WESCO International, Inc. Reports Fourth Quarter and Full Year 2021 Results

Fourth quarter summary:

• Record net sales of $4.9 billion, up 17.5% YOY
  • Organic sales growth of 15.8%
  • Sequential growth of 2.6% on a reported basis; 6.3% on an organic basis
  • Record backlog as of December 31, 2021
• Operating profit of $220.3 million; operating margin of 4.5%
  • Gross margin of 20.8%, up 120 basis points YOY
  • Adjusted operating profit of $270.8 million; adjusted operating margin of 5.6%, up 140 basis points YOY
  • Adjusted EBITDA of $319.6 million; adjusted EBITDA margin of 6.6%, up 48% and 140 basis points YOY
• Record net income attributable to common stockholders of $153.1 million
  • Adjusted net income attributable to common stockholders of $165.7 million, up 165% YOY
• Record earnings per diluted share of $2.93
  • Adjusted earnings per diluted share of $3.17, up 160% YOY

Full year results:

• Record net sales of $18.2 billion, up 48% due to the Anixter merger completed in June, 2020
• Operating profit of $801.9 million; operating margin of 4.4%
  • Gross margin of 20.8%, up 140 basis points YOY
  • Adjusted operating profit of $983.5 million; adjusted operating margin of 5.4%, up 120 basis points YOY
  • Adjusted EBITDA of $1.2 billion; adjusted EBITDA margin of 6.5%, up 78% and 110 basis points YOY
• Record net income attributable to common stockholders of $408.0 million
  • Adjusted net income attributable to common stockholders of $519.3 million, up 155% YOY
• Record earnings per diluted share of $7.84
  • Adjusted earnings per diluted share of $9.98, up 128% YOY
• Leverage of 3.9x; improvement of 1.4x versus prior year-end

PITTSBURGH–(BUSINESS WIRE)–WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services, and supply chain solutions, announces its results for the fourth quarter and full year 2021.

“Wesco’s performance in 2021 was exceptional and laid the foundation for the extraordinary value creation opportunity that lies before us,” said John Engel, Chairman, President and CEO. “While we are firmly focused on our future, it is important to note the achievements accomplished last year by our dedicated team of associates. We finished 2021 with another very strong quarter of market outperformance and achieved new company records for sales, backlog and overall profitability. We have reduced our financial leverage to 3.9x EBITDA from 5.7x EBITDA in just eighteen months since closing the Anixter acquisition. And all of this has been done under the cloud of the pandemic and global supply chain challenges. I am truly proud of our team for their commitment to our vision of the new Wesco and for their focus on providing our global customers with the products, services and supply chain solutions that they need.”

Mr. Engel continued, “Since the closing of the Anixter acquisition, our team has executed a complex integration plan with speed, agility and excellence. Based on the strength of this execution, we are again increasing the cost and sales synergy targets for our three-year integration program. At the same time, we have designed and launched an important commitment to digitally transform our business to propel our growth for the next decade and beyond. Wesco’s scale, expanded portfolio and industry-leading positions, when combined with the integration plan and digital transformation, represent our catalysts for market outperformance and lasting value creation for all of our stakeholders.”

Mr. Engel added, “We are carrying strong positive momentum into 2022 and the year is off to an excellent start. We strategically invested in our inventories over the last several months to both address supply chain challenges and support our strong sales growth opportunities. We are very well positioned to meet increasing customer demand as global supply chains are rebuilt this year. As a result, we expect to again deliver market outperformance in 2022 with sales increasing 5% to 8%, adjusted EBITDA margin expanding to 6.7% to 7.0%, adjusted EPS growing double digits to between $11.00 to $12.00, and generating free cash flow of 100% or more of net income. As we achieve those targets, we will substantially reduce our financial leverage in 2022 to well within the range of our target guidance. We are only at the midpoint of our integration plan but our progress is accelerating as Wesco leverages its market leading positions, integration execution and digital commitment to build a growth engine that is both resilient and sustainable.”

