Wesco (WCC) Q2 Revenue Rises 7.7%

Core Insights - Wesco International reported Q2 2025 earnings with GAAP revenue of $5.90 billion, surpassing consensus expectations of $5.82 billion, and adjusted EPS of $3.39, exceeding estimates of $3.36, indicating strong sales momentum particularly in high-growth markets like data centers [1][2] - The company experienced margin compression and a slow recovery in free cash flow, highlighting areas of concern despite strong sales and backlog growth across major business segments [1][5] Financial Performance - Adjusted EPS (Non-GAAP) increased by 5.6% year-over-year to $3.39 from $3.21 in Q2 2024 [2] - Revenue rose 7.7% year-over-year to $5.90 billion from $5.48 billion in Q2 2024 [2] - Adjusted EBITDA (Non-GAAP) decreased by 1.5% to $394.2 million, with a margin of 6.7%, down from 7.3% a year ago [2][8] - Gross margin fell to 21.1%, a decline of 0.8 percentage points compared to Q2 2024, primarily due to a higher mix of lower-margin projects [2][7] - Free cash flow (Non-GAAP) improved to $86.5 million from a negative $234.1 million in Q2 2024, but year-to-date free cash flow was significantly lower than historical norms [2][10] Business Segments and Growth Drivers - The Communications & Security Solutions (CSS) segment led growth with 17.3% organic sales growth, reaching $2.26 billion, driven by data center sales exceeding $1 billion, a 65% increase year-over-year [5][6] - The Electrical & Electronic Solutions (EES) segment saw organic sales growth of 6.0%, but faced margin pressure due to competitive pricing and a higher share of large project wins [6] - The Utility & Broadband Solutions (UBS) segment recorded a 4.4% decline in organic sales, although management noted signs of recovery in utility client sales [6] Strategic Focus and Future Outlook - Wesco is focusing on long-term trends such as data center growth, electrification, automation, and grid modernization, which are central to its strategic outlook [4] - Management raised the full-year organic sales growth outlook for 2025, citing strong demand in core areas, while maintaining adjusted EPS guidance midpoint unchanged [12] - The company plans to generate free cash flow of $600 million to $800 million for fiscal 2025, primarily for debt reduction, share buybacks, and selective acquisitions [13]