WESCO International, Inc. (WCC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company's raised outlook for 2025, strong data center and broadband growth, and strategic capital allocation suggest a positive sentiment. Despite challenges in the UBS segment and a Q4 free cash flow miss, the optimistic guidance for 2026, including data center and public power recovery, supports a positive outlook. The Q&A section indicates management's confidence in addressing issues and leveraging growth opportunities, further reinforcing the positive sentiment.
Key Financial Performance
Fourth Quarter Sales $6.1 billion, up 10% year-over-year, including 9% organic growth. Growth driven by 6 points of volume and 3 points of price, including 1 point from commodities.
Data Center Sales $1.2 billion in Q4, up approximately 30% year-over-year. Growth driven by strength across hyperscale customer base and AI-enabled data center deployments.
Adjusted EBITDA (Q4) $409 million, up 10% year-over-year. Adjusted EBITDA margin was 6.7% of sales. Increase driven by higher sales.
Adjusted EPS (Q4) $3.40, up 8% year-over-year. Improvement driven by strong operational execution and benefit from preferred stock redemption.
Full Year Sales $23.5 billion, up 8% year-over-year, with organic sales up 9%. Volume contributed 7 points, price contributed 2 points, including 1 point from commodities.
Gross Margin (Full Year) 21.1%, down 50 basis points year-over-year. Decline reflects project and product mix along with public power competitive pressures.
Adjusted EBITDA (Full Year) $1.54 billion, up 2% year-over-year. Adjusted EBITDA margin was 6.5% of sales.
CSS Segment Sales (Q4) Organic sales up 14%, reported sales up 16% year-over-year. Growth driven by data center solutions (up over 30%) and security sales (up low double digits).
CSS Backlog Increased nearly 40% year-over-year, ending at a record level. Growth highlights strength in data center business.
EES Segment Sales (Q4) Reported and organic sales up 9% year-over-year. Growth driven by construction (up low double digits), industrial (up low single digits), and OEM (up mid-teens).
EES Backlog Up 6% year-over-year, reflecting healthy demand across the portfolio.
UBS Segment Sales (Q4) Organic sales up 3% year-over-year. Utility grew mid-single digits, while broadband declined high single digits.
UBS Backlog Increased 23% year-over-year, supported by IOU project activity and improving broadband trends.
Free Cash Flow (Full Year) $54 million. Impacted by higher accounts receivable and inventory build to support growth.
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Operating Highlights
Record Sales: Achieved record sales of $6.1 billion in Q4 2025, up 10% year-over-year, including 9% organic growth.
Data Center Sales: Set another record with $1.2 billion in data center sales, up approximately 30% year-over-year.
Digital Transformation: Advanced digital transformation with deployment of a new tech stack and AI applications, recognized by Fortune with a #10 AI ranking.
Market Share Gains: Continued to outperform the market with strong growth in data centers, electrification, and supply chain resiliency.
Data Center Market: Data center sales grew 50% in 2025, representing 18% of total sales, driven by cloud, AI, and edge computing demand.
Operational Efficiency: Improved operating leverage and margin expansion, with adjusted EBITDA margin at 6.7% in Q4 2025.
Working Capital Management: Net working capital as a percentage of sales remained stable at 20.1%, with plans to reduce it further in 2026.
Leadership Transition: Announced CFO Dave Schulz's retirement in 2026 and appointment of Neel Dev as the new CFO.
Capital Allocation: Focused on debt reduction, share repurchases, and increasing annual dividend by over 10% to $2 per share.
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Risk or Challenges
Public Power Customer Challenges: Continued softness with public power customers due to inventory normalization and competitive pressures, with expectations for sales growth to return only by the end of 2026.
Gross Margin Pressure: Decline in gross margin due to project and product mix, as well as competitive pressures in public power markets.
Interest Expense: Higher interest expense due to the issuance of 2033 notes and a one-time adjustment to interest on taxes payable.
