WESCO International(WCC) - 2019 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related disclosures for the first quarter of 2019, along with management's discussion and analysis Item 1. Financial Statements Unaudited Q1 2019 financial statements show slight decreases in net sales and income, with total assets increasing due to new lease accounting standards and decreased operating cash flow Condensed Consolidated Balance Sheets | Balance Sheet Items | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Assets | $4,984,638 | $4,605,036 | | Total Current Assets | $2,513,750 | $2,385,640 | | Goodwill | $1,740,771 | $1,722,603 | | Operating lease assets | $232,989 | $— | | Total Liabilities | $2,788,276 | $2,475,310 | | Total Current Liabilities | $1,150,722 | $1,061,946 | | Long-term debt, net | $1,214,276 | $1,167,311 | | Operating lease liabilities | $178,606 | $— | | Total Stockholders' Equity | $2,196,362 | $2,129,726 | - The adoption of the new lease standard (Topic 842) effective January 1, 2019, resulted in the recognition of approximately $240 million in right-of-use assets and $245 million in lease liabilities[23] Condensed Consolidated Statements of Income and Comprehensive Income | Income Statement Items | Three Months Ended Mar 31, 2019 (in thousands) | Three Months Ended Mar 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net sales | $1,961,267 | $1,993,915 | | Income from operations | $70,726 | $73,241 | | Net income | $41,950 | $42,971 | | Net income attributable to WESCO | $42,369 | $44,421 | | Diluted EPS | $0.93 | $0.93 | Condensed Consolidated Statements of Cash Flows | Cash Flow Items | Three Months Ended Mar 31, 2019 (in thousands) | Three Months Ended Mar 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,869 | $52,993 | | Net cash used in investing activities | ($38,517) | ($16,422) | | Net cash provided by (used in) financing activities | $19,246 | ($28,827) | | Net change in cash and cash equivalents | $9,757 | $5,944 | Notes to Condensed Consolidated Financial Statements Revenue by End Market (Q1 2019 vs Q1 2018) | End Market | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Industrial | $736,906 | $758,976 | | Construction | $633,288 | $637,800 | | Utility | $308,269 | $315,546 | | Commercial, Institutional and Government | $282,804 | $281,593 | | Total | $1,961,267 | $1,993,915 | Revenue by Geography (Q1 2019 vs Q1 2018) | Geography | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | United States | $1,460,991 | $1,482,718 | | Canada | $384,596 | $398,738 | | Other International | $115,680 | $112,459 | | Total | $1,961,267 | $1,993,915 | - On March 5, 2019, WESCO acquired certain assets of Sylvania Lighting Services Corp. (SLS), a provider of energy-efficient lighting solutions with annual sales of approximately $100 million. The acquisition resulted in goodwill of $5.5 million[43] - The effective tax rate for Q1 2019 was 21.7%, up from 19.6% in Q1 2018, primarily due to the full application of the international provisions of U.S. tax reform[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2019 net sales decreased 1.6% due to foreign exchange and fewer workdays, though organic sales grew 1.0%, with gross margin expansion offset by higher SG&A expenses Results of Operations Organic Sales Growth Reconciliation (Q1 2019) | Metric | Percentage | | :--- | :--- | | Change in net sales | (1.6)% | | Impact from acquisitions | 0.3% | | Impact from foreign exchange rates | (1.3)% | | Impact from number of workdays | (1.6)% | | Organic sales growth | 1.0% | - Cost of goods sold as a percentage of net sales decreased to 80.5% in Q1 2019 from 80.9% in Q1 2018, primarily due to the execution of margin improvement initiatives[98] - SG&A expenses increased to $296.6 million (15.1% of sales) in Q1 2019 from $290.8 million (14.6% of sales) in Q1 2018, mainly due to costs from the SLS acquisition and higher payroll expenses[99] Liquidity and Capital Resources - As of March 31, 2019, the company had total liquidity of $780.9 million, comprising $533.7 million under its Revolving Credit Facility, $210.0 million under its Receivables Facility, and $37.2 million in available cash[106] Financial Leverage Ratio | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | EBITDA (TTM, in millions) | $412.3 | $415.5 | | Total debt, net of cash (in millions) | $1,145.2 | $1,136.8 | | Financial leverage ratio | 3.0 | 3.0 | - The company plans to use excess cash for growth initiatives, acquisitions, debt reduction, and share repurchases, while closely managing working capital[113] Cash Flow - Net cash from operating activities was $28.9 million in Q1 2019, a decrease from $53.0 million in Q1 2018, driven by larger increases in trade accounts receivable and inventories, and a smaller increase in accounts payable[115] - Investing activities used $38.5 million, primarily for acquisition payments of $27.7 million (for SLS) and capital expenditures of $10.8 million[117] - Financing activities provided a net $19.2 million, reflecting net borrowings on various credit facilities[14][118] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures were reported for the quarterly period ended March 31, 2019, compared to the 2018 Annual Report on Form 10-K - No material changes to market risk exposures were reported for the quarterly period ended March 31, 2019[126] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with internal controls modified for the new lease accounting standard - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of the end of the period[127] - Internal controls were modified to accommodate the adoption of the new lease standard (ASU 2016-02), but no other changes materially affected internal control over financial reporting[128] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings The company is involved in various lawsuits and claims, but management does not anticipate a material adverse effect on financial condition or liquidity - Management believes that the outcome of pending litigation is unlikely to have a material adverse effect on WESCO's financial condition or liquidity[131] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2018 Annual Report on Form 10-K were reported - No material changes to risk factors were reported since the 2018 Annual Report on Form 10-K[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2019, the company repurchased 412,018 shares of common stock at an average price of $52.71, with $275.0 million remaining for future repurchases Issuer Purchases of Common Stock (Q1 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | Jan 2019 | 2,821 | $50.39 | — | $275.0 | | Feb 2019 | 31,893 | $55.67 | — | $275.0 | | Mar 2019 | 377,304 | $52.47 | 365,272 | $275.0 | | Total | 412,018 | $52.71 | 365,272 | | - The Board of Directors has authorized a share repurchase program of up to $400 million, effective through December 31, 2020[134] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer, as well as XBRL data files[136][138]