The following are results for the three months ended December 31, 2021 compared to the three months ended December 31, 2020:

• Net sales were $4.9 billion for the fourth quarter of 2021 compared to $4.1 billion for the fourth quarter of 2020, an increase of 17.5%. Organic sales for the fourth quarter of 2021 grew by 15.8% as the number of workdays and foreign exchange rates positively impacted reported net sales by 1.6% and 0.7%, respectively, and divestitures negatively impacted reported net sales by 0.6%. Sequentially, net sales grew 2.6% and organic sales increased 6.3%. Backlog at the end of the fourth quarter of 2021 increased by more than 80% to a record level compared to the end of 2020. Sequentially, backlog grew approximately 14%, marking the fourth consecutive quarter of growth.

• Cost of goods sold for the fourth quarter of 2021 was $3.8 billion compared to $3.4 billion for the fourth quarter of 2020, and gross profit was $1.0 billion and $772.0 million, respectively. As a percentage of net sales, gross profit was 20.8% and 18.7% for the fourth quarter of 2021 and 2020, respectively. Gross profit as a percentage of net sales for the fourth quarter of 2021 reflects strong execution on supplier price increases and cost initiatives to offset inflation, along with higher supplier volume rebate income, partially offset by higher expense related to excess and obsolete inventories, as well as an unfavorable impact to gross profit as a percentage of net sales of 12 basis points from the write-down to the carrying value of certain personal protective equipment products. Gross profit as a percentage of net sales for the fourth quarter of 2020 was 19.6% excluding the effect of merger-related fair value adjustments of $15.7 million, as well as an out-of-period adjustment of $23.3 million related to inventory absorption accounting.

• Selling, general and administrative expenses were $733.7 million, or 15.1% of net sales, for the fourth quarter of 2021, compared to $637.9 million, or 15.5% of net sales, for the fourth quarter of 2020. SG&A expenses for the fourth quarter of 2021 include merger-related costs of $38.7 million. Adjusted for this amount, SG&A expenses were $695.0 million, or 14.3% of net sales, for the fourth quarter of 2021. SG&A expenses for the fourth quarter of 2021 reflect higher salaries and variable compensation expense, as well as volume-related costs driven by the significant sales growth. In addition, integration activities and digital transformation initiatives contributed to higher professional and consulting expenses, as well as higher information technology expenses in the fourth quarter of 2021. The realization of integration cost synergies partially offset by these increases. SG&A expenses for the fourth quarter of 2020 include $40.1 million of merger-related costs. Adjusted for this amount, SG&A expenses were $597.8 million, or 14.5% of net sales, for the fourth quarter of 2020.

• Operating profit was $220.3 million for the fourth quarter of 2021, compared to $92.8 million for the fourth quarter of 2020, an increase of $127.5 million, or 137.5%. Operating profit as a percentage of net sales was 4.5% for the current quarter, compared to 2.2% for the fourth quarter of the prior year. Operating profit for the fourth quarter of 2021 includes the aforementioned merger-related costs. Additionally, in connection with an integration initiative to review the Company’s brand strategy, certain legacy trademarks are migrating to a master brand architecture, which resulted in $11.8 million of accelerated trademark amortization expense for the fourth quarter of 2021. Adjusted for these amounts, operating profit was $270.8 million, or 5.6% of net sales. For the fourth quarter of 2020, operating profit was $171.8 million, or 4.2% of net sales, adjusted for merger-related costs and fair value adjustments totaling $55.8 million, as well as the $23.3 million out-of-period adjustment described above. Adjusted operating margin was up 140 basis points compared to the prior year.

• Net interest expense for the fourth quarter of 2021 was $60.4 million, compared to $74.3 million for the fourth quarter of 2020. The decrease reflects a reduction of debt, including the repayment of higher fixed rate debt with lower variable rate debt.