Working Capital Intensity: Higher accounts receivable and inventory levels, leading to increased working capital intensity and lower free cash flow in 2025.
Regulatory and Pricing Uncertainty: Potential impact of future pricing actions, including tariffs, which are not included in the current outlook due to timing uncertainties.
Supply Chain and Labor Challenges: Industry-wide labor shortages and rising project complexity impacting grid services and execution timelines.
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Guidance & Outlook
2026 Sales Growth: Reported sales growth expected to be in the range of 5% to 8%, with organic sales growth between 4% and 7%. This includes approximately 2 to 5 points of volume and 2 points of carryover pricing.
CSS Segment Growth: CSS sales expected to grow high single digits or more, driven by robust data center demand (mid-teens growth expected) and continued healthy demand in security and enterprise network infrastructure.
EES Segment Growth: EES sales projected to grow mid-single digits, supported by construction, industrial, and OEM growth, along with strong project activity.
UBS Segment Growth: UBS sales expected to grow low to mid-single digits, with double-digit growth in grid services and a return to growth in public power customers by the end of 2026.
Adjusted EBITDA Margin: Expected to be in the range of 6.6% to 7%, reflecting progress on operating leverage, gross margin execution, and ongoing investments in technology transformation.
Adjusted EPS: Projected to be in the range of $14.50 to $16.50, representing a growth rate of 20% at the midpoint, driven by improved operating performance.
Free Cash Flow: Expected to be between $500 million and $800 million, supported by working capital growth at approximately half the rate of sales.
Capital Allocation Priorities: Focus on organic investments, debt reduction, share repurchases to offset equity dilution, and selective strategic M&A. Annual common stock dividend to increase by more than 10% to $2 per share.
Data Center Market Outlook: Data center sales expected to grow mid-teens in 2026, driven by cloud, AI, and edge computing demand. WESCO positioned to capture additional share with comprehensive capabilities across the data center lifecycle.
Grid Services Growth: Grid services business expected to grow double digits in 2026, driven by demand for grid modernization and increased power generation, transmission, and distribution spending.
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Shareholder Return Plan
Annual Dividend Increase: The company plans to increase its annual common stock dividend by over 10% to $2 per share.
Share Repurchase Program: The company remains focused on share repurchases to offset the annual equity award dilution.
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Key Q&A
Q:Why does the company describe price increases in terms of the number of increased letters and not include them in the outlook?
A:The company outlines 2026 projections consistently with past practices, not including price increases due to uncertainty about when supplier price increases will impact revenue. They highlight the number of increases to provide context on the inflationary environment. If price increases are accepted by the market, there could be transitory gross margin benefits and better operating leverage. However, past experiences show limited translation of price increase notifications into results, so they are excluded from the outlook.
Q:What is causing the UBS segment's challenges, and is it a solvable issue?
A:The challenges in UBS are driven by public power customers, specifically due to excess inventories and competitive pricing, particularly in transformers. The company expects public power to return to growth by year-end 2026. IOUs are performing well, with three consecutive quarters of growth, and grid services are growing, providing optimism for UBS sales and margin expansion in 2026.
Q:What is the company's guidance for data center growth in 2026, and how does it compare to 2025?
A:The company guides for mid-teens data center growth in 2026, with consistent activity levels by quarter. January 2026 growth was 15% per workday, consistent with Q4 2025. The company does not believe data center sales have peaked and expects continued growth driven by AI-driven data centers and rising capital investments.
Q:Why did the company miss Q4 free cash flow expectations, and what is the free cash flow guidance for 2026?
A:The Q4 free cash flow miss was due to higher receivables and inventory balances. For 2026, the company guides for free cash flow roughly equal to net income, considering organic sales growth of 4%-7% and working capital investments. They aim to improve cash collection and inventory management.
Q:What are the order book trends by end markets, excluding data centers?
