WESCO International, Inc. Reports Third Quarter 2010 Results

-- Earnings per share of $0.74 compared to $0.79 in the comparable quarter last year which included $0.29 of favorable discrete items

-- Operating margins improved to 4.6%, up 60 basis points versus last year, and up 50 basis points sequentially

-- Consolidated sales of $1.3 billion increased 15% over last year's comparable quarter and 5% sequentially

-- Sales to industrial and construction customers increased 27% and 15%, respectively, over last year's comparable quarter; data communication product category sales up 21%

Oct 21, 2010, 07:00 ET from WESCO International, Inc.

PITTSBURGH, Oct. 21 /PRNewswire-FirstCall/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical and industrial MRO products, construction materials, and advanced integrated supply procurement outsourcing services, today announced its third quarter financial results.

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The following are results for the three months ended September 30, 2010 compared to the three months ended September 30, 2009:

  • Consolidated net sales were $1,324.6 million for the third quarter of 2010, compared to $1,152.4 million for the third quarter of 2009, an increase of 14.9%.  Third quarter 2010 consolidated net sales included a 0.9% positive impact from foreign exchange rates.  Third quarter 2010 sales increased 5.2% compared to the second quarter 2010, which included a 0.2% negative impact from foreign exchange.
  • Gross profit was $257.8 million, or 19.5% of sales, for the third quarter of 2010, compared to $220.9 million, or 19.2% of sales, for the third quarter of 2009.  
  • Sales, general & administrative (SG&A) expenses were $190.6 million, or 14.4% of sales, for the current quarter, compared to $168.3 million, or 14.6% of sales, for the third quarter of 2009.  WESCO's third quarter 2009 SG&A expenses included a net favorable impact of approximately $7.0 million related to temporary cost and discretionary benefit reductions.
  • Operating profit was $61.2 million, or 4.6% of sales, for the current quarter, compared to $46.2 million, or 4.0% of sales, for the comparable 2009 quarter.  After adjusting for the 2009 impact of the temporary cost and discretionary benefit reductions, operating margins improved by approximately 120 basis points.  
  • Total interest expense for the third quarter of 2010 was $13.7 million, compared to $13.6 million for the third quarter of 2009.  Interest expense in the current quarter was comprised of $12.5 million of cash interest expense and $1.2 million of non-cash interest expense.  Interest expense in the comparable prior year quarter was comprised of $10.7 million of cash interest expense and $2.9 million of non-cash interest expense.  
  • The effective tax rate for the current quarter was 29.1%, compared to 15.8% for the prior year quarter. Without the impact of 2009's convertible debenture exchange, the effective tax rate for the third quarter of 2009 would have been 20.3%.
  • Net income for both the current quarter and the prior year comparable quarter was approximately $33.7 million.  The pre-tax gain on 2009's convertible debenture exchange net of related tax effects had a $6.6 million favorable impact on net income in the third quarter of 2009.
  • Diluted earnings per share for the third quarter of 2010 was $0.74 per share, based on 45.5 million shares outstanding, versus $0.79 per share in the third quarter of 2009, based on 42.8 million shares outstanding.  The pre-tax gain on 2009's convertible debenture exchange net of related tax effects had a $0.16 per share favorable impact in the third quarter of 2009.  Temporary cost and discretionary benefit reductions in the third quarter of 2009 contributed $0.13 to reported EPS.
  • Free cash flow for the third quarter of 2010 was $2.6 million, compared to free cash flow of $81.9 million for the third quarter of 2009.  

Mr. John J. Engel, WESCO's Chief Executive Officer, stated, "Our sales and operating margin results improved significantly in the third quarter, and we have positive momentum across our business.  Execution of our growth initiatives yielded double digit sales growth in the industrial and construction end markets and the data communications product category, and our backlog continued to grow.  We delivered strong operating margin expansion this year, increasing from 3.3% in the first quarter to 4.1% in the second quarter and 4.6% in the third quarter, demonstrating the operating leverage in our business model.  We continue to see excellent opportunities to strengthen our portfolio, invest in our growth initiatives and improve our market position through the recovery phase of this cycle."

