Electrical supply company WESCO (NYSE:WCC) beat Wall Street’s revenue expectations in Q4 CY2024, but sales were flat year on year at $5.5 billion. Its non-GAAP profit of $3.16 per share was 1.7% below analysts’ consensus estimates.

Is now the time to buy WESCO? Find out in our full research report.

"We are pleased with our return to sales growth in the fourth quarter sparked by more than 70% growth year-over-year in our global Data Center business, 20% growth in Broadband Solutions, and renewed positive sales momentum in Electrical and Electronic Solutions. This was partially offset by a slowdown with industrial customers and the expected continued weakness in our utility business in the fourth quarter. With that said, our positive momentum has carried into January with preliminary sales per workday, adjusted for M&A, up 5% versus prior year. Our opportunity pipeline remains at a record level, backlog remains healthy and bid activity levels remain very strong. Gross margin was stable on a full-year basis although we experienced some pressure in Communication and Security Solutions as sales ramped to customers on project deployments. Consistent with past practice, we expect to improve margins as we move through the project deployment life cycle in this segment," said John Engel, Chairman, President, and CEO.

Company Overview

Based in Pittsburgh, WESCO (NYSE:WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.

Maintenance and Repair Distributors

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, WESCO grew its sales at an incredible 21.2% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

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 revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, WESCO’s organic revenue averaged 1.4% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, WESCO’s $5.5 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Operating Margin

WESCO was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.4% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, WESCO’s operating margin rose by 2.8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, WESCO generated an operating profit margin of 5.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

WESCO’s EPS grew at a spectacular 17.5% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 21.2% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into WESCO’s earnings to better understand the drivers of its performance. A five-year view shows WESCO has diluted its shareholders, growing its share count by 18%. 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 analyze EPS over a shorter period to see if we are missing a change in the business.

For WESCO, its two-year annual EPS declines of 15.7% mark a reversal from its (seemingly) healthy five-year trend. We hope WESCO can return to earnings growth in the future.

In Q4, WESCO reported EPS at $3.16, up from $2.65 in the same quarter last year. Despite growing year on year, this print slightly 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’s full-year EPS of $11.69 to grow 22.6%.

Key Takeaways from WESCO’s Q4 Results

It was good to see WESCO narrowly top analysts’ organic revenue expectations this quarter, leading to a revenue beat. On the other hand, its EBITDA missed and its EPS fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The areas below expectations seem to be driving the move, and the stock traded down 4.5% to $177 immediately following the results.

Is WESCO an attractive investment opportunity at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.