WESCO International, Inc. Reports Third Quarter 2012 Results

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News Release:

WESCO International, Inc. Reports Third Quarter EPS Growth of 13%; Eighth Consecutive Quarter of Double Digit EPS Growth

Third quarter results compared to the prior year:

– Earnings per share increased 13% to $1.25

– Operating margins expanded 40 basis points to 6.2%

– Net income increased 18% to $63.4 million

-Free cash flow grew 63% to $67.2 million or 106% of net income

-Net sales increased 4.8% to $1.66 billion

PITTSBURGH, October 18, 2012/PRNewswire/ — WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, today announced its 2012 third quarter results.

 The following are results for the three months ended September 30, 2012 compared to the three months ended September 30, 2011:

•Net sales were $1,656.2 million for the third quarter of 2012, compared to $1,580.4 million for the third quarter of 2011, an increase of 4.8%. Acquisitions positively impacted sales by 4.0%, while one less workday negatively impacted sales by 1.6% and foreign exchange provided a 0.6% negative impact resulting in normalized organic growth of approximately 3.0%. Sequentially, sales decreased 1.0%.

 •Gross profit of $338.8 million, or 20.5% of sales, for the third quarter of 2012 improved 50 basis points compared to $315.7 million, or 20.0% of sales, for the third quarter of 2011.

 •Selling, general & administrative (SG&A) expenses of $225.8 million, or 13.6% of sales, for the third quarter of 2012 improved 10 basis points, compared to $216.2 million, or 13.7% of sales, for the third quarter of 2011.

 •Operating profit was $103.1 million for the current quarter, up 12.3% from $91.8 million for the comparable 2011 quarter. Operating profit as a percentage of sales was 6.2% in 2012, up 40 basis points from 5.8% in 2011.

 •Interest expense for the third quarter of 2012 was $12.7 million, compared to $15.1 million for the third quarter of 2011. Interest expense for the prior year quarter included the write-off of $1.8 million of deferred financing fees as a result of a new revolving credit agreement. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the third quarter of 2012 and 2011 was $1.3 million and $3.5 million, respectively.

•The effective tax rate for the current quarter was 29.9%, compared to 29.7% for the prior year third quarter.

 •Net income of $63.4 million for the current quarter was up 17.7% from $53.9 million for the prior year third quarter.

 •Earnings per diluted share for the third quarter of 2012 were $1.25 per share, based on 50.8 million diluted shares, and was up 12.6% from $1.11 per share in the third quarter of 2011, based on 48.5 million diluted shares. Earnings per diluted share for the prior year third quarter, adjusted for the $1.8 million write-off of deferred financing fees as a result of a new revolving credit agreement, would have been $1.13 per diluted share.

 •Free cash flow for the third quarter of 2012 was $67.2 million, or 106% of net income, compared to $41.2 million for the third quarter of 2011.

 Mr. John J. Engel, WESCO’s Chairman and Chief Executive Officer, stated, “Our third quarter results were solid, reflecting our effective execution and ability to consistently deliver strong earnings growth in a challenging economic environment. We posted our eighth consecutive quarter of double digit EPS growth on a year-over-year basis while sales continued to grow but at a moderated pace. Driven by both gross margin expansion and operating cost leverage, operating margins expanded 40 basis points to reach 6.2%, their highest level since the economic downturn in 2008. In addition, we completed the acquisitions of Trydor Industries and Conney Safety, further expanding our portfolio of products and services. Our free cash flow generation was strong at 106% of net income, and we exited the quarter with a financial leverage ratio of 2.2 following the funding of these acquisitions. Our investments continue to pay off, demonstrating the continued effectiveness and operating leverage of our business model.”

The following results are for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

•Net sales were $4,934.9 million for the first nine months of 2012, compared to $4,536.2 million for the first nine months of 2011. The 8.8% increase in sales includes a 2.9% positive impact from acquisitions and a 0.5% negative impact from foreign exchange rates, resulting in organic sales growth of approximately 6.4%.

•Gross profit of $994.1 million, or 20.1% of sales, for the first nine months of 2012 was up 10 basis points, compared to $908.5 million, or 20.0% of sales, for the first nine months of 2011.

•SG&A expenses of $685.1 million, or 13.9% of sales, for the first nine months of 2012 improved 30 basis points, compared to $644.2 million, or 14.2% of sales, for the first nine months of 2011.

•Operating profit was $282.6 million for the first nine months of 2012, up 17.0% from $241.4 million for the comparable 2011 period. Operating profit as a percentage of sales was 5.7% in 2012, up 40 basis points from 5.3% in 2011.

•Interest expense for the first nine months of 2012 was $33.1 million, compared to $41.6 million for the first nine months of 2011. Interest expense for the nine months ended September 30, 2011 included the write-off of $1.8 million of deferred financing fees as a result of a new revolving credit agreement. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the first nine months of 2012 and 2011 was $0.8 million and $7.2 million, respectively. Non-cash interest for the nine months ended September 30, 2012 included a favorable adjustment of $3.2 million of previously recorded interest related to uncertain tax positions. This adjustment was a result of a favorable Internal Revenue Service appeals settlement in the first quarter of 2012 related to the years 2000 to 2006.

•The effective nine-month tax rate was 29.8% for 2012 compared to 29.2% for 2011.

•Net income of $175.3 million for the first nine months of 2012 was up 23.9% from $141.4 million for the first nine months of 2011.

•Earnings per diluted share for the first nine months of 2012 were up 20.8% to $3.43 per share, based on 51.1 million diluted shares, versus $2.84 per share for the first nine months of 2011, based on 49.8 million diluted shares. Earnings per diluted share for the nine months ending September 30, 2011, adjusted for the $1.8 million write-off of deferred financing fees as a result of a new revolving credit agreement, would have been $2.86 per diluted share. The adjustment of previously recorded interest related to uncertain tax positions in the first quarter of 2012 positively impacted year-to-date 2012 earnings per diluted share by approximately $0.04.

 •Free cash flow for the nine months of 2012 was $170.1 million, or 97% of net income, compared to $47.8 million in the comparable prior year period.

Mr. Engel continued, “Our long term outlook for a multi-year economic recovery is unchanged. At the same time, we remain focused on building on the positive momentum behind our One WESCO strategy, providing customers with the leading products, services, and supply chain solutions they need to meet their global MRO, OEM, and Capital Project requirements. The strength, diversity, and operating leverage of our business position us well to continue delivering solid results throughout this economic cycle.”

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