The following results are for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009:

  • Consolidated net sales were $3,732.3 million for the first nine months of 2010, compared to $3,491.2 million for the first nine months of 2009, an increase of 6.9%.  Consolidated net sales for the first nine months of 2010 included a 1.5% positive impact from foreign exchange rates.
  • Gross profit was $728.2 million, or 19.5% of sales, for the first nine months of 2010, compared to $682.9 million, or 19.6% of sales, for the first nine months of 2009.
  • SG&A expenses were $559.6 million, or 15.0% of sales, for the first nine months of 2010, compared to $525.7 million, or 15.1% of sales, for the first nine months of 2009.  WESCO's SG&A expenses for the first nine months of 2009 included a net favorable impact of approximately $19.0 million related to temporary cost and discretionary benefit reductions.
  • Operating profit was $150.9 million, or 4.0% of sales, for the nine months ended September 30, 2010, compared to $137.3 million, or 3.9% of sales, for the nine months ended September 30, 2009.  After adjusting for the 2009 impact of the temporary cost and discretionary benefit reductions, operating margins improved by approximately 60 basis points.
  • Total interest expense for the nine months ended September 30, 2010 was $41.7 million, compared to $39.9 million for the nine months ended September 30, 2009.  Interest expense for the first nine months of 2010 was comprised of $38.0 million cash interest expense and $3.7 million non-cash interest expense.  Interest expense for the first nine months of 2009 was comprised of $29.3 million cash interest expense and $10.6 million non-cash interest expense.  
  • The effective nine month tax rate was 28.9% for 2010 compared to 22.5% for 2009.  Without the impact of 2009's convertible debenture exchange, the 2009 year to date effective tax rate would have been 24.1%.
  • Net income for the first nine months of 2010 was $80.7 million, compared to $83.4 million for the first nine months of 2009.  The pre-tax gain on 2009's convertible debenture exchange net of related tax effects had a $6.6 million favorable impact on net income in the first nine months of 2009.
  • Diluted earnings per share for the first nine months of 2010 was $1.79 per share, based on 45.2 million shares outstanding, versus $1.95 per share for the first nine months of 2009, based on 42.6 million shares outstanding.  The pre-tax gain on 2009's convertible debenture exchange net of related tax effects had a $0.16 per share favorable impact in the first nine months of 2009.
  • Free cash flow for the first nine months of 2010 was $65.4 million, compared to $280.4 million in the comparable prior year period.

Mr. Engel continued, "The market remains highly competitive with an excellent opportunity for share gain and value creation by strong, well capitalized and innovative companies like WESCO.  We are continuing to invest in our business and our people and remain focused on providing superior customer service, maintaining our efficient cost structure, strengthening our organization and producing improved shareholder returns.  The WESCO team is stepping up to meet the increased demands of our customers, and I would like to thank all our employees for their extra effort and commitment in working together to actively sell and support our entire portfolio of products and services to all customer groups."

Teleconference

WESCO will conduct a teleconference to discuss the third quarter earnings as described in this News Release on Thursday, October 21, 2010, at 11:00 a.m. E.D.T.  The conference call will be broadcast live over the Internet and can be accessed from the Company's website at http://www.wesco.com.  The conference call will be archived on this Internet site for seven days.

WESCO International, Inc. (NYSE: WCC) is a publicly traded Fortune 500 holding company, headquartered in Pittsburgh, Pennsylvania, whose primary operating entity is WESCO Distribution, Inc.  WESCO Distribution is a leading distributor of electrical construction products and electrical and industrial maintenance, repair and operating (MRO) supplies, and is the nation's largest provider of integrated supply services.  2009 annual sales were approximately $4.6 billion.  The Company employs approximately 6,100 people, maintains relationships with over 17,000 suppliers, and serves over 100,000 customers worldwide.  Major markets include commercial and industrial firms, contractors, government agencies, educational institutions, telecommunications businesses and utilities.  WESCO operates seven fully automated distribution centers and approximately 380 full-service branches in North America and select international markets, providing a local presence for area customers and a global network to serve multi-location businesses and multi-national corporations.

The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations.  Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as well as the Company's other reports filed with the Securities and Exchange Commission.

