WESCO INTERNATIONAL, INC. PITTSBURGH, Jan. 26, 2017 /PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, announces its results for the fourth quarter and full year 2016.
Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, "Fourth quarter results were in line with our expectations, and results for the full year were within the outlook range provided in December 2015. Normalized organic sales declined versus prior year but grew sequentially, reflecting improving momentum in our business, and our first Q4 sequential sales growth in five years. Operating margin was also in line with our expectations, as we took additional actions to reduce our costs and improve productivity. Free cash flow generation remained strong, enabling us to reduce our debt and get back within our target financial leverage range."
The following are results for the three months ended December 31, 2016 compared to the three months ended December 31, 2015:
-- Net sales were $1.79 billion for the fourth quarter of 2016, compared to
$1.86 billion for the fourth quarter of 2015, a decrease of 3.7%.
Acquisitions had a 1.8% positive impact on net sales and were offset by
a 1.6% impact from number of workdays and a 0.3% impact from foreign
exchange rates, resulting in a 3.6% decrease in normalized organic
sales. Sequentially, net sales decreased 3.3% and normalized organic
sales increased 0.3%.
-- Cost of goods sold for the fourth quarter of 2016 was $1.44 billion and
gross profit was $348.6 million, compared to cost of goods sold and
gross profit of $1.50 billion and $363.5 million for the fourth quarter
of 2015, respectively. As a percentage of net sales, gross profit was
19.4% and 19.5% for the fourth quarters of 2016 and 2015, respectively.
-- Selling, general, and administrative ("SG&A") expenses were $249.9
million, or 13.9% of net sales for the fourth quarter of 2016, compared
to $256.9 million, or 13.8% of net sales, for the fourth quarter of
2015.
-- Operating profit was $82.1 million for the current quarter, compared to
$90.0 million for the fourth quarter of 2015. Operating profit as a
percentage of net sales was 4.6% for the fourth quarter of 2016,
compared to 4.8% for the fourth quarter of 2015.
-- Interest expense for the fourth quarter of 2016 was $17.5 million,
compared to $9.9 million for the fourth quarter of 2015. Non-cash
interest expense for the fourth quarter of 2016 and 2015, which includes
amortization of debt discounts and deferred financing fees, and interest
related to uncertain tax positions, was expense of $1.7 million and
income of $6.5 million, respectively. In the fourth quarter of 2015, the
resolution of transfer pricing matters associated with previously filed
tax positions resulted in non-cash interest income.
-- The effective tax rate for the current quarter was 26.0%, compared to
39.3% for the prior year fourth quarter. The resolution of the transfer
pricing matter described above increased the effective tax rate for the
fourth quarter of 2015.
-- Net income attributable to WESCO International, Inc. was $47.4 million
for the fourth quarter of 2016, compared to net income of $48.4 million
for the fourth quarter of 2015.
-- Earnings per diluted share was $0.96 for the fourth quarter of 2016,
based on 49.2 million diluted shares, compared to earnings per diluted
share of $1.03 for the fourth quarter of 2015, based on 47.2 million
diluted shares.
-- Operating cash flow for the fourth quarter of 2016 was $83.0 million,
compared to $107.1 million for the fourth quarter of 2015. Free cash
flow for the fourth quarter of 2016 was $78.2 million, or 164% of net
income, compared to $101.6 million, or 209% of net income for the fourth
quarter of 2015.
The following are results for the year ended December 31, 2016 compared to the year ended December 31, 2015:
-- Net sales were $7.34 billion for 2016, compared to $7.52 billion for
2015, a decrease of 2.4%. Acquisitions and number of workdays had
positive impacts on net sales of 3.1% and 0.4%, respectively, and were
partially offset by a 1.0% impact from foreign exchange rates, resulting
in a 4.9% decrease in normalized organic sales.
-- Cost of goods sold for 2016 was $5.89 billion and gross profit was $1.45
billion, compared to cost of goods sold and gross profit of $6.02
billion and $1.49 billion for 2015, respectively. As a percentage of net
sales, gross profit was 19.7% and 19.9% for 2016 and 2015, respectively.
-- Selling, general, and administrative ("SG&A") expenses were $1.0
billion, or 14.3% of net sales for 2016, compared to $1.1 billion, or
14.0% of net sales, for 2015.
-- Operating profit was $332.0 million for 2016, compared to $373.7 million
for 2015. Operating profit as a percentage of net sales was 4.5% for
2016, compared to 5.0% for 2015.
-- Interest expense for 2016 was $76.6 million, compared to $69.8 million
for 2015. Non-cash interest expense for 2016 and 2015, which includes
amortization of debt discounts and deferred financing fees, and interest
related to uncertain tax positions, was $7.8 million and $3.5 million,
respectively. In 2015, the resolution of transfer pricing matters
associated with previously filed tax positions resulted in non-cash
interest income.
