WESCO International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

WESCO International, Inc. (WCC)

Q2 2012 Earnings Call

July 19, 2012 11:00 am ET

Executives

John J. Engel – Chairman, President and Chief Executive Officer

Kenneth S. Parks – Vice President, Chief Financial Officer

Daniel A. Brailer – Vice President of Investor Relations and Corporate Affairs

Analysts

Jack Stimac – BB&T Capital Markets

Deane Dray – Citi Research

Adam Uhlman – Cleveland Research

Chris Parkinson – Credit Suisse

Ajay Kejriwal – FBR Capital Markets

Steve Tusa – JP Morgan

Tony Kure – KeyBanc

Josh Pokrzywinski – MKM Partners

Sam Darkatsh – Raymond James

David Manthey – Robert W. Baird & Co.

Matt Duncan – Stephens Inc.

Noelle Dilts – Stifel Nicolaus

Steven Fisher – UBS

Ryan Merkel – William Blair

Presentation

Operator

Good morning, and welcome to the WESCO Second Quarter 2012 Earnings Conference Call. (Operator instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator instructions) Please note this event is being recorded.

I would now like to turn the conference over to John Engel. Please go ahead.

Daniel A. Brailer

Good morning. This is Dan Brailer. Good morning, ladies and gentlemen. Thank you for joining us for WESCO International’s conference call to review our second quarter financial results. Participating in the earnings conference call this morning are the following officers: Mr. John Engel, Chairman, President and Chief Executive Officer; and Mr. Ken Parks, Vice President and Chief Financial Officer.

Means to access this conference call via webcast was disclosed in the press release and was posted on our corporate website. Replays of this conference call will be archived and available for seven days.

A supplemental financial presentation has been produced, which provides a summary of our certain financial and end market information to be reviewed in today’s commentary by management. We have filed the supplemental presentation with the Securities and Exchange Commission and posted it on our corporate website.

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. Good morning, everyone. Our second quarter results reflect the continued execution of our One WESCO growth strategy. We delivered another quarter of solid sales and earnings growth while generating good momentum in all of our end markets. We have now posted seven consecutive quarters of EPS growth of 15% or greater on a year over year basis.

In the second quarter, organic sales to customers were up double digits in utility and CIG and were up mid to high single digits in construction and industrial. We saw return to growth in the data communications product category with sales up low single digits, a positive change from the declines we had been experiencing since the middle of last year. Sales momentum was consistent across the quarter with sales per workday up high single digits in April, May and June. Backlog declined 2% sequentially in the quarter, but was up 5% versus year-end 2011 and remains at a healthy level.

Our third quarter is off to a solid start with sales up high single digits, which is consistent with our second quarter results. Consistent execution of our LEAN and margin improvement initiatives continues and has translated into improved operating margins and double digit earnings growth in the second quarter. Free cash flow generation was also strong in the quarter and exceeded 80% in net income. Our investments are clearly paying off. Effective execution of our growth strategy continues and we are pleased with our business results in the first two quarters of 2012.

Earlier this month we completed the acquisitions of Trydor Industries and Conney Safety Products. These two acquisitions strengthen our product and service portfolio and support our One WESCO growth strategy of providing our customers with comprehensive supply chain solutions. Trydor, when combined with Brews Supply, which we acquired nine months ago, provides us with a full range of products and services to address the transmission, substation and distribution network needs for utilities, independent power producers and utility contractors in Canada.

Conney Safety expands our MRO supplier base and enables us to bring additional safety products and services to our customers, particularly our global accounts, utility and integrated supply customers. I’m happy to say that we’ve now completed seven acquisitions since mid-2010.

These seven acquired companies have annualized sales of approximately $580 million as of their respective closing dates. With liquidity increasing to a record level of over $640 million and leverage dropping to 1.9 at the end of the second quarter, 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 opportunities to further expand and strengthen our portfolio.

In summary, as we reach the midyear point of 2012, we’re operating with a stronger and more diverse business—stronger and more diverse in terms of customers in end markets, products and suppliers and geographies. Our long-term outlook remains unchanged. We expect the economy to continue to recover slowly over the next several years. We expect the industrial and utility end markets to continue to grow this year and construction to continue its move through a bottoming process in the second half and well into next year.

We are continuing to invest in our eight growth engines and our six operational excellence initiatives. We have generated strong momentum across our company over the last few years and are focused on executing our One WESCO growth strategy of providing customers with the supply chain solutions they need to meet their global MRO, OEM and capital project requirements.

Read the rest of this transcript for free on seekingalpha.com