WESCO (WCC)

Electrical supply company WESCO (NYSE:WCC) announced better-than-expected revenue in Q1 CY2025, but sales were flat year on year at $5.34 billion. Its non-GAAP profit of $2.21 per share was 4.7% below analysts’ consensus estimates.

Company Overview

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

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.

Competitors in the industrial distribution and supply chain solutions industry include Graybar Electric (NYSE:GRAY), Anixter (NASDAQ:AXE), and HD Supply (NASDAQ:HDS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, WESCO’s sales grew at an incredible 21.1% compounded annual growth rate over the last five years. 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 performance shows its demand has slowed significantly as its revenue was flat over the last two years.

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 that don’t accurately reflect its fundamentals. Over the last two years, WESCO’s organic revenue was flat. 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 $5.34 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

WESCO has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 21.2% gross margin over the last five years. Said differently, WESCO had to pay a chunky $78.77 to its suppliers for every $100 in revenue.

In Q1, WESCO produced a 21.1% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 2.6 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, WESCO generated an operating profit margin of 4.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

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 an astounding 18% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 21.1% 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 17.9%. 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 more recent period because it can provide insight into an emerging theme or development for the business.

For WESCO, its two-year annual EPS declines of 15.3% mark a reversal from its (seemingly) healthy five-year trend. We hope WESCO can return to earnings growth in the future.

In Q1, WESCO reported EPS at $2.21, up from $2.02 in the same quarter last year. Despite growing year on 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’s full-year EPS of $11.88 to grow 19.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

WESCO has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.2%, lousy for an industrials business.

Taking a step back, we can see that WESCO’s margin dropped by 3.4 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

WESCO broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 13.5 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

WESCO historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, WESCO’s ROIC averaged 4 percentage point increases each year. This is a good sign, and we hope the company can continue improving.

WESCO reported $681.6 million of cash and $5.16 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.48 billion of EBITDA over the last 12 months, we view WESCO’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $184.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing WESCO beat analysts’ organic revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed and its EBITDA fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $163.46 immediately following the results.

Updated: June 23, 2025 at 10:48 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in WESCO.

WESCO’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its flat organic revenue disappointed. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its low free cash flow margins give it little breathing room.

WESCO’s P/E ratio based on the next 12 months is 12.8x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $206.83 on the company (compared to the current share price of $181.01).