-- Loss on debt redemption of $123.9 million for 2016 was the result of a
non-cash charge from the early redemption of the Company's 6.0%
Convertible Senior Debentures due 2029 in the third quarter of 2016.
-- The effective tax rate for 2016 was 23.1%, compared to 31.4% for 2015.
The effective tax rate for the current year was positively impacted by
the loss on debt redemption, whereas the resolution of the transfer
pricing matter described above resulted in incremental income tax
expense in 2015.
-- Net income attributable to WESCO International, Inc. was $101.6 million
for 2016, compared to $210.7 million for 2015. Adjusted net income
attributable to WESCO International, Inc. for 2016 was $184.3 million.
-- Earnings per diluted share for 2016 was $2.10 per share, based on 48.3
million diluted shares, compared to $4.18 per share for 2015, based on
50.4 million diluted shares. Adjusted earnings per diluted share for
2016 was $3.80.
-- Operating cash flow for 2016 was $300.2 million, compared to $283.1
million for 2015. Free cash flow for 2016 of $282.2 million, or 154% of
adjusted net income, compared to $261.4 million, or 125% of net income
for 2015.
Mr. Engel continued, "On a full year basis, our 2016 results reflect the challenging economic and end market environment, as well as the impact of political uncertainty on spending in the industries we serve. We responded to these challenges by reducing our costs and streamlining our organization while ensuring continued strong free cash flow generation. These actions partially mitigated the impact of lower sales and business mix on earnings per share. We remain focused on executing our One WESCO strategy, and as a result of our organizational changes and continued execution of our business initiatives, we are entering 2017 with a stronger team focused on driving increased profitability as our end markets return to growth. The free cash flow generation capability of our business supports continued investment in our One WESCO growth initiatives, including acquisitions, along with our other cash allocation priorities. We reaffirm our expectation of 2017 sales in the range of flat to up 4%, EPS of $3.60 to $4.00 per diluted share, and free cash flow generation of at least 90% of net income, as we outlined in our investor outlook call in December."
Mr. Engel added, "After two years of industry sales declines and talk of an industrial recession, we are pleased to hear increased optimism from customers and see the beginning signs of a recovery. In this period of change and uncertainty, customers and suppliers need strong and reliable supply chain partners. WESCO provides leading supply chain solutions supported by our broad portfolio of products and value-added services. Our efforts are centered on providing outstanding customer service and delivering value to our customers' operations and supply chains. I am very proud of the extra effort demonstrated by all WESCO associates in serving our customers last year, and I am confident in our team's ability to improve our performance in 2017."
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the fourth quarter earnings as described in this News Release on Thursday, January 26, 2017, at 11:00 a.m. E.T. The call will be broadcast live over the Internet and can be accessed from the Company's Website at http://www.wesco.com. The call will be archived on this Internet site for seven days.
WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply chain management and logistic services. 2016 annual sales were approximately $7.3 billion. The company employs approximately 9,000 people, maintains relationships with over 25,000 suppliers, and serves over 80,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates nine fully automated distribution centers and approximately 500 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as well as the Company's other reports filed with the Securities and Exchange Commission.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended
December 31, December 31,
2016 2015
---- ----
Net sales $1,793.3 $1,861.5
Cost of goods sold (excluding 1,444.7 80.6% 1,498.0 80.5%
depreciation and amortization)
Selling, general and administrative expenses 249.9 13.9% 256.9 13.8%
Depreciation and amortization 16.6 16.6
---- ----
Income from operations 82.1 4.6% 90.0 4.8%
Interest expense, net 17.5 9.9
---- ---
Income before income taxes 64.6 3.6% 80.1 4.3%
Provision for income taxes 16.8 31.5
---- ----
Net income 47.8 2.7% 48.6 2.6%
Net income attributable to noncontrolling interests 0.4 0.2
--- ---
Net income attributable to WESCO International, Inc. $47.4 2.6% $48.4 2.6%
===== =====
Diluted earnings per common share $0.96 $1.03
Weighted-average common shares outstanding and common
share equivalents used in computing diluted earnings per
share (in millions) 49.2 47.2
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Twelve Months Ended
December 31, December 31,
2016 2015
---- ----
Net sales $7,336.0 $7,518.5
Cost of goods sold (excluding 5,887.8 80.3% 6,024.8 80.1%
depreciation and amortization)
Selling, general and administrative expenses 1,049.3 14.3% 1,055.0 14.0%
Depreciation and amortization 66.9 65.0
