WESCO International, Inc. ( WCC) Q4 2011 Earnings Call January 26, 2012 11:00 am ET Executives Dan Brailer - VP, IR John Engel - Chairman, President & CEO Richard Heyse - VP & CFO Analysts David Manthey – Robert W. Baird Deane Dray - Citi Investment Research Adam Uhlman - Cleveland Research Ajay Kejriwal - FBR Capital Markets Steve Tusa - JPMorgan Matt McCall - BB&T Capital Markets Matt Duncan - Stephens Josh Pokrzywinski - MKM Partners Brandon Verblow - UBS Christopher Glynn - Oppenheimer Ryan Merkel - William Blair Anthony Kure – KeyBanc Noelle Dilts - Stifel Nicolaus Hamzah Mazari - Credit Suisse Presentation Operator
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A supplemental financial presentation has been produced, which provides a summary of certain financial and end market information to be reviewed in today’s commentary by management. We have posted this presentation on our corporate website and filed it with the Securities and Exchange Commission.This conference call may include forward-looking statements and, therefore, actual results may differ materially from expectations. For additional information on WESCO International, please refer to the company’s SEC filings, including the risk factors described therein. The following presentation may also include a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be obtained via WESCO’s website. I would now like to turn the conference call over to John Engel. John Engel Thank you, Dan, and good morning everyone. Our fourth quarter results are strong and close out an excellent year. Organic sales net of acquisitions and foreign exchange grew 15% in the fourth quarter marking the sixth consecutive quarter of double-digit organic sales growth. Notably organic sales to customers in each of our industrial, construction, utility and CIG end markets grew double digits versus prior year. Construction sales in the United States were also up double-digits and grew 16% despite continuing weak construct end market. Sales of our communication products grew approximately 8% quarter versus prior year. For the full year, we delivered record sales of over $6.1 billion, which were up 21% driven by organic sales growth of 14% plus contributions from our telecom, TVC, RECO and Brews acquisition. In addition, we delivered double digit organic sales growth results for the full year in each of our three largest end markets: industrial, construction and utility. Our first quarter 2012 is off to a solid start with double digit organic sales growth continuing in January. Consistent execution of our sales growth and margin improvement initiatives have translated in a strong financial results. For 2011, operating margins were 5.4% and EPS was $3.96, up 120 basis points and 58% respectively versus prior year.
The operating margin expansion was driven by a balanced contribution of gross margin expansion and operating cost leverage. Gross margins were at or above 20% in all four quarters of 2011 highlighting a continued effectiveness of our sales and marketing programs and a positive impact of our margin improvement initiative.These results achieve the targets we outlined in our Investor Day in August of last year. Our investments are clearly paying off. Effective execution of our growth strategy continues and we are pleased with the positive momentum and improved profitability of our business in 2011. I am very proud of the extra effort and results delivered by our One WESCO team of associates around the world and I would like to thank them for their dedication and commitment in serving our customers. On January 4th, we completed the acquisition of RS Electronics, our fifth acquisition over the last 18 months. These five acquired companies had annualized sales of approximately $450 million as of their respective closing dates. With liquidity increasing to over $500 million and leverage dropping 2.3 to start the year, we have the capacity and financial flexibility to continue to fund our strategy of above-market organic growth plus accretive acquisitions. Our acquisition pipeline remains robust and we see excellent opportunity for acquisitions to further strengthen our portfolio. In summary, we enter 2012 with a stronger and more diverse business with respect to customers in end markets, products and suppliers and geography. The strength, diversity and operating leverage of our enterprise position us well in our global markets. We are continuing to invest in our eight growth engines and our six margin and productivity initiatives. Our long term outlook remains unchanged. We expect the economy to continue to recover slowly over the next several years. Our 2012 target of 7% to 11% top-line growth, sales growth, including a 2 to 3 percentage point contribution from acquisition and 20% to 25% annual net income growth remain intact. We are focused on building on the positive momentum across WESCO as we continue to execute our One WESCO growth strategy from 2012, and I'm very confident in our team's ability to produce excellent results again this year. Read the rest of this transcript for free on seekingalpha.com