Wesco International, Inc. · NYSE:WCC
Wesco International — Investor Day (June 2019)
81 slides from Wesco International's investor day presentation, Jun 13, 2019
Slide 1: Investor Day June 13, 2019
Investor Day June 13, 2019 1
Slide 2: Forward Looking Statements
Forward Looking Statements All statements made herein that are not historical facts should be considered as “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may caus
Slide 3: State of WESCO Strategic Overview – John Engel
State of WESCO Strategic Overview John Engel Chairman, President & Chief Executive Officer • Joined WESCO in 2004 • President and CEO since 2009 • Chairman since 2011 • Chief Operating Officer 2004-2009 • Prior Leadership Roles - Perkin Elmer, Inc. - Allied Signal, Inc. - General Electric Co. 3
Slide 4: WESCO Leadership
WESCO Leadership John Engel Chairman, President & Chief Executive Officer Corporate David Schulz Chris Wolf Diane Lazzaris Leadership Senior Vice President & Senior Vice President & Senior Vice President & Chief Financial Officer Chief Human Resources Officer General Counsel Business Unit Juan Picon
Slide 5: Today's Agenda
Today’s Agenda John Engel State of WESCO 1:00 – 1:45pm Chairman, President & CEO Strategic Overview Nelson Squires Canada and International 1:45 – 2:15pm Group VP & General Manager, Canada, Construction End Market International, and Integrated Supply Commercial, Institutional, and Government End Mar
Slide 6: Key Messages
Key Messages • WESCO is focused on driving growth and margin improvement as well as leading industry consolidation • WESCO is differentiated by our extensive product and service offerings that leverage our supplier partnerships and big data to provide complete solutions for our customers • WESCO con
Slide 7: WESCO Overview
WESCO Overview $8.2 billion 70,000 1M 30,000 annual revenue customers products suppliers Sales by 18 End Markets Geography Value Streams countries OEM CIG International 5% 10% 15% Industrial Canada 9,300 Utility 36% 20% MRO Capital employees 16% 40% Projects 50% Construction United States 25 years 2
Slide 8: Our Values Support Our Vision and Mission
Our Values Support Our Vision and Mission WESCO Vision WESCO Mission World-class B2B distribution company focused on Partner with top suppliers and industry experts to transform world-class products, services, and solutions that drive value for branded products and industry-leading service capabilit
Slide 9: What Sets WESCO Apart
What Sets WESCO Apart PRODUCTS 6 RELATIONSHIPS GEOGRAPHIC REACH Large portfolio of over Blue-chip customer and Global footprint one million products supplier base SERVICES & SOLUTIONS 5 EMPLOYEES FINANCIAL POSITION Broad range of more Knowledgeable and Strong balance sheet than 50 service offerings,
Slide 10: We Participate in Large Markets
We Participate in Large Markets Electrical Datacom Controls All other categories MRO Supply $83 $33 $47 $86 billion billion billion billion Total Market Electrical Datacom Power Transmission WESCO Addressable Market Construction $93 $16 $17 and OEM billion billion billion $83 billion Source: Modern
Slide 11: Evolution of WESCO
Evolution of WESCO Diversification and Captive Distribution LBO Spin Out Evolution to Supply Next Chapter Arm of Westinghouse and IPO Chain Solutions 1922 1994 Entered new markets Digitize our Westinghouse Electric Westinghouse Distribution, OEM (2005) business forms Westinghouse Inc. formed with
Slide 12: WESCO's First Two Decades: Strong Performance
WESCO’s First Two Decades: Strong Performance Sales Earnings Per Share Earnings Before Interest Free Cash Flow(1) & Taxes (EBIT) Consistently strong and increasing cash generation $4.82 5% 10% 6% $353M annual $8.2B annual annual $2.3B growth growth growth $4.6B $2.46 $180M $1.2B $3.4B $125M $0.75 19
Slide 13: Future Market Outlook and Trends
Future Market Outlook and Trends • Consolidating industry • Big getting bigger, faster • Margins getting squeezed • War for talent intensifying • Increased customer expectations • Suppliers exploring alternate channels • New entrants getting traction • Digital and B2B eCommerce accelerating …digital
Slide 14: Success in the Future Requires Products, Services, and Data
Success in the Future Requires Products, Services, and Data Historical (table stakes) Additional future requirements Customer and product focused Data-driven solutions and services Digital analytics to predict Relationship driven business customer needs Local players, local prices, Leverage national
Slide 15: WESCO Strategy Has Six Strategic Planks
