Wesco reports Q4 net sales down 2% YOY
Wesco International reported fourth quarter net sales down 2% YOY. Its full-year record net sales were up 5% YOY, and organic sales were up 3%.
"Fourth quarter results were below our expectations, capping off a year that was unique in my time as Wesco's CEO," said John Engel, Chairman, president and CEO. "On a full year basis, certain sectors including utility, data center, industrial, security, and network infrastructure continued to grow, while others underperformed including broadband, specific-OEM and construction related sectors.
"As a leading global provider of business-to-business supply chain solutions, Wesco navigated through this mixed economic environment while managing changing customer buying patterns as supply chains healed," Engel said. "I'm proud that our team delivered approximately 5% revenue growth in 2023 following two years of double-digit increases. The fourth quarter was disappointing as our stock and flow sales were below our expectations and we saw delays in certain projects that were anticipated to ship in December.
"Fourth quarter sales declined by 2%, noting the strong 2022 base period with sales up 15%. That said, our quoting and bid levels were very healthy during the fourth quarter, with total backlog stable compared to the end of September," he continued, "The long-term secular growth trends that we have consistently described will continue to provide Wesco with the opportunity to outperform the market and our competition. While we view the general economic conditions in 2024 as favorable, we are mindful of the uncertain backdrop the election cycle, easing inflation, geopolitical upheaval, and short-term borrowing rates may have on demand. Regardless of these near-term impacts, as a market leader, we expect to benefit from our global capabilities, leading scale and expanded portfolio."
Engel added, "Our substantial investment and commitment to our digital transformation are expected to magnify those benefits as we roll out that program over the next 36 months. The substantial cash flow that Wesco generates has supported that investment over the last two years while allowing us to return capital to our shareholders. In 2024, we expect to grow our sales by 1% to 4% as continued growth in several of the markets we serve is partially offset by underperforming sectors. We expect to generate approximately $700 million of free cash flow and I am pleased to announce we plan to increase our common stock dividend by 10% to $1.65 per year while continuing our share repurchase program. Importantly, we are also reducing our long-term targeted financial leverage range to 1.5 to 2.5 times net debt to adjusted EBITDA. I am confident that Wesco will outperform our markets this year, and we are positioned to deliver sales growth and continue toward our long-term EBITDA margin expansion goal."
He concluded, "I want to finish with a brief word about the successful completion of our three-year integration of Anixter. The acquisition of Anixter literally transformed Wesco. This transaction not only established Wesco as the clear leader in several of our business segments, but it also mix-shifted our business to higher growth and higher margin end-markets, reducing our cyclicality and increasing our resilience across all phases of the economic cycle. Looking at our performance metrics since the acquisition underscores the extraordinary performance and commitment of the entire Wesco team. Sales increased 30% and adjusted EBITDA increased 89% versus the 2019 performance of the standalone companies with EBITDA margin expansion of 240 basis points. Since closing the Anixter merger in June 2020 to the end of 2023, total shareholder return was 353% compared to 62% for the S&P 500. Today, Wesco is much more than a traditional distributor. We are a critical partner to both our supplier partners and to our global set of customers. The combination of Wesco and Anixter has created a new paradigm. The digital transformation that we committed to at the time of the acquisition is designed to take that new paradigm and create the Wesco of tomorrow, empowering us to capitalize on the long-term secular trends from which we are uniquely positioned to benefit compared to our competitors."
Following are results for the three months ended December 31, 2023 compared to the three months ended December 31, 2022:
Net sales were $5.5 billion for the fourth quarter of 2023 compared to $5.6 billion for the fourth quarter of 2022, a decrease of 1.5%. Organic sales for the fourth quarter of 2023 declined 2.6%, as the acquisition of Rahi Systems, which closed in November of 2022, and fluctuations in foreign exchange rates positively impacted reported net sales by 0.7% and 0.4%, respectively. The decrease in organic sales reflects volume declines in certain businesses, partially offset by growth in industrial, utility, data center and network infrastructure and price inflation. Backlog at the end of the fourth quarter of 2023 declined by 10% compared to the end of the fourth quarter of 2022. Sequentially, backlog declined by approximately 1% in the quarter.
Cost of goods sold was $4.3 billion for the fourth quarter of 2023 and 2022, and gross profit was $1.2 billion for both periods. As a percentage of net sales, gross profit was 21.4% and 21.9% for the fourth quarter of 2023 and 2022, respectively. The decline in gross profit as a percentage of net sales for the fourth quarter of 2023 primarily reflects lower supplier volume rebates and a shift in sales mix.
Selling, general and administrative ("SG&A") expenses were $810.1 million, or 14.8% of net sales, for the fourth quarter of 2023 compared to $793.1 million, or 14.3% of net sales, for the fourth quarter of 2022. SG&A expenses for the fourth quarter of 2023 and 2022 include merger-related and integration costs of $10.0 million and $15.2 million, respectively. SG&A expenses for the fourth quarter of 2023 also includes $1.3 million of restructuring costs. Adjusted for merger-related and integration costs, and restructuring costs, SG&A expenses were $798.8 million, or 14.6% of net sales, for the fourth quarter of 2023 and $777.8 million, or 14.0% of net sales, for the fourth quarter of 2022. Adjusted SG&A expenses for the fourth quarter of 2023 reflect higher salaries and benefits due to wage inflation, including the impact of the Rahi Systems acquisition, partially offset by the impact of headcount reductions taken at the end of the second quarter of 2023. Increased costs to operate our facilities also contributed to higher SG&A expenses. In addition, digital transformation initiatives contributed to higher expenses in the fourth quarter of 2023, including those related to professional services and consulting fees. These increases were partially offset by the realization of integration cost synergies and a reduction to incentive compensation expense.
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