---- ----
Income from operations 332.0 4.5% 373.7 5.0%
Interest expense, net 76.6 69.8
Loss on debt redemption 123.9 -
----- ---
Income before income taxes 131.5 1.8% 303.9 4.0%
Provision for income taxes 30.4 95.5
---- ----
Net income 101.1 1.4% 208.4 2.8%
Net loss attributable to noncontrolling interests (0.5) (2.3)
---- ----
Net income attributable to WESCO International, Inc. $101.6 1.4% $210.7 2.8%
====== ======
Diluted earnings per common share $2.10 $4.18
Weighted-average common shares outstanding and common
share equivalents used in computing diluted earnings per
share (in millions) 48.3 50.4
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
December 31, December 31,
2016 2015
---- ----
Assets
Current Assets
Cash and cash
equivalents $110.1 $160.3
Trade accounts
receivable, net 1,034.4 1,075.3
Inventories 821.4 810.1
Current deferred income
taxes (1) - 8.5
Other current assets 206.5 203.4
----- -----
Total current assets 2,172.4 2,257.6
Other assets (2) 2,318.5 2,312.2
Total assets $4,490.9 $4,569.8
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $684.7 $715.5
Current debt and short-
term borrowings 22.1 44.3
Other current
liabilities 190.0 188.0
----- -----
Total current
liabilities 896.8 947.8
Long-term debt (2) 1,363.1 1,439.1
Other noncurrent
liabilities 221.0 409.0
----- -----
Total liabilities 2,480.9 2,795.9
Stockholders' Equity
Total stockholders'
equity 2,010.0 1,773.9
------- -------
Total liabilities and
stockholders' equity $4,490.9 $4,569.8
======== ========
(1) The Company early adopted Accounting Standards Update (ASU) 2015-17 , Balance Sheet Classification of
Deferred Taxes, on a prospective basis during the first quarter of 2016. This guidance requires that all
deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent
on the balance sheet.
(2) The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,
on a retrospective basis during the first quarter of 2016. These ASUs simplify the presentation of debt
issuance costs by requiring that debt issuance costs related to a recognized liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. As a result of adopting this guidance, the Company reclassified approximately $17.7 million of
deferred financing fees from other noncurrent assets to long-term debt in the balance sheet as of December 31,
2015.
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended
December 31, December 31,
2016 2015
---- ----
Operating Activities:
Net income $101.1 $208.4
Add back (deduct):
Depreciation and amortization 66.9 65.0
Deferred income taxes (45.2) 42.9
Change in trade receivables,
net 56.8 40.1
Change in inventories (1.6) 2.4
Change in accounts payable (40.6) (55.9)
Other (1) 162.8 (19.8)
----- -----
Net cash provided by operating
activities 300.2 283.1
Investing Activities:
Capital expenditures (18.0) (21.7)
Acquisition payments (50.9) (151.6)
Other (1.6) 3.0
---- ---
Net cash used in investing
activities (70.5) (170.3)
Financing Activities:
Debt (repayments) borrowings,
net (262.5) 91.8
Equity activity, net (2.9) (154.2)
Other (10.8) (5.4)
----- ----
Net cash used in financing
activities (276.2) (67.8)
Effect of exchange rate changes
on cash and cash equivalents (3.7) (13.0)
---- -----
Net change in cash and cash
equivalents (50.2) 32.0
Cash and cash equivalents at
the beginning of the period 160.3 128.3
Cash and cash equivalents at
the end of the period $110.1 $160.3
====== ======
(1) Other operating cash flow activities for the year ended December 31, 2016 includes a $123.9 million loss on
redemption of the Company's 6.0% Convertible Senior Debentures due 2029.
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include normalized organic sales change, gross profit, financial leverage, free cash flow, adjusted net income and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's organic sales trends, capital structure position and liquidity on a comparable basis. Additionally, certain of the aforementioned non-GAAP measures either focus on or exclude transactions impacting comparability of results, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except normalized organic sales data)
(Unaudited)
Three Months Twelve Months
Ended Ended
Normalized Organic
Sales Change -
Year-Over-Year: December 31, December 31,
2016 2016
---- ----
Change in net
sales (3.7)% (2.4)%
3.1 %
Impact from
acquisitions 1.8 %
Impact from
foreign exchange
rates (0.3)% (1.0)%
0.4 %
Impact from number
of workdays (1.6)%
-----
Normalized organic
sales change (3.6)% (4.9)%
===== =====
Three Months
Ended
Normalized Organic Sales
Change -Sequential: December 31,
2016
----
Change in net sales (3.3)%
Impact from acquisitions - %
Impact from foreign
exchange rates (0.5)%
Impact from number of
workdays (3.1)%
-----
Normalized organic sales
change 0.3 %
Note: Normalized organic sales change is provided by the
Company as an additional financial measure to provide a
better understanding of the Company's organic sales
trends. Normalized organic sales change is calculated
by deducting the percentage impact from acquisitions in
the first year of ownership, foreign exchange rates and
number of workdays from the overall percentage change
in consolidated net sales.
