Wesco 2Q Sales Growth Slows to 5% on Weaker EES Segment - Modern Distribution Management

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Wesco 2Q Sales Growth Slows to 5% on Weaker EES Segment

Wesco reported record second-quarter sales thanks to growth in two segments which offset a quarterly drop in its electrical business unit.
Wesco 1

Pittsburgh-based electrical distributor Wesco International reported record second-quarter sales of $5.7 billion, thanks to record sales growth in its Communications & Security Solutions (CSS) and Utility & Broadband Solutions (UBS) segments which offset a quarterly drop in the Electrical & Electronic Solutions (EES) business.

In an Aug. 3 news release, Wesco officials attributed weak sales (a 5.6% decrease compared to 2Q 2022) in the EES business to supply chain rebalancing in the electrical industry and weaknesses in certain sectors including commercial construction and manufactured structures.

“Lead times for most product categories have returned to 2019 levels,” Chairman, President and CEO John Engel said. “The extraordinary supply chain disruptions and customer purchase patterns driven by the pandemic over the last few years are now correcting with the rapid reduction in supplier lead times.  Against these supply chain rebalancing conditions, our gross margins remain healthy and stable.  While economic conditions remain positive, we did see pockets of underperformance in certain end markets served by our EES business.”

To address this “supply chain rebalancing,” Engel said the company has make a set of actions in June to reduce annualized costs in the ESS business by $25 million. But the weakness in the business unit has driven Wesco to update its net sales growth in 2023 from 6%-9% to 5%-7%.

Wesco 2Q 2023 Financials

The company’s 2Q net sales were up 5% year-over-year, but down from a 12% increase in 1Q. During the second quarter, Engel said the company reduced its inventories and paid down debt.

  • Net sales were $5.7 billion for 2Q 2023 compared to $5.5 billion for the 2Q 2022, an increase of 4.8%, reflecting price inflation, volume growth and an improving supply chain
  • Organic sales grew by 2.8% as the acquisition of Rahi Systems positively impacted reported net sales by 2.7%
  • Gross margin of 21.6% was down 10 basis points year-over-year
  • Operating profit was $363.8 million compared to $370.7 million in 2Q 2022, a decrease of $6.9 million, or 1.9
  • Adjusted EBITDA of $442 million was flat year-over-year on margin of 7.7%
  • Earnings per diluted share was $3.41, based on 52.4 million diluted shares, compared to $3.95 for 2Q 2022, based on 52.2 million diluted shares
  • Looking ahead, Wesco now expects full-year 2023 sales growth of 5% to 7%, down from the company’s previous 6% to 9% outlook, which it said is primarily driven by market weakness in certain sectors of its EES business unit. Likewise, EBITDA margins are now forecast for a range of 7.8% to 8.0% vs. a previous 8.1% to 8.4%.

By Business Segment in 2Q

  • EES reported net sales of $2,200.3 million compared to $2,330.1 million for 2Q 2022, a decrease of 5.6%.
  • CSS reported net sales of $1,850.9 million compared to $1,602.0 million for 2Q 2022, an increase of 15.5%.
  • UBS reported net sales of $1,694.3 million compared to $1,551.4 million for 2Q 2022, an increase of 9.2%.

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