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Electrical supply company WESCO (NYSE:WCC) missed analysts' expectations in Q2 CY2024, with revenue down 4.6% year on year to $5.48 billion. It made a non-GAAP profit of $3.21 per share, down from its profit of $3.71 per share in the same quarter last year.
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WESCO (WCC) Q2 CY2024 Highlights:
- Revenue: $5.48 billion vs analyst estimates of $5.56 billion (1.5% miss)
- EPS (non-GAAP): $3.21 vs analyst expectations of $3.62 (11.3% miss)
- Gross Margin (GAAP): 21.9%, up from 21.6% in the same quarter last year
- Free Cash Flow was -$250.1 million, down from $731.4 million in the previous quarter
- Organic Revenue was flat year on year (2.8% in the same quarter last year)
- Market Capitalization: $8.89 billion
Based in Pittsburgh, WESCO (NYSE:WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.
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Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Luckily, WESCO's sales grew at an incredible 21.8% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. WESCO's recent history shows its demand slowed significantly as its annualized revenue growth of 4.8% over the last two years is well below its five-year trend.
We can better understand the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, WESCO's organic revenue averaged 5.1% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company's core operations (not M&A) drove most of its performance.
This quarter, WESCO missed Wall Street's estimates and reported a rather uninspiring 4.6% year-on-year revenue decline, generating $5.48 billion of revenue. Looking ahead, Wall Street expects sales to grow 2.8% over the next 12 months, an acceleration from this quarter.
Operating MarginWESCO was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.3%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, WESCO's annual operating margin rose by 2.8 percentage points over the last five years, as its sales growth gave it operating leverage
This quarter, WESCO generated an operating profit margin of 5.9%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
WESCO's EPS grew at an astounding 20.2% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 21.8% annualized revenue growth. This tells us non-fundamental factors affected its ultimate earnings.
Diving into WESCO's quality of earnings can give us a better understanding of its performance. A five-year view shows WESCO has diluted its shareholders, growing its share count by 16.2%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For WESCO, its two-year annual EPS declines of 4% show its recent history was to blame for its underperformance over the last five years. We hope WESCO can return to earnings growth in the future.
In Q2, WESCO reported EPS at $3.21, down from $3.71 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects WESCO to grow its earnings. Analysts are projecting its EPS of $12.65 in the last year to climb by 22% to $15.44.
Key Takeaways from WESCO's Q2 Results We struggled to find many strong positives in these results. Its EPS missed and its revenue fell short of Wall Street's estimates. Overall, this was a bad quarter for WESCO. The stock remained flat at $174.95 immediately following the results.
