the reported $1.0 billion of liquidity, including why available cash of $294.5 million differs from balance-sheet cash of $527.3 million.
- The refinancing or repayment plan and cost for the approximately $3.1 billion of debt due in 2024–2025, and sensitivity to variable rates.
- Whether price increases, supplier availability and demand sustain margins as inflation and supply-chain pressures evolve.
- Rahi’s final purchase-price allocation, subsequent contribution to earnings, and progress on integration synergies.
- The board’s actual declaration and terms of the planned common dividend, alongside debt-covenant and preferred-dividend obligations.