A month has gone by since the last earnings report for Wesco International (WCC Quick QuoteWCC - Free Report) . Shares have lost about 19.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wesco International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

WESCO Q4 Earnings & Revenues Miss Estimates

WESCO International reported fourth-quarter 2019 adjusted earnings of $1.32 per share, reflecting an improvement of 4.5% year over year. However, the bottom line missed the Zacks Consensus Estimate by 0.7%.

Net sales of $2.099 billion improved 4.4% year over year. The top line was driven by the company’s solid momentum across all end-markets, especially, utility and CIG markets.

Further, the company witnessed improved performance in the United States where sales were up 4% from the year-ago quarter. In Canada, sales were up 2% year over year. Further, international sales were up 13% from the year-ago quarter.

Additionally, acquisition benefits, which contributed 0.8%, drove sales. The company’s organic sales in the reported quarter improved 3.9% from the prior-year quarter.

However, headwinds related to foreign exchange fluctuations impacted fourth-quarter net sales by 0.3%. Moreover, the figure lagged the Zacks Consensus Estimate of $2.103 billion.

Nevertheless, the company remains focused toward strategic investments and margin expansion initiatives. Further, WESCO stays confident about its product portfolio strength, value-added services and end-market momentum. These are likely to aid the stock to rebound in the near-term.

Top Line in Detail

WESCO operates in four organized end markets, namely Industrial, Construction, Utility and CIG.

Industrial Market: Sales in this market improved 1.3% from the year-ago quarter, on account of growth of 6% in Canada. Further, international sales were strong in this market. WESCO witnessed strong bidding activity levels across global accounts and integrated supply platforms during the reported quarter. Further, the company’s strong momentum among technology and petrochemical customers led to growth in its global accounts.

However, industrial sales in the United States were down 2% year over year. Moreover, sluggishness in manufacturing demand remained a concern.

Construction Market: Organic sales improved 1.4% year over year, driven by growth of 2% in the United States. Further, increasing international sales in this market remained a major positive.

However, construction sales in Canada were flat on a year-over-year basis. Additionally, the company bore the brunt of shortage of skilled labor, which caused project delays with industrial contractors.

Utility Market: The company witnessed year-over-year sales growth of 9.8% in this market. This was driven by 11% growth in the United States. Expanding scope of services with investor-owned utility, public power and utility contractor customers was a catalyst. Further, integrated supply solutions and rising demand for renewable energy and grid hardening and reliability projects were positives.

However, the company witnessed a decline of 7% in Canada on a year-over-year basis thanks to non-renewal of a contract.

CIG Market: The company witnessed year-over-year improvement of 10.6% in sales in this market, driven by strong performance in Canada and the United States where sales grew 5% and 15%, respectively. This can be attributed to strong performance by supply chain solutions datacenter, security and cloud technology projects. Further, value-added services in retrofit applications, LED lighting renovations, Fiber-to-the-X deployments and broadband build outs were positives.

Operating Details

Gross margin was 18.6% in the reported quarter, which contracted 80 basis points (bps) compared with the year-ago quarter. This was due to unfavorable business mix and hike in supplier prices.

Selling, general and administrative expenses (SG&A) increased 2% on a year-over-year basis.

WESCO’s operating margin came in at 4%, contracting 50 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash & cash equivalents were $150.9 million, up from $138.2 million as of Sep 30, 2019. Long-term debt in fourth-quarter 2019 was $1.26 billion compared with $1.35 billion at the end of previous quarter.

Additionally, WESCO generated $107.7 million of cash from operations in the reported quarter compared with $125.4 million of cash generated at the end of the third quarter.

Free cash flow in the quarter was $93.9 million.

Guidance

For first-quarter 2020, WESCO expects sales between 2% to 5%.

Operating margin is expected between 3.4-3.6%.

For 2020, WESCO expects sales growth between 0% and 4%.

Earnings are now anticipated to be in the range of $5.10-$5.70 per share.

Operating margin is projected between 4.1% to 4.4%.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Wesco International has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Wesco International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.