• Organic Sales Growth: 6% in the first quarter, driven by data center, broadband, and OEM businesses.
• Data Center Business Growth: Up 70% year-over-year.
• Gross Margin: Stable sequentially, down 20 basis points year-over-year.
• Adjusted EBITDA Margin: Down 60 basis points year-over-year.
• Adjusted Earnings Per Share: $2.21, down 4% from the prior year.
• Free Cash Flow: $9 million, exceeding expectations.
• Senior Notes Issuance: $800 million to redeem preferred stock and repay credit facility.
• Utility and Broadband Solutions Sales: Organic sales down 5%, reported sales down 19% due to divestiture.
• CSS Sales Growth: Up 18% organically, driven by data center solutions.
• Backlog Growth: Up sequentially in all three business units.
• 2025 Outlook: Reaffirmed, with expectations for above midpoint sales and below midpoint EBITDA margin.
• Free Cash Flow Outlook for 2025: $600 million to $800 million.

• Warning! GuruFocus has detected 4 Warning Signs with WCC.

Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• WESCO International Inc (NYSE:WCC) reported 6% organic sales growth in the first quarter, exceeding expectations.
• The data center business experienced a 70% growth, contributing significantly to overall sales.
• The company issued $800 million in senior notes to redeem preferred stock, strengthening the balance sheet and improving financial flexibility.
• WESCO International Inc (NYSE:WCC) has a strong liquidity position, allowing for significant capital allocation flexibility.
• The company is seeing positive sales momentum continuing into the second quarter, with backlog up in all business units.

Negative Points

• Utility end markets showed continued temporary weakness, impacting overall growth.
• Adjusted EBITDA margin was down 60 basis points year-over-year due to project and product mix.
• SG&A expenses increased by 2% year-over-year, driven by inflationary pressures.
• The company is facing potential impacts from global tariffs, which could affect supply chain and pricing.
• Gross margin is expected to be down slightly for the full year compared to 2024.

Q & A Highlights

Q: Can you clarify if the tariff-related price increases are included in your revised outlook? A: David Schulz, CFO, explained that no tariff-related price increases are incorporated into the outlook. The outlook assumes an organic growth rate of 2.5% to 6.5%, with about 1.5 points from carryover pricing from 2024. Typically, there is a two-quarter lag between a price increase and its impact on revenue, and only about half of the announced price increase benefits flow through to the revenue line.

Q: Are there any supplier price increases or surcharges that might need to be passed through more quickly? A: John Engel, CEO, noted that in Q1, supplier price increases were down about 15% year-over-year, with an average increase in the mid-single-digit range. However, in Q2, the number of price increases announced has risen significantly, with some reaching double digits. While some suppliers use line item surcharges, WESCO prefers to build these into the price increases for transparency.

Q: Can you discuss the strong growth in your data center business and the mix of products versus services? A: John Engel, CEO, highlighted that WESCO's data center business has seen strong growth, with a 70% increase in the first quarter. Customers are expanding their scope of business with WESCO, which includes both products and services. The company is focusing on providing comprehensive solutions across the data center lifecycle, including electrical distribution systems and advanced IT infrastructure.

Q: How are your order contracts structured in terms of tariffs, and what is the potential impact on gross margins? A: David Schulz, CFO, explained that for large projects, pricing is generally fixed or includes a cost escalator for tariffs. WESCO has not seen suppliers reprice backlog due to tariffs. The impact of price increases on gross margins varies, but typically, only about half of the announced price increase impacts revenue, with a two-quarter lag.

Q: What are your expectations for the Canadian market, and what are the key verticals driving growth there? A: John Engel, CEO, stated that WESCO has a strong position in Canada, with growth driven by all three strategic business units: electrical, utility, and communications. The company outperformed the market in the first quarter, gaining market share. Key verticals include electrical distribution, utility services, and broadband, with strong growth expected throughout the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.