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(dollar amounts in millions, except per share amounts)

(Unaudited)

Three Months

Three Months

Ended

Ended

September 30,

September 30,

2010 

2009 

Net sales

$

1,324.6

$

1,152.4

Cost of goods sold (excluding

1,066.8

80.5

%

931.5

80.8

%

depreciation and amortization below)

Selling, general and administrative expenses

190.6

14.4

%

168.3

14.6

%

Depreciation and amortization

6.0

6.4

Income from operations

61.2

4.6

%

46.2

4.0

%

Interest expense, net

13.7

13.6

Gain on debt exchange

(6.0)

Other income

(1.4)

Income before income taxes

47.5

3.6

%

40.0

3.5

%

Provision for income taxes

13.8

6.3

Net income

$

33.7

2.5

%

$

33.7

2.9

%

Diluted earnings per common share

$

0.74

$

0.79

Weighted average common shares outstanding and common

share equivalents used in computing diluted earnings per

share (in millions)

45.5

42.8

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(dollar amounts in millions, except per share amounts)

(Unaudited)

Nine Months

Nine Months

Ended

Ended

September 30,

September 30,

2010 

2009 

Net sales

$

3,732.3 

$

3,491.2 

Cost of goods sold (excluding

3,004.1 

80.5 

%

2,808.3 

80.4 

%

depreciation and amortization below)

Selling, general and administrative expenses

559.6 

15.0 

%

525.7 

15.1 

%

Depreciation and amortization

17.7 

19.9 

Income from operations

150.9 

4.0 

%

137.3 

3.9 

%

Interest expense, net

41.7 

39.9 

Gain on debt exchange

(6.0)

Other income

(4.3)

(4.1)

Income before income taxes

113.5 

3.0 

%

107.5 

3.1 

%

Provision for income taxes

32.8 

24.1 

Net income

$

80.7 

2.2 

%

$

83.4 

2.4 

%

Diluted earnings per common share

$

1.79 

$

1.95 

Weighted average common shares outstanding and common

share equivalents used in computing diluted earnings per

share (in millions)

45.2 

42.6 

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(dollar amounts in millions)

(Unaudited)

September 30,

December 31,

2010 

2009 

Assets

Current Assets

Cash and cash equivalents

$

103.1

$

112.3

Trade accounts receivable

796.4

635.8

Inventories, net

552.0

507.2

Other current assets

66.3

75.7

Total current assets

1,517.8

1,331.0

Other assets

1,117.5

1,163.2

Total assets

$

2,635.3

$

2,494.2

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable

$

574.9

$

453.1

Current debt

96.7

94.0

Other current liabilities

163.3

133.7

Total current liabilities

834.9

680.8

Long-term debt

483.6

597.9

Other noncurrent liabilities

221.5

219.2

Total liabilities

1,540.0

1,497.9

Stockholders' Equity

Total stockholders' equity

1,095.3

996.3

Total liabilities and stockholders' equity

$

2,635.3

$

2,494.2

WESCO INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollar amounts in millions)

(Unaudited)

Nine Months Ended

Nine Months Ended

September 30, 2010

September 30, 2009

Operating Activities:

Net income

$

80.7

$

83.4

Add back (deduct):

Depreciation and amortization

17.7

19.9

Deferred income tax

(4.6)

5.4

Change in Trade and other receivables, net

(149.6)

148.9

Change in Inventories, net

(40.9)

117.1

Change in Accounts Payable

118.4

(69.7)

Other

53.8

(14.1)

Net cash provided by operating activities

75.5

290.9

Investing Activities:

Capital expenditures

(10.1)

(10.5)

Acquisition payments

(14.3)

(0.2)

Proceeds from sale of subsidiary

40.0

Collection of note receivable

15.0

Other

4.9

1.4

Net cash provided (used) by investing activities

35.5

(9.3)

Financing Activities:

Debt borrowing (repayments), net

(115.5)

(241.3)

Equity activity, net

1.2

0.5

Other

(8.6)

(24.4)

Net cash used by financing activities

(122.9)

(265.2)

Effect of exchange rate changes on cash and cash equivalents

2.7

8.6

Net change in cash and cash equivalents

(9.2)

25.0

Cash and cash equivalents at the beginning of the period

112.3

86.3

Cash and cash equivalents at the end of the period

$

103.1

$

111.3

WESCO INTERNATIONAL, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(dollar amounts in thousands)