A:All three business units grew their backlog in Q4, with CSS up 40%, UBS up 23%, and EES also growing. EES showed strong momentum, with increased sales growth rates and operating cost leverage. The company is optimistic about UBS and EES sales and profit expansion in 2026.
Q:What is the company's outlook for public power and IOUs in 2026?
A:Public power remains challenged due to excess inventory and competitive pricing, with growth expected to return by year-end 2026. IOUs have shown strong momentum, with three consecutive quarters of growth, and are expected to drive UBS performance in 2026. Grid services are also expected to grow double digits in 2026.
Q:What is the company's approach to mega projects in North America?
A:The company is aware of all mega projects and has a rigorous process to manage its opportunity pipeline. They are engaged with customers and see rising demand driven by reshoring and nearshoring. The company expects to benefit from the secular growth trend of infrastructure build-out.
Q:What caused the SG&A increase in Q4 2025, and what is the outlook for 2026?
A:The SG&A increase in Q4 2025 was primarily due to higher incentive compensation compared to the prior year. For 2026, the company expects 30 basis points of margin improvement driven by gross margin expansion and SG&A leverage.
Q:What initiatives are in place to improve working capital in 2026?
A:The company is enhancing digital applications for inventory planning, aligning management incentives to improve accounts receivable, and focusing on better management of inventory and receivables to support organic sales growth.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether the company has peaked on data center sales, providing a general outlook of continued growth without specific details. Additionally, while discussing public power challenges, management did not provide a clear timeline or specific actions to address competitive pricing pressures.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI efficiency
AI ranking
Adviser retirement
CFO Neel
CFO Schulz
CFO experience
CFO responsibility
Day sale
Dev Executive
Directors WESCO
Electrical Electronic
Fortune AI
Fortune company
Full Instructions
IOU sale
Neel CFO
Neel Dev
Neel WESCO
Neel addition
President CFO
President Investor
President Special
Schulz WESCO
Solutions Electrical
Solutions result
Special Adviser
WESCO CFO
WESCO Executive
WESCO Full
digitalization
midterm target
tech stack
world
WCC Transcript
WESCO International, Inc. (WCC) Q4 2025 Earnings Call Transcript
Positive2-10
The company's raised outlook for 2025, strong data center and broadband growth, and strategic capital allocation suggest a positive sentiment. Despite challenges in the UBS segment and a Q4 free cash flow miss, the optimistic guidance for 2026, including data center and public power recovery, supports a positive outlook. The Q&A section indicates management's confidence in addressing issues and leveraging growth opportunities, further reinforcing the positive sentiment.
WESCO International, Inc. (WCC) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary and Q&A indicate strong data center sales growth and a positive outlook for organic sales growth. While there are some concerns about margins and public power softness, the company expects margin expansion and continued growth in key segments. The market strategy and shareholder return plans are also favorable, with cross-selling and digital transformation as growth levers. Overall, the sentiment is positive, with a likelihood of a stock price increase in the short term.
WESCO International, Inc. (WCC) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call summary and Q&A session highlight strong growth in the data center business, robust free cash flow, and positive momentum across various segments despite some margin pressures. Management's optimistic guidance, particularly in the data center and utility businesses, and the strong backlog support a positive outlook. The absence of tariff impacts and strategic focus on capital allocation further bolster confidence. Although UBS faced some challenges, the expected margin improvement and growth in the second half, along with the security market's double-digit growth, suggest a positive stock price movement over the next two weeks.
WESCO International, Inc. (NYSE:WCC) Q1 2025 Earnings Call Transcript
Unknown5-2
The earnings call presents a mixed picture. Despite strong growth in the data center business and positive shareholder return plans, the company faces competitive pressures and economic uncertainties that could impact margins and demand. The Q&A reveals concerns about tariffs and unclear management responses, adding to the uncertainty. Although organic sales growth exceeded expectations, the EPS miss and margin decline temper enthusiasm. Overall, the mixed signals and uncertainties suggest a neutral stock price movement in the short term.
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