• The effective tax rate was expense of 15.7% for the fourth quarter of 2021 compared to a benefit of 4.7% for the fourth quarter of 2020. The effective tax rate in the current quarter was favorably impacted by a change in the mix of domestic and foreign earnings, tax benefits related to certain foreign derived intangible income, and a reduction in the valuation allowance recorded against certain foreign tax credit carryforwards. The effective tax rate in the fourth quarter of the prior year was impacted by one-time items associated with the Anixter merger.

• Net income attributable to common stockholders was $153.1 million for the fourth quarter of 2021, compared to $5.6 million for the fourth quarter of 2020. Adjusted for merger-related costs, accelerated trademark amortization expense associated with migrating to the Company’s master brand architecture, a $36.6 million curtailment gain resulting from the remeasurement of the Company’s pension obligations in the U.S. and Canada due to amending certain terms of such defined benefit plans, and the related income tax effects, net income attributable to common stockholders was $165.7 million for the fourth quarter of 2021. Adjusted for merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, and the related income tax effects, net income attributable to common stockholders was $62.4 million for the fourth quarter of 2020. Adjusted net income attributable to common stockholders increased 165% year-over-year.

• Earnings per diluted share for the fourth quarter of 2021 was $2.93, based on 52.3 million diluted shares, compared to $0.11 for the fourth quarter of 2020, based on 51.1 million diluted shares. Adjusted for merger-related costs and fair value adjustments, accelerated trademark amortization expense, curtailment gain, an out-of-period adjustment related to inventory absorption accounting, and the related income tax effects, earnings per diluted share for the fourth quarter of 2021 and 2020 were $3.17 and $1.22, respectively, an increase of 160% year-over-year.

• Operating cash flow for the fourth quarter of 2021 was an outflow of $105.5 million, compared to an inflow of $125.0 million for the fourth quarter of 2020. The net cash outflow in the fourth quarter of 2021 was primarily driven by changes in working capital, including an increase in inventories of $102.3 million to support increased customer demand and a decrease in accounts payable of $101.3 million due to a higher volume of supplier payment activity.

The following are results for the year ended December 31, 2021 compared to the year ended December 31, 2020. The Company completed its merger with Anixter on June 22, 2020, thereby impacting comparisons to the prior year.

• Net sales were $18.2 billion for 2021 compared to $12.3 billion for 2020, an increase of 47.8% primarily due to the merger with Anixter.

• Cost of goods sold for 2021 was $14.4 billion compared to $10.0 billion for 2020, and gross profit was $3.8 billion and $2.3 billion, respectively. As a percentage of net sales, gross profit was 20.8% and 18.9% for 2021 and 2020, respectively. Gross profit as a percentage of net sales for 2021 reflects strong execution on supplier price increases and cost initiatives to offset inflation, along with higher supplier volume rebate income, partially offset by higher expense related to excess and obsolete inventories, as well as an unfavorable impact to gross profit as a percentage of net sales of 14 basis points from the write-down to the carrying value of certain personal protective equipment products. Gross profit as a percentage of net sales for 2020 was 19.4% excluding the effect of merger-related fair value adjustments of $43.7 million, as well as an out-of-period adjustment of $18.9 million related to inventory absorption accounting.

• Selling, general and administrative expenses were $2.8 billion, or 15.3% of net sales, for 2021, compared to $1.9 billion, or 15.1% of net sales, for 2020. SG&A expenses for 2021 include merger-related costs of $158.5 million, as well as a net gain of $8.9 million resulting from the sale of Wesco’s legacy utility and data communications businesses in Canada during the first quarter of 2021, which were divested in connection with the merger. Adjusted for these amounts, SG&A expenses for 2021 were $2.6 billion, or 14.5% of net sales. SG&A expenses for 2020 include merger-related costs of $132.2 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $1.7 billion, or 14.2% of net sales, for 2020, reflecting lower sales and the merger with Anixter, partially offset by cost reduction actions taken in response to the COVID-19 pandemic that lowered SG&A expenses as a percentage of net sales by approximately 40 basis points.