(Unaudited)

Twelve Months

Twelve Months

Ended

Ended

September 30,

December 31,

2010 

2009 

Financial Leverage:

Income from operations

$

193,476

$

179,952

Depreciation and amortization

23,803

26,045

EBITDA

$

217,279

$

205,997

September 30,

December 31,

2010

2009

Current Debt

$

96,673

$

93,977

Long-term Debt

483,646

597,869

Debt discount related to convertible

debentures(1)

178,959

182,689

Total Debt including debt discount

$

759,278

$

874,535

Financial leverage ratio

3.5

4.2

Note:  Financial leverage is provided by the Company as an indicator of capital structure position.  Financial

leverage is calculated by dividing total debt, including debt discount, by the trailing twelve months earnings

before interest, taxes, depreciation and amortization (EBITDA).

Three Months

Three Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

September 30,

September 30,

September 30,

September 30,

Free Cash Flow:

2010 

2009 

2010 

2009 

(dollar amounts in millions)

Cash flow provided by operations

$

6.7

$

86.2

$

75.5

$

290.9

Less:  Capital Expenditures

(4.1)

(4.3)

(10.1)

(10.5)

Free Cash Flow

$

2.6

$

81.9

$

65.4

$

280.4

Note:  Free cash flow is provided by the Company as an additional liquidity measure.  Capital expenditures are deducted

from operating flow to determine free cash flow.  Free cash flow is available to provide a source of funds for any of the

Company's financing needs.

(1)The convertible debentures are presented in the consolidated balance sheets in long-term debt net of the unamortized discount.

WESCO INTERNATIONAL, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)

(dollar amounts in millions)

(Unaudited)

Three Months

Three Months

Ended

Ended

Gross Profit:

September 30,

September 30,

2010 

2009 

Net Sales

$

1,324.6

$

1,152.4

Cost of goods sold (excluding depreciation

and amortization)

1,066.8

931.5

Gross profit

$

257.8

$

220.9

Gross margin

19.5%

19.2%

Nine Months

Nine Months

Ended

Ended

Gross Profit:

September 30,

September 30,

2010

2009

Net Sales

$

3,732.3

$

3,491.2

Cost of goods sold (excluding depreciation

and amortization)

3,004.1

2,808.3

Gross profit

$

728.2

$

682.9

Gross margin

19.5%

19.6%

Note:  Gross profit is provided by the Company as an additional financial measure.  Gross profit is calculated

by deducting cost of goods sold, excluding depreciation and amortization, from net sales.  This amount

represents a commonly used financial measure within the distribution industry.  Gross margin is calculated by

dividing gross profit by net sales.

Three Months

Ended

September 30,

Adjusted Operating Profit:

2009 

Income from operations

$

46.2

Less:  Temporary cost reductions

(7.0)

Adjusted operating profit

$

39.2

Net  Sales

$

1,152.4

Adjusted operating profit as a percentage of net sales

3.4%

Note:  Adjusted operating profit is provided by the Company as an additional financial measure to show the

quality of 2010 earnings.  Adjusted operating profit is calculated by deducting the impact of 2009 temporary cost

and discretionary benefit reductions from 2009 income from operations.

WESCO INTERNATIONAL, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)

(dollar amounts in millions)

(Unaudited)

Adjusted

Three Months

Three Months

Adjusted Income Before Taxes,

Ended

Temporary

Gain on

Ended

Net Income and EPS:

September 30,

Cost

Convertible

September 30,

2009 

Reductions

Debt

2009 

Income before taxes

$

40.0

$

7.0

$

6.0

$

27.0

Income tax expense

6.3

1.4

(0.6)

5.5

Net income

$

33.7

$

5.6

$

6.6

$

21.5

Earnings per share

$

0.79

$

0.13

$

0.16

$

0.50

Note:  Adjusted income before taxes is provided by the Company as an additional financial measure to show the

quality of 2010 earnings.  Adjusted income before taxes is calculated by deducting the impact of 2009

temporary cost and discretionary benefit reductions and the gain on the convertible debenture exchange from

2009 reported income before taxes.  Earnings per share is calculated by dividing net income by 42.8 million

shares.

SOURCE WESCO International, Inc.



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