WESCO International, Inc., Pittsburgh, PA, a provider of MRO products, construction materials, electrical equipment and components, and advanced integrated supply procurement outsourcing services, announced net sales for the third quarter 2005 grew to $1,131 million, an increase of 16% over the $975 million recorded in 2004. Organic growth was 14.8% with acquisition sales accounting for the remainder.
Gross margin for the third quarter 2005 was 18.4% compared to 18.7% for the third quarter 2004, and operating income for the current quarter totaled $47.3 million compared with $40.9 million in the same quarter last year. Depreciation and amortization included in third quarter operating income totaled $3.7 million in 2005 compared to $4.4 million in 2004. Net income in the third quarter 2005 increased by 32% to $25.0 million compared with $19.0 million in 2004. Third quarter financial results include a pre-tax charge of $9.0 million ($6.1 million after-tax) for litigation and settlement costs associated with the resolution of a lawsuit. Diluted earnings per share including litigation related charges were $0.51 per share compared to $0.43 per share in 2004.
Stephen A. Van Oss, Senior Vice President and Chief Financial and Administrative Officer, stated, "Strong sales growth from good demand in our end markets and excellent market development and customer service activities combined to deliver record sales for the quarter. Reported operating income of $47.3 million included the absorption of $9.0 million of litigation and settlement expenses, and despite these costs, operating income was second only to our best ever result of $48.9 million set last quarter. The earnings momentum reflects the Company's ability to effectively manage operating and administrative costs while also addressing rising product costs through the supply chain."
Chairman and CEO, Roy W. Haley, commented, "Our positive earnings momentum reflects great execution by our employees who are excelling at delivering sales growth and better operating performance through a number of marketing, productivity, and expense control programs across our business. We consider sales and operating income per employee to be the most comprehensive measure of operational productivity, and we have again set new record levels in these important performance measures. As a result, we expect that organic growth will continue at a double digit level in the fourth quarter. In addition, our recent acquisitions will contribute to future increases in sales and earnings as we integrate these organizations in our Company."
In September, the Company completed $300 million in new long-term, fixed rate financing consisting of $150 million of 2.625% Convertible Senior Debentures and $150 million of 7.5% Senior Subordinated Debt Securities. The Company will redeem the remaining $200 million of its 9.125% Senior Subordinated Debt Securities at the end of October 2005. Costs associated with the redemption will result in a one-time, after-tax charge of $2.6 million in the fourth quarter.
Mr. Van Oss further commented, "On September 29th we acquired the Carlton- Bates Company, a premier regional distributor of electrical and electronic components with annualized sales of approximately $300 million. This acquisition, combined with WESCO's leading position in the electrical distribution market, provides a unique opportunity to accelerate WESCO's growth in the original equipment manufacturer market. In July, we acquired the assets of Fastec Industrial Corp., a national distributor of fasteners, cabinet hardware, locking and latching devices, with annualized sales of approximately $60 million. As previously reported, we expect these acquisitions to be accretive to earnings in 2005 and 2006 by approximately $0.10 and $0.45, respectively."