WESCO’s bullish on acquisitions

Posted by tED magazine on Monday, February 13, 2012

By Joe Salimando

WESCO’s Q4/2011 conference call with analysts took place 1/26. A 10,000-word transcript posted to SeekingAlpha.com; roughly 77% is Q&A.

From a 1/25 intraday low of $57.71 to a Fri. 2/10 close of $64.36, WESCO’s stock rose 11.5% – vs. 2.7% for the S&P 500.

2012 Outlook

Richard Heyse, the VP/CFO who left the company Feb. 3, outlined the company’s outlook:

Full-year 2012 – revenue growth of 7% to 11%, with at least 200 basis points (2%) from acquisitions. 

Q1/2012 – 6% to 9% “organic” sales growth (in August, the company put Q1 at 5% to 8%).

Gross margin expansion “will continue to be a priority.”

Acquisitions

WESCO posts “supplemental” slides (to its website) each quarter. Here’s one that might be important:

If this slide could talk, it would say: “We could leverage our balance sheet out to 3.5x. Right now it’s on the low end. SO: We’re willing to borrow more – for acquisitions – right now!!!”

John J. Engel, chairman, president & CEO, backed that up in actual words:

“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.”

Engel also said this – in answer to a question:

“In virtually all cases they [the companies already acquired] kind of expanded our product and service portfolio or expanded supply relationships. And, in the case of Brews Supply, it gave us some real nice strength in Canada in some end markets that we were not as strong in i.e., particularly utility.

“ . . . the TVC acquisition, I think was very strategic in terms of building up $1 billion plus communications a kind of run rate for data and broadband.

“So, I think as we enter 2012, we remain as bullish as we have been on the acquisition opportunities.”

Also beneath the kimono…

Other WESCO tidbits:

Lighting – Q4 up 9%; full-year 2011, up 13% to 14%.

DOE Smart Grid programs – “we’re just north of the 50% mark” of what DoE allocated.

Manufacturing – “Selectively, a few customers – we won't call out any specific industries have – are seriously considering some reshoring activity.”

Pricing – from Heyse: “…there is still too much capacity versus demand. What do I mean by that? There (are) still many, many contractors and distributors in the market that are kind of just hanging on…

“Because (this) is not a resi-lead recovery, they’re trying to bid on projects in commercial and non-resi (and) in other areas where they haven’t necessarily played in the past.

“That spikes up the competitive intensity that spikes up the pricing intensity.”