The latest financials from WESCO International (WCC) reveal a narrative that felt less like a thrilling Wall Street blockbuster and more like a plotline that needed serious workshopping. The fourth-quarter of 2023 told a tale of adjusted earnings per share plummeting 35.8% to $2.65, missing the Zacks Consensus Estimate by a palpable 1.15%. Meanwhile, net sales of $5.47 billion signaled a 1.5% dip year over year that missed the Zacks Consensus Estimate by a further 1.66%. Looking deeper, organic sales were not spared, dropping by 2.6% year over year.
Dissecting the Revenue Performance
The sales story was a mixed bag, with the Electrical & Electronic Solutions (EES) segment witnessing a substantial 3.9% decline, while the Critical & Security Solutions (CSS) segment managed a modest 1.6% uptick. However, the Utility & Broadband Solutions (UBS) segment didn’t escape unscathed, posting a 1.8% reduction in sales. Organic sales painted a similarly lackluster picture, with EES and UBS facing downturns of 4.1% and 1.4%, respectively. The revenue buckets contained more holes than a rusty colander, with construction and original equipment manufacturers (“OEM”) reporting decreases and only the industrial business showing any glimmers of positivity amidst the gloom.
The Operational Backdrop
On the operational front, WESCO struggled with its gross margin, which contracted by 50 basis points, settling at 21.4%. Simultaneously, selling, general and administrative expenses shot up by 2.7% to $798.8 million, constituting 14.6% of net sales – an increase of 60 basis points from the previous year. The adjusted operating margin wasn’t immune either, experiencing a 120-basis-point contraction, landing at 6%.
Unpacking the Financials
Flicking through the company finances, it was clear that WESCO was feeling the squeeze. Cash and cash equivalents stood at $524.1 million, reflecting a descent from the previous quarter’s $631.4 million. Long-term debt also endured a decline, ending at $5.31 billion in the fourth quarter against $5.37 billion in the third. Cash flow from operations followed suit, falling from $361.7 million in the prior quarter to a measly $69.3 million. The company’s free cash flow mirrored the ominous descent, landing at just $59.2 million for the fourth quarter.
Future Outlook
Yet, clinging to hopes of a turnaround, WESCO has offered a somewhat optimistic outlook. It anticipates an adjusted EBITDA margin ranging between 7.5% and 7.9%, with an adjusted EBITDA of $1.75 billion at the midpoint. The company also envisions a free cash flow of $700 million for the year ahead.
Stock Performance and Beyond
Despite the murky waters that WESCO has charted, the company has maintained a Zacks Rank #3 (Hold). Nevertheless, WCC shares have taken a heavy knock, dropping by 23.7% year to date, casting a long shadow over the sector’s growth of 6.4%. In a backdrop of dark clouds, some of the company’s peers like Dell Technologies (DELL), Itron (ITRI), and CrowdStrike (CRWD) emerge as potential bright spots, each holding a coveted Zacks Rank #1 (Strong Buy).
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