WESCO International(US:WCC)2024-02-13 22:47Financial Data and Key Metrics Changes - The company reported a disappointing fourth quarter with sales declining 2% year-over-year, below expectations for flat to slightly positive sales [6][22] - Full year revenue growth was 5% in 2023, following two years of double-digit increases, with a backlog near historical high levels [11][12] - Adjusted EBITDA decreased by 15% year-over-year, primarily due to lower sales and gross margin, as well as higher SG&A expenses [26][34] - Free cash flow generation totaled $444 million in 2023, below the expected range of $500 million to $700 million [55] Business Line Data and Key Metrics Changes - In the EES segment, fourth quarter organic sales were down approximately 4% year-over-year, with construction down high single digits and industrial sales up mid-single digits [43][45] - CSS segment sales were up 2% on a reported basis but down 1% organically, with data center sales driving growth [46][50] - UBS sales were down 2% in the quarter, with utility sales up low single digits and broadband sales down over 30% [51][54] Market Data and Key Metrics Changes - The company experienced customer destocking in shorter-cycle businesses, leading to a step-down in demand in the fourth quarter [22][28] - Preliminary sales per workday in January 2024 were down approximately 5% from the prior year, reflecting continued weakness in broadband and construction [28] Company Strategy and Development Direction - The company is narrowing its target leverage range to 1.5 to 2.5 times net debt to EBITDA, a reduction from the previous range of 2.0 to 3.5 times [15][57] - The company plans to increase its dividend by 10% in 2024 and continue its share repurchase program [17][59] - The digital transformation initiative is expected to enhance the company's capabilities and support long-term growth trends [14][21] Management Comments on Operating Environment and Future Outlook - Management acknowledged the uncertain economic backdrop due to the election cycle, easing inflation, and geopolitical issues but remains optimistic about long-term growth opportunities [13][14] - The company expects total revenue growth in 2024 to be between 1% to 4%, with organic sales flat to up 3% [67] Other Important Information - The integration of Anixter has transformed the company, leading to a significant increase in sales and adjusted EBITDA since the acquisition [18][19] - The company is focused on reducing working capital days and improving free cash flow in 2024 [72] Q&A Session Summary Question: Changes in customer behavior and stock and flow business - Management noted a shift in customer behavior with inventory management impacting stock and flow sales, particularly in the utility and broadband sectors [76][78] Question: Impacts of normalization on pricing and order patterns - Management indicated that pricing is normalizing to pre-COVID levels, with expectations for typical order patterns to return in 2024 [80][82] Question: Organizational issues and cash flow performance - Management acknowledged the disappointing cash flow performance, attributing it to a decline in accounts payable driven by lower stock and flow business [84][86] Question: Inventory days compared to peers - Management explained that higher inventory days are due to a greater percentage of project-related business, which involves longer lead times [90] Question: Rationale behind lowering the target debt range - Management expressed confidence in the company's cash generation capabilities and recognized investor feedback for a lower leverage ratio [92] Question: Uses of cash going forward - Management outlined plans for opportunistic share repurchases and emphasized maintaining sufficient cash on the balance sheet for operations [94][96]