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]

Financial Data and Key Metrics Changes - GAAP earnings for Q2 2025 were $0.46 per share, an increase from $0.08 in Q2 2024 [5] - Core earnings were $0.52 per share for the quarter, compared to $0.51 in the same quarter last year [6] - Year-to-date core earnings of $1.19 per share reflect a 19% increase compared to 2024 [22] - Consolidated return on equity was 9.7%, aligning with the targeted range of 9.5% to 10% [22] Business Line Data and Key Metrics Changes - The second quarter core earnings benefited from new base rates in Pennsylvania and increased investments in the transmission system [6][22] - Operating expenses were nearly 4% lower than planned, contributing to financial discipline [23] - Capital investments for 2025 are on track with over $1.4 billion deployed in Q2 and more than $2.5 billion in the first half of the year, which is 29% ahead of the same period in 2024 [23] Market Data and Key Metrics Changes - The data center pipeline has increased over 80% to 11.1 gigawatts since February, with contracted data center load rising approximately 25% to 2.7 gigawatts [10] - Requests for large load studies greater than 500 megawatts have surged, with over 95 gigawatts requested since the beginning of 2024 [11] Company Strategy and Development Direction - The company is focused on a $28 billion capital investment plan through 2029 to enhance system resiliency and reliability [7][19] - Significant investments in Pennsylvania are expected to total $15 billion through 2029, with a focus on distribution and transmission capital investments [9] - The company aims to be recognized as a premier electric utility, targeting a compound annual growth rate of 6% to 8% through 2029 [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving core earnings in the upper half of the guidance range of $2.4 to $2.6 per share for 2025 [18] - The leadership team is committed to optimizing performance and financial strength, with a focus on accountability and customer service [18] - Management highlighted the need for new dispatchable generation in West Virginia and the potential for incremental investments [40] Other Important Information - The company successfully sold its minority ownership in the Signal Peak coal mine for $47.5 million, eliminating any remaining financial or operational liabilities [28] - The company is preparing for regulatory changes in Ohio, including a transition to a new regulatory framework that supports capital investments [14][72] Q&A Session Summary Question: Clarification on transmission CapEx upside - Management indicated that the 20% increase in CapEx is gross and that identified CapEx for shareholders could be between $2.3 billion to $4 billion [35][36] Question: Balance sheet capacity and equity considerations - Management is open to all options regarding balance sheet capacity and will make decisions based on the reality at the time [37] Question: Data center pipeline and negotiations - The pace of negotiations is driven by customer demand, with legitimate developers willing to sign contracts [44] Question: Incremental generation needs in West Virginia - Management anticipates the need for new dispatchable generation, with potential for adding 1,000 megawatts over the next ten years [46] Question: Drivers of upside in financial performance - Most of the favorability to plan is attributed to discipline around operating expenses, which are 4% below plan [52] Question: Future CapEx updates - A longer-term CapEx plan will likely be provided in the fourth quarter call [88] Question: Ohio regulatory strategy post-rate case - Future filings will depend on the outcomes of the current rate case, with expectations for a decision in the fourth quarter [93]