On Thursday, WESCO Intl (NYSE:WCC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://edge.media-server.com/mmc/p/cbfg8kb6/
Summary
WESCO Intl reported strong Q1 2026 results with record sales of $6.1 billion, up 14% year-over-year, driven by a 70% increase in data center sales.
The company achieved significant profit growth, with adjusted EBITDA up 25% and a 52% increase in adjusted EPS, supported by gross margin expansion and strong operating leverage.
WESCO Intl raised its full-year 2026 outlook, expecting sales growth of 6-9% and adjusted EPS between $15 and $17, reflecting continued positive business momentum despite macroeconomic uncertainties.
Operational highlights include record backlog growth of 22%, strong cash flow generation, and successful refinancing that improves liquidity and reduces interest expenses.
Management highlighted strategic initiatives focused on scaling business in high-growth markets, improving operating leverage, and enhancing working capital efficiency.
Full Transcript
OPERATOR
Hello and welcome to Wesco’s 2026 first quarter earnings call. I would like to remind you that all lines are in listen only mode throughout the presentation. If you would like to ask a question, please press STAR followed by one on your telephone keypad. Please note that this event is being recorded. I would now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations to begin
Scott Gaffner (Senior Vice President, Investor Relations)
thank you and good morning everyone. Before we get started, I want to remind you that certain statements made on this call contain forward looking information. Forward looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the Company’s SEC filings for additional risk factors and disclosures. Any forward looking information speaks only as of this date and the Company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today we’ll use certain non GAAP financial measures required. Information about these measures is available on our webcast slides and in our press release, both of which are posted on our website@wesco.com on the call this morning we have John Engel, Wesco’s chairman, president and CEO and Neil Dev, Executive Vice President and Chief Financial Officer. Now I’ll turn the call over to
John Engel (Chairman, President and CEO)
John thank you Scott Good morning everyone. Thank you for joining our call. Today we delivered an exceptional start to 2026, building on last year’s market outperformance and accelerating business momentum. In the first quarter. Sales backlog, operating margin, adjusted earnings per share and free cash flow all increased versus the prior year and exceeded our expectations. Record first quarter sales of 6.1 billion were up 14% marking our third quarter in a row of double digit sales growth. Booming data center demand remains a significant growth driver of our business. Data center sales of 1.4 billion were up approximately 70% versus prior year and represented 24% of total company sales in the quarter. Overall, our business momentum continued to accelerate in the quarter with organic sales up sequentially outpacing normal seasonality and reinforcing the strength and durability of demand across our end markets. This performance reflects broad based strength across our entire portfolio led by continued strong momentum in CSS and EES along with improving trends in ubs. We again ended this quarter with a record backlog up 22% versus prior year reflecting the continued effectiveness of our cross selling program and providing clear visibility of the secular growth trends on our business. Profit growth, margin improvement and free cash flow generation were also Excellent. In the first quarter. Adjusted EBITDA grew 25% and adjusted EBITDA margin expanded 60 basis points driven by gross margin expansion and strong operating cost leverage on our double digit sales growth. Adjusted diluted earnings per share was up 52% versus the prior year. Free cash flow generation at 128% of adjusted net income was also very strong, underscoring our disciplined execution and continued focus on working capital management. We’re very pleased with our first quarter results. While we remain mindful of the volatility of the broader macroeconomic environment, we see positive momentum continuing across our business. As a result, we are raising our full year outlook for 2026 as the market leader and with positive momentum building, I’m confident that Wesco will continue to outperform our markets through disciplined execution, our differentiated value proposition and the strength of our global platform. Our Wesco team remains focused on driving strong growth and margin expansion and delivering superior value to our customers and shareholders. One final comment as we announced earlier this year, Dave Schultz is retiring from Wesco and Neil Dev has joined our team as cfo. I would like to thank Dave for his outstanding leadership, his dedicated service and his tremendous contributions to Wesco and our overall success over the past 10 years. We wish Dave and his family our very best. Neal’s off to a great start as Wesco’s new CFO and I will now turn it over to him to take you through our excellent first quarter results and raised full year outlook in more detail.