WESCO Strategy Has Six Strategic Planks 1 2 3 Customer-segment specific digital Build leading Leverage WESCO’s scale and solutions to unlock growth commercial capabilities technology to unlock efficiencies 4 5 6 Technologies to support Strengthen team and Build scale and increase digitizing the busi
Slide 16: Digital Growth Plays
1 Digital Growth Plays Turnkey Digital Mobile Solutions Digital Global WESCO Project Platform for Contractors Accounts Integrated Projects Creating new capabilities to Offering digital applications Providing customers with Expanding our successful capture a larger share of the to contractors to tran
Slide 17: Commercial Excellence
2 Commercial Excellence Sales Force Digitized Customer Merchandising and New Strategic and Transformation and Sales Support Category Management Tactical Pricing Models Leveraging data, tools Driving efficiency and Supply chain solutions Driving better pricing and training to manage effectiveness by
Slide 18: Operational Excellence
3 Operational Excellence Distribution Center and Last Mile WESCO Intelligent Branch Network Delivery Automation Streamlining distribution Optimizing distribution Implementing Lean supply center/branch network to center to branch to chain and Robotic Process improve working capital and customer logis
Slide 19: Strategic Initiatives That Deliver New Capabilities and Support Our Growth
Strategic Initiatives That Deliver New Capabilities and Support Our Growth 4 5 6 Technology Organization, Talent Portfolio and Platform and Culture Strategic M&A Increasing our business Creating a culture of inclusiveness, Building scale and increasing intelligence capabilities and leveraging divers
Slide 20: Plug and Play Accelerator Alliance
Plug and Play Accelerator Alliance • On June 12, 2019, announced an alliance with Silicon Valley-based Plug and Play, a global innovation accelerator platform • WESCO is joining as a founding anchor member in the B2B Sales and Distribution Accelerator • Provides access to a global network of technol
Slide 21: WESCO – Environmental, Social, and Governance
WESCO – Environmental, Social, and Governance Environmental Social Governance • Biennial sustainability report • Annual leadership and • Thoughtfully composed board − Next update in 2019 organization review - Gender and ethnic diversity − Reduce greenhouse gas • Inclusion and diversity - Diverse ski
Slide 22: Looking Forward: WESCO's Next Decade
Looking Forward: WESCO’s Next Decade Sales Over the long-term, we expect to deliver the following results, on average, per year: Acquisitions • Sales growth of 4%+, consisting of: 4% + annual >$12B − 3% market growth growth $8B − 1-2% growth from market outperformance • Earnings per share growth of
Slide 23: Canada, International, Construction and CIG End Markets – Nelson Squires
Canada International Construction and CIG End Markets Nelson Squires Group Vice President & General Manager, Canada, International, and Integrated Supply • Joined WESCO in 2015 • Prior experience - 27 Years with Air Products - U.S. Army • Responsible for - Canada - International - WESCO Integrated S
Slide 24: Canada Overview
Canada Overview 20% of WESCO sales 2018 Canada Sales by End Market CIG 11% Construction Utility 56% 7% $1.7billion (usd) #1 Industrial 27% revenue market position ...leading market position with unmatched coast-to-coast capabilities 24
Slide 25: International Overview
International Overview 5% of WESCO sales 2018 International Sales by End Market Construction WESCO Presence CIG 13% 29% Service Area Utility 2% $0.4 billion (usd) Industrial revenue 55% ...supporting the international needs of our global account and integrated supply customers 25
Slide 26: Canada Landscape
Canada Landscape 2019 provincial and Government infrastructure High capacity LNG development federal elections investments utilization Low unemployment Population and Price of oil and gas Trade / tariffs / immigration / USMCA residential construction ...substantial opportunities both near- and long-
Slide 27: Canada Diversification Strategy
Canada Diversification Strategy Canada Sales (C$) by End Market $2.1 billion 7% 11% 27% Utility $0.8 billion Commercial, Institutional, 2% and Government 6% Industrial 22% 56% Construction 70% 2010 2018 ...business diversified and significantly strengthened since the Great Recession 27
Slide 28: Canada Long-Term Growth Opportunities
Canada Long-Term Growth Opportunities Market Opportunity WESCO Actions (C$ billions, estimated) LNG $60 Participating in pre-development construction Government $50 Leveraging broad product portfolio and Infrastructure construction services Data and Broadband $20 Leveraging national branch infrastru
Slide 29: LNG Canada Growth Opportunity Example
