WESCO INTERNATIONAL INC Q3 FY2025 earnings call

• Delivered very strong Q3 results with 12% organic sales growth, marking 4 consecutive quarters of accelerating momentum. October preliminary sales per workday up ~9% year-over-year. - Record Q3 sales of $6.2 billion, led by 18% organic growth in CSS, 12% organic growth in EES, and return to growth in UBS. - Adjusted EPS grew 9.5% year-over-year and 16% sequentially, with gross margin and EBITDA margin improving sequentially. - Raising full-year organic sales growth, adjusted EBITDA, and adjusted EPS outlooks; reducing full-year free cash flow outlook due to working capital needs. - Focus on cross-selling initiatives, enterprise-wide margin improvement program, and technology-driven business transformation. - Data center growth driven by secular trends like AI-driven data centers, electrification, and reshoring.

In Q3, WESCO had strong segment performance. Communications and Security Solutions (CSS) had organic sales up 18%. Electrical and Electronic Solutions (EES) had organic sales up 12%, with data center sales at $1.2 billion, up 60% year-over-year and representing ~6% of EES sales. Utility and Broadband Solutions (UBS) had organic sales up 3%, with investor-owned utilities up high single digits and broadband up over 20% year-over-year in Q3. Data center sales were $1.2 billion in Q3, up 60% year-over-year and representing 19% of Q3 company sales, with trailing 12-month data center sales near $4 billion.

• Raising full-year organic sales growth outlook to 8%-9% from prior 5%-7%. - Raising adjusted EBITDA and adjusted EPS outlooks. - Lowering full-year free cash flow outlook to $400M-$500M due to working capital needs from high sales growth. - 2026 outlook: mid-single-digit organic sales growth, data center mid-teens growth, and annual adjusted EBITDA margin improvement of 20-30 basis points.

• Tariff impacts and supplier price increases with fluctuating effective dates. - Working capital needs associated with high sales growth leading to cash flow uses, particularly in accounts receivable.

Q: Could you tell us approximately how much price contributed to growth by segment?

A: Overall pricing benefit in Q3 was just under 3%, with EES about 4%, CSS about 2%, and UBS about 1%.

Q: Are you not seeing the crowd out effect from AI and tech spending on other CapEx?

A: Not seeing crowd out based on activity levels, with EES growth excluding data center surpassing expectations and market outperformance.

Q: How should we think about 30 basis points of margin expansion for 4Q between gross margin and SG&A?

A: Part of the 30 basis points will be improvement to supplier volume rebates, with a combination of gross margin actions and operating leverage.

Q: Could you talk about the implied acceleration in UBS organic sales growth in fourth quarter?

A: UBS has easier comp in Q4 2024, with confidence in growth due to trends in investor-owned utilities and improving customer order rates.

Q: Any comments on mix normalization into '26?

A: Don't expect mix to normalize, with strong growth in both white and gray space driven by unique value proposition and execution ability globally