Neal Dev
Neal thank you John and good morning everyone. I’d like to thank John and the board for the opportunity and I want to recognize Dave for his leadership and thank him for his partnership during this transition. Before turning to our results, I’ll take a minute to touch on my near term priorities. I intend to focus on partnering with the leadership team to scale our business in attractive end markets, drive profitable growth, continued market outperformance and deliver strong cash flow with disciplined capital allocation. That mindset has been shaped by working across both public and private companies, often in complex global, highly competitive technology and capital intensive businesses. John and I are aligned on the initial focus areas where we have the potential for taking our existing great capabilities to the next level. First, driving operating leverage and margin expansion as we scale, particularly in data centers and other high growth end markets. This will be accomplished by a combination of partnering with our business leaders to ensure that our commercial and go to market strategy reflects our enhanced value proposition and partnering with our functional leaders on continuing to improve our cost structure. It’s all about profitable growth. Second, improving working capital efficiency and cash conversion through tighter processes, analytics and execution discipline. This is not just about back office, it’s about optimizing our end to end capabilities from sales funnel to cash collection Transitioning to our Results Let me start with the highlights for the quarter. We delivered strong organic sales growth year over year with sequential performance better than typical seasonality. Profitability improved with meaningful EBITDA margin expansion. EPS was up more than 50% and free cash flow generation was strong at 128% of net income. With that, let me Turn to our first quarter results. Starting on Slide 4, we delivered an excellent first quarter with reported sales of 6.1 billion, up 14% year over year including 12% organic growth. We delivered volume growth across all three SBUs and realized an estimated price benefit of approximately 3 points. Gross margin was 21.2%, up approximately 20 basis points year over year and SGA operating leverage improved by 40 basis points. As a result, adjusted EBITDA increased 25% to 389 million and adjusted EBITDA margin expanded 60 basis points to 6.4% of sales. Turning to Slide 5, adjusted EPS increased 52% year over year to $3.37. The year over year improvement was driven primarily by stronger operating performance in the quarter reflecting higher sales and improved profitability. Additionally, EPS growth benefited from a lower tax rate and from the absence of the preferred stock dividend following last year’s redemption. Turning to Slide 6, CSS delivered another excellent quarter with organic sales up 22% year over year and reported sales up 24%. This growth was driven by continued strength in Wesco Data Center Solutions which delivered a record quarter with sales up over 60%. Within the rest of the portfolio, security delivered high single digit growth while enterprise network infrastructure declined mid single digits due to weakness in the service provider market. However, including data center related sales, Enterprise network infrastructure grew high teens year over year. Overall, organic growth was driven primarily by volume up about 21% with price contributing approximately 1%. Backlog ended the quarter at a record level and was up approximately 40% versus the prior year reflecting continued strong data center project activity and order rates. Profitability also improved meaningfully and our focus remains on margin expansion as we scale the business, particularly in our data center markets. Adjusted EBITDA increased 41% to $223 million and adjusted EBITDA margin expanded 110 basis points to 9%. Importantly, despite some modest pressure on gross margin from large data center projects, we generally see healthy and accretive EBITDA margins for Wesco Data center solutions. Moving to slide 7 ESS delivered solid growth in the quarter with organic sales up 7% and reported sales up 9% year over year. Growth was driven by strong execution in OEM and construction. OEM was up mid teens driven by strength in the semiconductor and data center markets. Construction was up low double digits supported by robust wire and cable demand and continued infrastructure project activity. Industrial was down low single digits primarily reflecting project timing impacts. However, our industrial stock and flow business grew mid single digits in the first quarter and backlog was up double digits supporting an improving trend. Data center sales in EES were up over 100% year over year and represented about 10% of EES sales, highlighting the continued scaling of our exposure to this secular growth trend. Overall, organic growth was driven by solid underlying demand with volume contributing approximately 3% and pricing contributing about 4%. Importantly, backlog ended the quarter at a record level up 14% versus the prior year supported by strong order activity and pipeline conversion. Profitability improved meaningfully in the quarter. Adjusted EBITDA increased 30% to $185 million. An adjusted EBITDA margin expanded 130 basis points to 8.2% driven by higher gross margins and strong operating leverage. Turning to Slide 8 UBS delivered 6% organic