WESCO INTERNATIONAL INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Sales Momentum: Positive sales momentum carried into 2025 Q1 with 6% organic growth. Data center up 70%, OEM and Broadband up high single-digits. Utility temporarily weak.
• Balance Sheet: Issued $800 million of senior notes to redeem preferred stock, strengthening balance sheet, extending debt maturities, increasing financial flexibility.
• Tariff Management: Taking actions to mitigate tariff impacts, including passing price increases to customers, leveraging global scale for locally sourced products, optimizing supply chain.
• Capital Allocation: Priorities include debt reduction, stock repurchases, investing in tech-enabled transformation, and managing M&A pipeline.

Segment Performance

• EES (Electrical Distribution Solutions): Organic sales up 3% in Q1; reported sales flat after foreign exchange and workday impact. OEM up high single-digits, construction down reported but up low single-digits organic, industrial down reported and roughly flat organic. Adjusted EBITDA margin down 90 basis points, gross margin down 60 basis points.
• CSS (Commercial & Specialty Solutions): Sales growth accelerated in Q1, up 18% organic and 17% reported. Driven by Wesco Data Center Solutions up over 65%; data center represented nearly 40% of CSS sales in Q1. Backlog up 32% year-over-year and 18% sequentially. Adjusted EBITDA margin up 20 basis points, gross margin up 20 basis points sequentially.
• UBS (Utility & Broadband Solutions): Organic sales down 5% in Q1, reported sales down 19% including divested business. Utility soft due to inventory destocking, broadband up high single-digits. Backlog down 13% year-over-year but up 13% sequentially. Adjusted EBITDA margin up 10 basis points.

Guidance

• Reaffirmed 2025 outlook based on positive momentum through first four months. Revised sales growth for CSS from mid single-digits to mid to high single-digits due to data center growth. Organic sales growth expected 2.5%-6.5%, no tariff-related pricing incorporated. Free cash flow expected $600-$800 million.

Risks

• Potential supplier price increases, lower customer demand due to higher costs, and inventory gains as a temporary benefit. Wesco is importer of record on less than 4% of COGS.

Q: Stephen Volkmann asks about tariff pricing in guidance.

A: Dave Schulz says no tariff-related price increases in outlook, two-quarter lag in impact.

Q: Nigel Coe asks about supplier price increases and utility inflection.

A: John Engel and Dave Schulz discuss supplier price increase trends and utility market recovery.

Q: Deane Dray asks about data center growth and mix.

A: John Engel talks about data center scope expansion and margin impact.

Q: Sam Darkatsh asks about pricing contracts and margin impact.

A: John Engel and Dave Schulz discuss contract structures and margin implications.

Q: David Manthey asks about guidance and SG&A.

A: Dave Schulz talks about guidance excluding pricing and SG&A merit increase.

Q: Patrick Baumann asks about Canada market and verticals.

A: John Engel discusses strong Canadian business and key verticals.