Three Months Ended Twelve Months Ended
Gross Profit: December 31, December 31, December 31, December 31,
2016 2015 2016 2015
---- ---- ---- ----
Net sales $1,793.3 $1,861.5 $7,336.0 $7,518.5
Cost of goods sold (excluding depreciation and 1,444.7 1,498.0 5,887.8 6,024.8
amortization)
Gross profit $348.6 $363.5 $1,448.2 $1,493.7
====== ====== ======== ========
Gross margin 19.4% 19.5% 19.7% 19.9%
Note: Gross profit is provided by the Company as an additional financial measure. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. This amount represents a commonly used financial measure within the distribution industry.
Gross margin is calculated by dividing gross profit by net sales.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended
Financial Leverage: December 31, December 31,
2016 2015
---- ----
Income from operations $332.0 $373.7
Depreciation and
amortization 66.9 65.0
---- ----
EBITDA $398.9 $438.7
====== ======
December 31, December 31,
2016 2015
---- ----
Current debt and short-
term borrowings $22.1 $44.3
Long-term debt 1,363.1 1,439.1
Debt discount and
deferred financing
fees(1) 17.3 182.0
Total debt $1,402.5 $1,665.4
======== ========
Financial leverage ratio 3.5 3.8
(1) Long-term debt is presented in the condensed consolidated balance sheets net of deferred financing fees
and debt discount related to the convertible debentures and term loan.
Note: Financial leverage is a non-GAAP financial measure provided by the Company to illustrate its capital
structure position. Financial leverage ratio is calculated by dividing total debt, including debt discount and
deferred financing fees, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest,
taxes, depreciation and amortization.
Three Months Ended Twelve Months Ended
Free Cash Flow: December 31, December 31, December 31, December 31,
2016 2015 2016 2015
---- ---- ---- ----
Cash flow provided
by operations $83.0 $107.1 $300.2 $283.1
Less: Capital
expenditures (4.8) (5.5) (18.0) (21.7)
---- -----
Free cash flow $78.2 $101.6 $282.2 $261.4
===== ====== ====== ======
Percent of
adjusted net
income (1) 164% 209% 154% 125%
(1) See the following page for a reconciliation of adjusted net income.
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's other
investing and financing activities.
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except per share amounts)
(Unaudited)
Twelve Months Ended
-------------------
Adjusted
Income
Before
Income
Taxes: December 31, December 31,
2016 2015
---- ----
Income
before
income
taxes $131.5 $303.9
Loss on debt
redemption 123.9 -
Adjusted
income
before
income
taxes $255.4 $303.9
------ ------
Twelve Months Ended
-------------------
Adjusted Tax
Provision: December 31, December 31,
2016 2015
---- ----
Provision
for income
taxes $30.4 $95.5
Income tax
benefit
from loss
on debt
redemption
(1) 41.2 -
---- ---
Adjusted
provision
for income
taxes $71.6 $95.5
----- -----
Twelve Months Ended
-------------------
Adjusted Net
Income
Attributable
to WESCO December 31, December 31,
International,
Inc.: 2016 2015
---- ----
Adjusted
income
before
income
taxes $255.4 $303.9
Adjusted
provision
for income
taxes 71.6 95.5
---- ----
Adjusted net
income 183.8 208.4
Net loss
attributable
to
noncontrolling
interests (0.5) (2.3)
Adjusted net income
attributable to WESCO
International,
Inc. $184.3 $210.7
====== ======
Twelve Months
Ended
Adjusted Earnings Per Diluted
Share: December 31,
2016
----
Diluted earnings per common
share $2.10
Loss on debt redemption (2) 2.54
Tax effect of loss on debt
redemption (2) (0.84)
Adjusted diluted earnings per
common share $3.80
(1) Represents the third quarter of 2016 income tax benefit
related to the loss on debt redemption.
(2) The loss on debt redemption and related income tax benefit are
based on the third quarter of
2016 diluted shares of 48.7 million.
Note: Adjusted net income attributable to WESCO International, Inc.
is defined as income before income taxes plus the third quarter loss
on debt redemption, less the provision for income taxes excluding
the third quarter benefit of such loss. Adjusted earnings per
diluted share is computed by adding the loss per diluted share on
debt redemption and deducting the related income tax benefit per
diluted share recognized in the third quarter of 2016. The Company
believes that these non-GAAP financial measures are useful to
investors' overall understanding of the Company's current financial
performance and provides a consistent measure for assessing the
current and historical financial results.
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SOURCE WESCO International, Inc.
