WESCO INTERNATIONAL INC Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Organization Change: David Schulz to retire in May 2026, serving as adviser until then; Neil Deve appointed Executive Vice President and CFO, joining later in the month for a smooth transition.
• 2025 Results: Closed 2025 with positive momentum, fourth quarter sales at record $6.1 billion, data center sales at record $1.2 billion. Business units like CSS and EES performed well, while UBS faced challenges with public power customers but showed growth in investor-owned utilities. Backlog up 19% year over year.
• Digital Transformation: Deployed new tech stack in pilot locations across business units, with a world-class data lake and AI application, recognized by Fortune in AI ranking.
• Dividend Increase: Plan to increase annual common stock dividend by over 10% to $2 per share.
• Grid Services: Generated over $300 million revenue in 2025, growing at mid-single digits, expected to accelerate to double digits in 2026, supporting grid modernization and power infrastructure.

Segment Performance

• Fourth Quarter 2025:
  • Total sales were $6.1 billion, up 10% year over year with 9% organic growth. Data center sales reached $1.2 billion, up approximately 30% year over year.
  • Communications and security solutions (CSS): Organic sales grew 14%, reported sales up 16%. Adjusted EBITDA grew approximately 30% with a margin of 9.1%, up 90 basis points versus prior year.
  • Electrical and electronic solutions (EES): Organic sales grew 9%, backlog up 6% year over year. Adjusted EBITDA grew 16% with margin expanding 50 basis points to 8.5%.
  • Utility and broadband solutions (UBS): Organic sales grew 3% year over year. Backlog increased 23% year over year. Adjusted EBITDA margin down approximately 120 basis points primarily reflecting lower gross margin due to public power headwinds.
• Full Year 2025:
  • Total sales were $23.5 billion, up 8% year over year with 9% organic growth.
  • CSS: Reported sales up 18% with organic sales up 17%. Adjusted EBITDA margin expanded 50 basis points year over year.
  • EES: Reported sales up 7% with organic sales up 8% led by strong OEM and construction growth. Full year adjusted EBITDA up 3% with margin down 30 basis points.
  • UBS: Reported sales down 5% with organic sales down 1%. Full-year adjusted EBITDA margin down 90 basis points primarily reflecting competitive pressures in the public power market.

Guidance

• 2026 Outlook:
  • Reported sales growth expected in the range of 5% to 8% with organic sales between 4% to 7%.
  • Adjusted EBITDA margin anticipated to be in the range of 6.6% to 7%.
  • Adjusted diluted EPS outlook range is $14.50 to $16.50, a 20% growth rate at midpoint.
  • Free cash flow expected to be $500 million to $800 million in 2026, with working capital growth at approximately half the rate of sales.
• Q1 2026 Expectations: Reported sales expected to be up high single digits with growth across all three business units. Adjusted EBITDA margin expected to be up versus prior year driven by improved gross margin and operating leverage.

Risks

• Public Power Customers: Ongoing sales and margin challenges with public power customers due to inventory normalization and competitive pressures; expected public power customers to return to sales growth by end of 2026 but currently facing softness.
• Working Capital: Impact of higher accounts receivable and inventory build on free cash flow in the fourth quarter of 2025.
• Pricing and Margins: Uncertainty around supplier price increases and their potential impact on gross margin and overall financial performance.

Question and Answer

Q: Could you talk about the price increases and their impact on margins?

A: Supplier price increase notifications have increased, but they aren't included in the outlook as timing of revenue realization is uncertain. If price increases come through, there could be transitory benefit to gross margin and operating leverage, but last year's mid to high single-digit price increase notifications didn't fully translate to results.

Q: What's the situation with UBS and when will public power customers return to growth?

A: UBS has challenges with public power customers due to inventory normalization and competitive pressures. Public power customers are expected to return to sales growth by the end of 2026. Investor-owned utilities have shown three consecutive quarters of growth, and grid services within UBS is growing and expected to accelerate.

Q: Can you comment on data center growth expectations for 2026?

A: Data center growth is expected to be mid-teens in 2026. Comps were tough in 2025, but activity levels are expected to be relatively consistent by quarter in 2026, with January showing mid-teens growth per workday consistent with fourth quarter trends.

Q: How are you managing working capital for free cash flow in 2026?

A: Free cash flow for 2026 is expected to be $500 million to $800 million. The fourth quarter free cash flow was impacted by higher receivables and inventory, but 2026 expects carryover benefit of receivables collected in Q1 and working capital growth at half the rate of sales, supporting improved free cash flow.