sales growth in the first quarter supported by improving demand and an increasing backlog. Utility delivered high single digit growth driven by strong double digit growth in investor owned utilities and continued positive momentum in grid services. Public power was flat year over year which is encouraging. However, the market remains highly competitive and gross margins are expected to remain under pressure given weak sales in transformers and wiring cable. Consistent with our prior commentary, Broadband delivered mid single digit growth year over year supported by strength in the U.S. overall organic sales growth reflected approximately 3% volume growth and about 3% pricing. Backlog increased 16% year over year. We are seeing increasing interest in our grid services enabled power capabilities from hyperscalers and other data center customers. We have a growing funnel of sales opportunities and we are bullish that we will benefit from AI driven data center investments and other major power related infrastructure projects over the long term. Adjusted EBITDA was 131 million, down 5% versus the prior year and adjusted EBITDA margin decreased 120 basis points to 9.6% primarily driven by gross margin pressure and higher SG&A as a percentage of sales. Recall that UBS is accretive to total company adjusted EBITDA margin given its higher margin profile and the improved growth rates will lead to even higher margins over time given the operating leverage. Turning to slide 9 I want to take a moment to further review the continued momentum we’re seeing in the broader data center market and Wesco’s role in that growth. Data center sales continued to scale in the first quarter reaching approximately 1.4 billion, up about 70% year over year and representing 24% of total company sales in the quarter. Notably, the data center end market is now Wesco’s largest end market across all three SBUs and support a diverse set of customers with a diverse set of Wesco capabilities. On a trailing twelve month basis, data center sales are now approximately 4.8 billion or 20% of Wesco’s total sales. This underscores both the strength of the secular demand environment and the expanding scope of what we provide customers across all business units and across the full life cycle. Turning to slide 10 this highlights our end to end data center offering and the role we play across the full lifecycle with exposure across css, EES and ubs. Wesco supports hyperscale, multi tenant colocation and enterprise customers with a comprehensive portfolio of products, services and solutions that span power, connectivity and ongoing operations. Our expanding capabilities and global ecosystem position us as a trusted partner as customers build, scale and operate increasingly complex data center environments. Turning to Slide 11, we delivered strong free cash flow of 213 million in the first quarter. Free cash flow was 128% of adjusted net income despite sequential sales growth. Net working capital was a source of cash in the quarter, largely driven by timing of inventory purchases and accounts payable. Moving to slide 12 during the quarter we executed a highly successful 1.5 billion bond refinancing that was upsized relative to the initial launch, reflecting strong investor demand and record pricing. Notably, we achieved the lowest coupon WISCO has ever achieved on a senior notes offering and the lowest for a double B rated five year note issued since 2021. The net proceeds will be used to redeem our 2028 senior notes, improve liquidity and further strengthen the balance sheet. This refinancing meaningfully improves our debt maturity profile and is expected to generate more than 20 million in annualized interest expense savings. We exited the quarter at 3.2 times net debt to adjusted EBITDA. Additionally, we repurchased $25 million of shares during the quarter towards offsetting dilution. Moving to Slide 13 within CSS, we have raised our 2026 outlook to low double digit growth reflecting the continued strength and visibility we are seeing in data centers. Data center sales are now expected to be up 20 plus percent for the year. Given the size of the market, we intend to continue to focus on healthy EBITDA margin business. Our outlook for EES and UBS remains unchanged. Moving to slide 14 we are increasing our outlook for the full year given strong first quarter results. Before I get into the details, I want to address our position relative to the current macroeconomic uncertainty. Through the first quarter and into April, we have seen no meaningful disruption to our revenue or profitability, but we continue to monitor the situation closely and kept this backdrop in mind for our outlook in the Middle East. I am pleased to report that all of our employees are safe from a company perspective. We generate less than 1% of our sales in the region, with the majority of those sales related to our CSS business. The secondary impacts on transportation costs are more tangible but have so far been manageable. Our teams are focused on passing these cost increases to our customers where appropriate and limiting the time that transportation quotes are valid to minimize overall risk. On the tariff front, the overall impact to Wesco is not material. As a reminder, Wesco is the importer of record for a small percentage of our cost of goods sold, typically low single digits. We typically …
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