LNG Canada Growth Opportunity Example • LNG Canada export facility in Kitimat, British Columbia • Largest private sector investment in Canadian history • JV between Shell, PETRONAS, PetroChina, Mitsubishi and KOGAS • WESCO participating in early stages of project $C40 billion project (phase I and II
Slide 30: Commercial, Institutional, and Government End Market
Commercial, Institutional, and Government End Market Trends and Opportunities WESCO Differentiators • Demand for data and broadband • Offer complete solutions for IT communications networks and infrastructure • IT security and data center growth • End-to-end LED lighting renovation and 15% • retrofi
Slide 31: Customer Testimonial
Customer Testimonial 31
Slide 32: Construction End Market
Construction End Market Trends and Opportunities WESCO Differentiators • Customer skilled labor shortages • Job site services (kit, cart, store and stage) • Customers demanding more from • Innovative solutions to promote contractor distribution partners efficiencies (trailers and remote 33% • Aging
Slide 33: WESCO Construction Value Proposition
WESCO Construction Value Proposition Focused on Cost and Schedule • Transparency of activity through the construction cycle • Visibility and accountability for all stakeholders • Position product close to the contractors to increase productivity • Differentiate material management by risk to the pro
Slide 34: Job Site Complexity
Job Site Complexity Data Center Lighting Switchgear Kitting / Staging Job Trailer (Consumables) Pre-fabrication Conduit Physical Security Cable KEY Cable Management SERVICES Job Carts PRODUCTS Just-in-Time Delivery …WESCO solutions improve tradecraft productivity, project cost and schedule 36 34
Slide 35: WESCO Integrated Projects
WESCO Integrated Projects Expanding our successful project management system that improves customer job site productivity and enables WESCO branches to operate more efficiently and effectively • Enables standard processes and structure to improve job site productivity and provide a scalable platform
Slide 36: Mobile Solutions for Contractors
Mobile Solutions for Contractors Offering digital applications to contractors to transform their experience and improve their productivity • In-branch experience Supporting the job site Digital self service experience • Inherent strength at EECOL • Extend WESCO’s suite of • Enhance EECOL’s digital c
Slide 37: Summary
Summary • Canada business continues to diversify and capture current / future growth opportunities • Ability to service customers around the world is a competitive differentiator • Broadening our value proposition for customers • Enabling our overall capabilities through digitization 37
Slide 38: United States, Industrial End Market, Global Accounts, Utility – Juan Picon
United States Industrial End Market Global Accounts Utility End Market Juan Picon Group VP and General Manager, United States • Joined WESCO in 2018 • Prior experience - SVP of North American business at General Cable - 19 years with Honeywell • Responsible for - U.S. Business - Global Accounts 38
Slide 39: U.S. Business Overview
U.S. Business Overview 75% of WESCO sales 2018 U.S. Sales by End Market CIG 15% Construction 28% Utility 19% $6.1billion #2 Industrial revenue market position 38% ...a market leader with an extensive national footprint 39
Slide 40: U.S. Landscape
U.S. Landscape Capital Customers seeking Customer expenditure productivity/ skilled labor cycle cost savings shortages Infrastructure Renewable investment energy Tariffs / trade needs mandates ...substantial opportunities over both the near- and long-term 40
Slide 41: U.S. Long-Term Growth Opportunities
U.S. Long-Term Growth Opportunities Market Opportunity WESCO Actions ($ billions, estimated) Infrastructure Delivering value creation solutions to contractors and $245 EPC firms for infrastructure projects, including oil and gas (LNG, refinery, and chemical processing) Utility Grid Reliability Suppo
Slide 42: Lighting Growth Opportunity
Lighting Growth Opportunity U.S. Market Opportunity Recent WESCO Investments WESCO Winning Position • 2015: Aelux Turnkey lighting solutions where we can leverage our footprint $300+ • 2015: Needham national retailer lighting capability • Industrial: global accounts billion • 2019: SLS • CIG: school
Slide 43: SLS Energy Solutions – Integration Update
SLS Energy Solutions – Integration Update • Acquired U.S. and Canadian operations of Sylvania Lighting Solutions from Osram-Sylvania • Final purchase price of $28M • Rebranded SLS Energy Solutions • Customer, supplier and employee reaction has been positive • EBIT-neutral in first year …strengthenin
Slide 44: Industrial End Market
