Earnings Update: Wesco FY 2024
Wesco’s earnings confirm strong cash flow, data center momentum, and a key EPS-boosting preferred redemption. Here’s my updated take.
The original investment write-up on Wesco (WCC) was our first post of 2025. Since then, the stock has risen 8.6%, closing at $193.32 yesterday. With the company’s latest earnings release, it’s a good time to review results and provide an update to the thesis.
For reference, here’s a link to the original write-up from January 2nd.
Q4 and FY 2024 Results
Wesco reported a decline of 0.6% in FY 2024 comparable (ex-divestiture) sales growth, affected primarily by expected weakness in the Utility segment. However, Q4 sales returned to growth in the fourth quarter of 2.4% YoY driven by data center activity offsetting persistent (and anticipated) Utility weakness.
Sales Drivers
Sales trends continue to diverge between the Communications & Security Solutions (CSS) and Utility & Broadband Solutions (UBS) segments:
CSS: Strong growth in data centers, bolstered by recent acquisitions, with double-digit growth expected again in 2025 and an increasing backlog.
Rahi Systems (2022): Hyperscale solutions
entroCIM (2024): Data center building intelligence software
Ascent (2024): Data center facility management services
UBS: Broadband demand remained strong, but utility sales were down high single digits (HSD) in Q4 due to ongoing purchasing delays and public power weakness. UBS backlog also declined due to new project delays and customer destocking. Management expects utility demand to recover in the second half of 2025.
Overall, management guided for organic growth of 2.5-6.5% in 2025, driven by:
✅ Data centers (double-digit growth expected)
✅ Security, OEM, and industrial
Margins
Gross margin percentage remained stable but EBITDA margin decreased 30bps YoY for the fourth quarter, attributable to business/project mix in CSS (data centers). This should prove to be only a temporary headwind as subsequent years in the data center cycle exhibit greater margins.
Wesco continues executing on margin-accretive acquisitions and divestitures, expected to add up to 200 bps in margin expansion over the next few years. For instance, Wesco divested its lower margin Integrated Supply (WIS) business while acquiring companies such as Ascent that bring in higher margin activity.
Wesco is also investing internally in enterprise-wide digitalization to transform operations that will allow margin expansion, better cross-sell opportunity and improved operating leverage.
Working Capital
Our initial analysis highlighted management’s focus on optimizing working capital, and we’re already seeing progress.
Wesco dropped its net working capital intensity to 19.8% from 21.4% over the course of FY 2024. This bolstered free cash flow due to reduction in Accounts Receivable Days and inventory optimization.
The company also expects to grow NWC at only half the rate of sales growth in 2025 which will drive even lower intensity - and consequently FCF higher.
Free Cash Flow
Despite an 8.4% YTD price increase, Wesco still trades at an LTM FCF yield of 8.2% (excluding working capital changes). In 2025, management guided to FCF range of $600-800 million, implying a FCF yield of 6.3-8.3%.
This strong FCF generation enabled Wesco to:
✔️ Repurchase nearly 5% of its shares in 2024
✔️ Increase its dividend by 10% for 2025, reinforcing its status as a dividend growth stock
Key Takeaways
Earlier this week I posted some comments in the group chat as I listened to the conference call. There were a few notable positive drivers for shares based on the call. Let’s discuss them now as well as how I am investing in the company.