WESCO International, Inc. Q2 FY2025 earnings call

• Sales momentum accelerated in the second quarter, with organic sales rising 7% building on a strong start to the year. • Total data center sales reached over $1 billion in the second quarter, growing 65% year-over-year. • Utility began to show signs of improvement as investor-owned utilities returned to growth in the second quarter. • Adjusted EBITDA margin increased by 90 basis points sequentially. • Completed the redemption of preferred stock in June, which strengthened the balance sheet. • Appointed Dirk Naylor as EVP and GM to lead the Communications & Security Solutions business. • Raised the full-year organic sales growth outlook while maintaining the EPS range at the midpoint.

In the second quarter, organic sales grew 7%. CSS achieved 17% organic growth, EES had 6% organic growth, and UBS sales declined 4%. Total data center sales in the second quarter exceeded $1 billion, surging 65% year-over-year. Data center sales accounted for nearly 40% of CSS revenue in Q2. EES reported both organic and reported sales increased 6% year-over-year, with backlog rising 6% year-over-year and 1% sequentially. CSS saw organic sales jump 17% and reported sales climb 19% year-over-year, with backlog increasing 36% year-over-year and 11% sequentially. UBS organic and reported sales dropped 4% year-over-year, but investor-owned utilities resumed growth in Q2 and preliminary July sales for UBS showed a slight uptick.

• Raised the full-year organic sales growth outlook. • Anticipates 2025 free cash flow to be between $600 million to $800 million. • Strategy involves investing organically in the business to drive growth and operational efficiency, delevering the balance sheet in the near term, and remaining opportunistic regarding share repurchases and acquisition opportunities.

• Tariffs could lead to supplier price increases and potential customer demand decline. • Inventory provides a temporary gain to gross margin. • Direct tariff exposure on purchases is less than 4% of cost of goods sold. • Mitigation measures include passing on supplier increases, working with suppliers on price increase timelines, leveraging global scale to source locally, reducing imports from high-tariff countries, and optimizing the supply chain.

Q: Nigel Coe inquired about UBS margins in 2Q and the mix within Utility.

A: David S. Schulz stated that mix and an increase in SG&A impacted margins. John J. Engel mentioned UBS is tracking positive growth in July and that operating leverage on sales growth will result in improved EBITDA margins.

Q: Tommy Moll asked about Utility excluding IOU.

A: John J. Engel explained that public power customers were behind in the destocking process but are expected to return to growth in the second half.

Q: Deane Dray asked about CSS data center growth and gray vs white space.

A: John J. Engel said CSS data center sales grew over 60% year-over-year and gray space is growing faster than white space.

Q: David Manthey asked about pricing factored into the guidance.

A: David S. Schulz said known price increases are included, consistent with the initial outlook.

Q: Christopher Glynn asked about EES momentum.

A: John J. Engel said EES momentum is picking up and gray space growth is contributing.

Q: Ken Newman asked about the impact of tariff pricing.

A: David S. Schulz explained supplier price increase notifications and the impact of project mix.

Q: Patrick Baumann asked about July growth and the impact of copper.

A: David S. Schulz said it's difficult to discern July pricing impact at that point and copper exposure is mid-single-digit of revenue and not material in Q2.