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Why Is WESCO (WCC) Up 1.7% Since the Last Earnings Report?
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It has been about a month since the last earnings report for WESCO International, Inc. (WCC - Free Report) . Shares have added about 1.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
WESCO reported better-than-expected third-quarter 2017 results surpassing the Zacks Consensus Estimate on both counts.
Earnings of $1.12 per share beat the consensus mark by 9 cents, increasing 9.8% sequentially and 6.7% year over year. Revenues came in at $2 billion, beating the Zacks Consensus Estimate by 81 million. The top line was up 4.7% sequentially and 7.8% year over year.
Revenues in Detail
Sequentially, revenues exhibited a growth rate that was within the company’s expected range of 2% to 5%. Organic sales were up 4.8% sequentially and 8.6% year over year. The year-over- year growth was the highest in the last five years. Foreign exchange had a 0.8% positive impact on revenues.
End Market Update
Industrial End Market: WESCO stated that organic sales from the Industrial end market were up 11% year over year driven by 5% sales growth in the United States and 20% growth in Canada in local currency. Sales also grew sequentially driven by growth in OEM, oil and gas, metals and mining and OEM customers.
Construction End Market: The Construction market was up 6% year over year with the United States up 5% and Canada 6% in local currency. The improvement was driven by growth in sales to nonresidential construction and contractor customers.
Utility End Market: Organic sales to the Utilities market were up 9%. Strong performance across both customer groups — investor-owned utilities and public power customers — drove this growth.
CIG End Market: Organic sales to the CIG market were up 9% with in the United States growing 5% and Canada up a massive 30% in local currency. Sales were driven by strength across technology customers that include data centers, broadband and cloud technology projects, and growth resulting from LED lighting solutions, fiber-to-the-X deployments, broadband build-outs as well as cyber and physical security for critical infrastructure protection.
Margins
Gross profit was $385.4 million, or 19.3% of sales. Gross margin was up 10 basis points (bps) sequentially but down 40 bps from last year. The decline was mainly due to lower gross margin rate associated with international sales growth.
Operating expenses of $296.1 million were up 4.6% sequentially and 8.7% from the year-ago quarter. Selling, general and administrative expenses were flat sequentially but increased 20 bps year over year as a percentage of sales. Depreciation and amortization expenses decreased slightly sequentially and 10 bps year over year as a percentage of sales. Operating profit of $89.3 million (or 4.5% of sales) was up 10 bps sequentially but down 50 bps from a year ago.
Balance Sheet
Cash and cash equivalents at the end of the third quarter was $94.1 million compared with $87.8 million at the end of the second quarter. Long-term debt was $1.37 billion compared with $1.33 billion in the second quarter. The company generated $81.1 million in cash from operations. Capex was $16 million. It repurchased $50 million worth of shares during the quarter. Free cash flow was 15% of net income.
Guidance
The company expects fourth-quarter sales to be up 5% to 8%. Operating margin is expected within 3.9% to 4.3%. Effective tax rate for the quarter is expected to be roughly 27%.
For 2017, the company raised its sales growth expectations from 1% to 3% to 3% to 4%. Earnings per share are now expected in the range of $3.75 to $3.95 compared with the previous expectation of $3.60 to $3.90. The company continues to expect its free cash flow to be at least 90% of net income.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
At this time, WESCO's stock has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our style scores.
Outlook
The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months
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Why Is WESCO (WCC) Up 1.7% Since the Last Earnings Report?
It has been about a month since the last earnings report for WESCO International, Inc. (WCC - Free Report) . Shares have added about 1.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
WESCO reported better-than-expected third-quarter 2017 results surpassing the Zacks Consensus Estimate on both counts.
Earnings of $1.12 per share beat the consensus mark by 9 cents, increasing 9.8% sequentially and 6.7% year over year. Revenues came in at $2 billion, beating the Zacks Consensus Estimate by 81 million. The top line was up 4.7% sequentially and 7.8% year over year.
Revenues in Detail
Sequentially, revenues exhibited a growth rate that was within the company’s expected range of 2% to 5%. Organic sales were up 4.8% sequentially and 8.6% year over year. The year-over- year growth was the highest in the last five years. Foreign exchange had a 0.8% positive impact on revenues.
End Market Update
Industrial End Market: WESCO stated that organic sales from the Industrial end market were up 11% year over year driven by 5% sales growth in the United States and 20% growth in Canada in local currency. Sales also grew sequentially driven by growth in OEM, oil and gas, metals and mining and OEM customers.
Construction End Market: The Construction market was up 6% year over year with the United States up 5% and Canada 6% in local currency. The improvement was driven by growth in sales to nonresidential construction and contractor customers.
Utility End Market: Organic sales to the Utilities market were up 9%. Strong performance across both customer groups — investor-owned utilities and public power customers — drove this growth.
CIG End Market: Organic sales to the CIG market were up 9% with in the United States growing 5% and Canada up a massive 30% in local currency. Sales were driven by strength across technology customers that include data centers, broadband and cloud technology projects, and growth resulting from LED lighting solutions, fiber-to-the-X deployments, broadband build-outs as well as cyber and physical security for critical infrastructure protection.
Margins
Gross profit was $385.4 million, or 19.3% of sales. Gross margin was up 10 basis points (bps) sequentially but down 40 bps from last year. The decline was mainly due to lower gross margin rate associated with international sales growth.
Operating expenses of $296.1 million were up 4.6% sequentially and 8.7% from the year-ago quarter. Selling, general and administrative expenses were flat sequentially but increased 20 bps year over year as a percentage of sales. Depreciation and amortization expenses decreased slightly sequentially and 10 bps year over year as a percentage of sales. Operating profit of $89.3 million (or 4.5% of sales) was up 10 bps sequentially but down 50 bps from a year ago.
Balance Sheet
Cash and cash equivalents at the end of the third quarter was $94.1 million compared with $87.8 million at the end of the second quarter. Long-term debt was $1.37 billion compared with $1.33 billion in the second quarter. The company generated $81.1 million in cash from operations. Capex was $16 million. It repurchased $50 million worth of shares during the quarter. Free cash flow was 15% of net income.
Guidance
The company expects fourth-quarter sales to be up 5% to 8%. Operating margin is expected within 3.9% to 4.3%. Effective tax rate for the quarter is expected to be roughly 27%.
For 2017, the company raised its sales growth expectations from 1% to 3% to 3% to 4%. Earnings per share are now expected in the range of $3.75 to $3.95 compared with the previous expectation of $3.60 to $3.90. The company continues to expect its free cash flow to be at least 90% of net income.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
WESCO International, Inc. Price and Consensus
WESCO International, Inc. Price and Consensus | WESCO International, Inc. Quote
VGM Scores
At this time, WESCO's stock has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our style scores.
Outlook
The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months