• Operating profit was $801.9 million for 2021, compared to $347.0 million for 2020. Operating profit as a percentage of net sales was 4.4% for the current year, compared to 2.8% for the prior year. Operating profit for 2021 includes merger-related costs and the net gain on the Canadian divestitures, as well as $32.0 million of accelerated trademark amortization expense associated with migrating to the Company’s master brand architecture. Adjusted for these amounts, operating profit was $983.5 million, or 5.4% of net sales. Adjusted for merger-related costs and fair value adjustments totaling $175.9 million, an out-of-period adjustment of $18.9 million, as well as a gain on sale of a U.S. operating branch of $19.8 million, operating profit was $522.0 million for 2020, or 4.2% of net sales. Adjusted operating margin was up 120 basis points compared to the prior year.

• Net interest expense for 2021 was $268.1 million, compared to $226.6 million for 2020. The increase in interest expense was driven by financing activity related to the Anixter merger.

• The effective tax rate for 2021 was 19.9%, compared to 18.6% for 2020. The effective tax rate for the current year was favorably impacted by a change in the mix of domestic and foreign earnings, tax benefits related to certain foreign derived intangible income, and a reduction in the valuation allowance recorded against certain foreign tax credit carryforwards. The effective tax rate in the prior year was lowered by one-time items associated with the Anixter merger.

• Net income attributable to common stockholders was $408.0 million for 2021, compared to $70.4 million for 2020. Adjusted for merger-related costs, accelerated trademark amortization expense, net gain on Canadian divestitures, a $36.6 million curtailment gain resulting from the remeasurement of the Company’s pension obligations in the U.S. and Canada due to amending certain terms of such defined benefit plans, and the related income tax effects, net income attributable to common stockholders was $519.3 million for 2021. Adjusted for merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch, and the related income tax effects, net income attributable to common stockholders was $203.6 million for 2020. Adjusted net income attributable to common stockholders increased 155% year-over-year.

• Earnings per diluted share for 2021 was $7.84, based on 52.0 million diluted shares, compared to $1.51 for 2020, based on 46.6 million diluted shares. Adjusted for merger-related costs and fair value adjustments, accelerated trademark amortization expense, an out-of-period adjustment related to inventory absorption accounting, net gains on sale of assets and Canadian divestitures, a curtailment gain, and the related income tax effects, earnings per diluted share for 2021 and 2020 was $9.98 and $4.37, respectively, an increase of 128% year-over-year.

• Operating cash flow for 2021 was $67.1 million, compared to $543.9 million for 2020. Free cash flow for 2021 was $93.5 million, or 16% of adjusted net income, compared to $586.1 million, or 251% of adjusted net income, for 2020. Free cash flow for the current year was lower than the prior year primarily due to changes in working capital, including an increase in trade accounts receivable of $531.8 million resulting from the significant sales growth and an increase in inventories of $530.7 million to support increased customer demand while maintaining high service levels against global supply chain challenges due to the pandemic. Net working capital days improved approximately 6 days from the prior year-end driven by responsively managing working capital in a high-growth, supply-constrained environment.

Segment Results

The Company has operating segments that are organized around three strategic business units consisting of Electrical & Electronic Solutions (“EES”), Communications & Security Solutions (“CSS”) and Utility & Broadband Solutions (“UBS”).

Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are either not allocated to the segments or reviewed on a segment basis. Corporate expenses not directly identifiable with our reportable segments are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.

The following are results by segment for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. For the fourth quarter of 2021, operating profit and adjusted EBITDA margin improved for all segments (EES, CSS and UBS), reflecting increased sales from strong demand and growth initiatives, gross margin expansion due to strong execution on supplier price increases and cost initiatives to offset inflation, as well as savings from integration cost synergies, partially offset by higher SG&A payroll-related expenses and volume-related costs.

