WESCO's Stellar Q4 Performance Sets Stage for Future Growth
WESCO, a leading business-to-business (B2B) distributor of electrical and industrial supplies, has reported impressive quarterly earnings, exceeding market expectations. The company's 2024 fourth-quarter performance was driven by significant growth in its global data center business, which jumped over 70%, along with 20% growth in broadband sales and renewed positive momentum in Electrical Electronics Solutions (EDS).
Chairman, President, and Chief Executive Officer John Engel highlighted the importance of EDS's first quarter of growth since early 2023, stating, "I think it's essential to note that for EDS, this marks our first quarter of growth since early 2023." This positive trend has carried over into January, with preliminary sales per workday adjusted for Mergers and Acquisitions (M&A) up 5% versus the prior year.
WESCO's opportunity pipeline remains at a record level, with a healthy backlog and strong bid activity. On a full-year basis, organic sales were roughly flat with the prior year, while gross margin remained stable, although experiencing some pressure in communications and security solutions as sales ramp to data center customers on project deployments.
Executive Vice President and Chief Financial Officer Dave Schulz emphasized that the company expects to improve CSS margins as it moves through the data center life cycle. He also noted that WESCO's continued focus on effective working capital management yielded strong benefits, generating $268 million of free cash flow in the fourth quarter and driving net working capital intensity down significantly versus the prior year.
For the full year 2024, WESCO delivered record free cash flow of more than $1 billion or 154% of adjusted net income. The company's key developments in 2024 have set it up well for future margin expansion and outgrowth relative to its market and peers.
WESCO made excellent progress on its enterprise-wide digitalization efforts, which are expected to accelerate earnings growth through greater cross-sell opportunities, expand margins through improved pricing and operating cost leverage, and dramatically increase speed to value on the integration of future acquisitions. The company also strengthened its portfolio through divestitures and acquisitions, including the acquisition of Ascent, a premier provider of data center facility management services.
These strategic moves are integral to achieving WESCO's 10-plus percent EBITDA margin goals. In addition, the company reduced its net debt by $431 million in 2024, purchased $425 million of shares, and increased its common dividend 10% after initiating it in 2023.
Looking ahead to 2025, WESCO expects organic sales growth of 2.5% to 6.5% and operating margin expansion as all three business units are expected to deliver profitable growth this year. The company also anticipates generating $600 million to $800 million of free cash flow in 2025 and plans to increase its common stock dividend by 10% again this year, bringing it to $1 per share.
