WESCO International(US:WCC)2023-05-04 15:47Financial Data and Key Metrics Changes - The company achieved record first-quarter sales, gross margin, adjusted EBITDA margin, and adjusted EPS, with organic sales growth of 11% driven by price and volume increases [12][18] - Adjusted EBITDA increased by 16% year-over-year, with adjusted EBITDA margin reaching a record 7.6% of sales [20][18] - Gross margin was a record 21.9%, up 60 basis points compared to the previous year [17][18] Business Line Data and Key Metrics Changes - EES organic sales were up 4% year-over-year, with adjusted EBITDA of $183 million, down approximately 5% from the prior year [23][24] - CSS business saw a record Q1 with organic sales growth of 13%, and adjusted EBITDA margin of 9%, up 40 basis points year-over-year [26][29] - UBS business recorded an 18% increase in organic sales, with adjusted EBITDA margin of 11.3%, up 160 basis points compared to the prior year [30][31] Market Data and Key Metrics Changes - Backlog was up 21% year-over-year and flat sequentially, indicating strong demand [14] - The company expects reported sales growth in the range of 6% to 9% for 2023, driven by market growth and cross-selling efforts [42][43] Company Strategy and Development Direction - The company is focused on digital transformation and expects strong sales growth and margin expansion to continue [7][54] - The integration of Wesco and Anixter is on track, with cumulative run rate cost synergies expected to reach $315 million by the end of 2023 [34][53] - The company aims to reduce leverage below 2.75 times by year-end, enhancing capital allocation options [8][38] Management's Comments on Operating Environment and Future Outlook - Management remains confident in strong demand levels and backlog, with expectations for continued growth despite some destocking in broadband [58][60] - The company anticipates a transformational year in 2023, with record results expected across various metrics [54][52] - Management highlighted the importance of secular growth trends and infrastructure investments as key drivers for future performance [40][41] Other Important Information - The company expects free cash flow of $600 million to $800 million in 2023, with a focus on debt reduction [38][45] - Adjusted EPS is projected to be between $16.80 to $18.30 for the year [45][52] - The effective tax rate is expected to be around 25% to 26% for the year, lower than previous expectations [49][52] Q&A Session Summary Question: Concerns about channel inventory and destocking - Management noted strong demand levels and a flat backlog, with only broadband experiencing material destocking, which is expected to normalize in the second half [59][60] Question: Expectations for EES and construction markets - Management highlighted strong industrial growth and a solid construction outlook, driven by secular trends and infrastructure spending [66][68] Question: Organic sales growth expectations for 2024 - Management expressed confidence in long-term secular growth trends, indicating that a severe economic downturn would be necessary to impact organic sales growth negatively [76][77] Question: Free cash flow and inventory management - Management anticipates progress on inventory reduction as supply chains normalize, with expectations for improved cash flow in the second half of the year [82][108] Question: SG&A investments and adjustments - Management acknowledged increased SG&A costs, particularly in EES, but expects adjustments to take effect in the second half of the year [84][86]