WESCO International(US:WCC)2020-11-07 22:32Financial Data and Key Metrics Changes - WESCO's third quarter results exceeded expectations across sales, costs, margins, profit, EPS, free cash flow generation, and reduced financial leverage [7][10] - Free cash flow generation was exceptional at over 300% of net income, with net debt reduced by $280 million, and financial leverage decreased to 4.8 times [10][47] - Adjusted diluted EPS for the quarter was $1.66, reflecting strong execution and disciplined cost management [40] Business Line Data and Key Metrics Changes - Electrical and Electronic Systems (EES) segment sales were down 10% year-over-year but up 13% sequentially, with a record backlog [41] - Communications and Security Solutions (CSS) segment sales were down 2% year-over-year but up 10% sequentially, indicating market share gains [43] - Utility and Broadband Solutions (UBS) segment sales were flat sequentially and down 2% year-over-year, with broadband sales up mid-single digits [45] Market Data and Key Metrics Changes - October Workday adjusted sales were down just 3% versus the prior year, with a book-to-bill ratio remaining above 1.0 [9][34] - Construction demand improved, with sales up double digits in North America, reflecting a strong market despite COVID-19 challenges [89] Company Strategy and Development Direction - The company is focused on integrating WESCO and Anixter, with increased synergy targets set at $100 million for year one, $180 million for year two, and $250 million for year three [12][32] - WESCO aims to leverage its expanded global footprint and cross-sell its broader product and services portfolio to drive incremental sales growth [13][24] - The company is evolving into a growth company, well-positioned to lead the digital transformation of its business and industry [26][100] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving significant upside potential and exceeding synergy targets, despite the challenging COVID-driven economic cycle [25][26] - The cultural alignment between WESCO and Anixter is seen as a key driver of initial success in the integration process [11][62] - Management noted that there have been no revenue dissynergies to date, and the integration has exceeded expectations in terms of workforce retention and cultural combination [102] Other Important Information - The company has transitioned to a new reporting structure with three strategic business units: EES, CSS, and UBS, each contributing significantly to overall business performance [15][30] - The company is actively working on divesting its legacy Canadian Utility and Datacom businesses, which represent less than $150 million in revenue [33] Q&A Session Summary Question: Insights on share gains in the combined go-to-market strategy - Management highlighted the complementary nature of the portfolios and the cultural match as key factors driving share gains [58][62] Question: Dynamics behind high free cash flow conversion - Management noted that accruals for expected interest payments are included in the free cash flow statement, impacting the run-rate [66] Question: Corporate overhead and potential for higher synergies - Management acknowledged opportunities for synergies in corporate overhead and indicated that integration teams are targeting higher internal goals [72][73] Question: Factors behind strong gross margin performance - Management indicated that the majority of the $15 million in synergies achieved was related to SG&A, with supply chain benefits still in early realization stages [82][83] Question: Growth in construction despite broader market challenges - Management noted record backlog and sequential sales growth in construction, driven by specific product categories and market dynamics [88][90]