• EES reported net sales of $2.0 billion for the fourth quarter of 2021, compared to $1.7 billion for the fourth quarter of 2020, an increase of 19.6%. Organic sales for the fourth quarter of 2021 grew by 17.5% as the number of workdays and foreign exchange rates positively impacted reported net sales by 1.6% and 1.3%, respectively, and the Canadian divestitures negatively impacted reported net sales by 0.8%. The increase reflects double-digit sales growth in our construction, industrial and original equipment manufacturer businesses due to strong demand, execution of growth initiatives and price inflation. Operating profit was $133.0 million for the fourth quarter of 2021, compared to $64.2 million for the fourth quarter of 2020. The increase primarily reflects the factors impacting the overall business, as described above, along with strong execution of our margin improvement initiatives. Additionally, operating profit for the fourth quarter of 2021 was negatively impacted by the inventory write-down described in the Company’s overall results above, as well as accelerated trademark amortization expense of $4.9 million associated with migrating to the Company’s master brand architecture. EBITDA, adjusted for other non-operating expense (income) and non-cash stock-based compensation expense, was $150.6 million for the fourth quarter of 2021, or 7.5% of net sales, compared to $94.4 million for the fourth quarter of 2020, or 5.7% of net sales.

• CSS reported net sales of $1.5 billion for the fourth quarter of 2021, compared to $1.4 billion for the fourth quarter of 2020, an increase of 10.6%. Organic sales for the fourth quarter of 2021 grew by 8.8% as the number of workdays and foreign exchange rates positively impacted reported net sales by 1.6% and 0.2%, respectively. The increase reflects double-digit growth in our security solutions and network infrastructure businesses due to strong demand and execution of growth initiatives. Operating profit was $101.9 million for the fourth quarter of 2021, compared to $85.4 million for the fourth quarter of 2020. The increase primarily reflects the factors impacting the overall business, as described above, along with strong execution of our margin improvement initiatives. Additionally, operating profit for the fourth quarter of 2021 was negatively impacted by 28 basis points from the inventory write-down described in the Company’s overall results above, as well as accelerated trademark amortization expense of $6.4 million associated with migrating to the Company’s master brand architecture. EBITDA, adjusted for other non-operating expense (income) and non-cash stock-based compensation expense, was $125.3 million for the fourth quarter of 2021, or 8.3% of net sales, compared to $112.0 million for the fourth quarter of 2020, or 8.2% of net sales.

• UBS reported net sales of $1.3 billion for the fourth quarter of 2021, compared to $1.1 billion for the fourth quarter of 2020, an increase of 23.0%. Organic sales for the fourth quarter of 2021 grew by 21.9% as the number of workdays and foreign exchange rates positively impacted reported net sales by 1.6% and 0.6%, respectively, and the Canadian divestitures negatively impacted reported net sales by 1.1%. The increase reflects double-digit growth in our utility, broadband and integrated supply businesses due to strong demand and execution of growth initiatives. Operating profit was $122.8 million for the fourth quarter of 2021, compared to $64.2 million for the fourth quarter of 2020. The increase primarily reflects the factors impacting the overall business, as described above, along with strong execution of our margin improvement initiatives. EBITDA, adjusted for other non-operating expense (income) and non-cash stock-based compensation expense, was $129.3 million for the fourth quarter of 2021, or 9.6% of net sales, compared to $79.5 million for the fourth quarter of 2020, or 7.3% of net sales.

The following are results by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020, which primarily reflect the impact of the merger with Anixter. For the year ended December 31, 2021, operating profit and adjusted EBITDA margin reflect sales growth and gross margin expansion, as well as the realization of integration cost synergies and structural cost takeout actions. Operating profit for 2021 was negatively impacted by higher volume-related costs, and SG&A payroll and payroll-related expenses consisting of salaries, variable compensation expense and benefit costs, including the impact of reinstating salaries and certain benefits of legacy Wesco employees that had been reduced or suspended in the prior year in response to the COVID-19 pandemic.

• EES reported net sales of $7.6 billion for 2021, compared to $5.5 billion for 2020, an increase of 39.1%. In addition to the impact from the merger, the increase reflects improved economic conditions and strong demand.

Contacts

Will Ruthrauff

Director, Investor Relations

(412) 454-4220

http://www.wesco.com

Read full story here