Industrial End Market Trends and Opportunities WESCO Differentiators • Energy efficient solutions • Global accounts • Infrastructure investment • Supply chain services • High capacity utilization rates • Kitting and prefabricated 36% • Automation solutions solutions of WESCO sales • Outsourcing • Po
Slide 45: Global Accounts Overview
Global Accounts Overview Profile Leveraging Digital Solutions-based Selling • ~500 customers across • Digital procurement platform with • SupplyRun solutions U.S./Canada/International technical support − VMI programs • 16 industry verticals, including: • Centralized account management − eStock • Foo
Slide 46: Global Accounts Penetration Opportunities
Global Accounts Penetration Opportunities Summary • “Checkerboard” penetration • Multi-site sales and services business model • Implementation effectiveness • Multi-year contracts • Margin improvement initiatives • Dedicated account management and implementation teams • Advanced digital supply chain
Slide 47: Utility End Market
Utility End Market Market Trends and Opportunities WESCO Differentiators • Scope expansion with existing • Alliance agreements customers • Integrated supply • Outsourcing of supply chain = offerings 16% cost savings and efficiencies • Innovation and cost • Industry consolidation savings solutions of
Slide 48: Customer Testimonial
Customer Testimonial 48
Slide 49: Summary
Summary • Industry leader with numerous long-term growth opportunities • Global Accounts and solutions-based selling is driving differentiation in our end markets • Expanding our services and solutions portfolio to meet the increasing needs of our customers • Increasing our capabilities through digi
Slide 50: Supply Chain and Operations, ESG – Hemant Porwal
Supply Chain and Operations Environmental, Social, and Governance Hemant Porwal Vice President, Global Supply Chain and Operations • Joined WESCO in 2015 • Prior experience - Vice President and Chief Procurement Officer, Sears Holdings Corporation - 13 years with PepsiCo • Responsible for - Global S
Slide 51: Update on Our Initiatives
Update on Our Initiatives • Leveraging our big data and digital technologies/tools to improve margins • Expanding our network and optimizing our operations • Improving on our industry-leading safety performance • Employing sustainable business practices to support customers and communities we serve
Slide 52: WESCO Supply Chain
WESCO Supply Chain INVENTORY OPERATIONS, SAFETY PRICING $1B in Inventory & SUSTAINABILITY 500 Locations 10 DCs SOURCING $6B in Spend TRANSPORTATION SUPPLIERS CUSTOMERS 30K Suppliers 70K Customers ...focused on creating value for our customers 52
Slide 53: Margin Improvement
Margin Improvement Gross Margin • Leveraged transaction data to Branch Command Center drive insights and inform decision making 19.5% • Improved customer price and 19.4% supplier cost analytics 19.2% • Developed Supplier Price 19.1% Increase Notifications (SPIN) 19.0% application • Established branc
Slide 54: Operational Excellence
Operational Excellence Other Technology-Driven Footprint Optimization Last Mile Optimization (Since 2017) Improvement Opportunities • One WESCO Branch • Using software to improve delivery expansions efficiencies - Orlando (2017) - Reduced miles per stop WESCO Intelligent Automation - Denver (2018) -
Slide 55: ESG – Safety Performance
ESG – Safety Performance Industry-leading Safety Record • Expanded safety training to all WESCO OSHA Recordable Incident Rate associates − Office and warehouse 3.6 environments 3.3 − Focused on job-specific hazards • Tripling the number of safety training hours completed 1.3 • Piloting computer visi
Slide 56: ESG – Preview of 2019 Sustainability Report
ESG – Preview of 2019 Sustainability Report Comprehensive safety program: higher PPE standards and improved Safety training for hazard mitigation Helped our customers install more than 323 million kWh of renewable Renewable energy (approximately equal to annual emissions of 48,600 vehicles) Ener
Slide 57: ESG – Our 2022 Sustainability Goals
ESG – Our 2022 Sustainability Goals 8% 3% reduction of greenhouse improvement in the fuel gas emissions intensity efficiency of our fleet 10% 10% reduction in facility reduction in landfilled energy intensity waste intensity ...are based on continuous improvement 57
Slide 58: Customer Testimonial
Customer Testimonial 58
Slide 59: Summary
Summary • Taking actions within the organization to leverage big data and disruptive technologies • Delivering operational efficiencies that result in improved margins and cash generation • Improving our Environmental, Social, and Governance performance 59
Slide 60: Financial Outlook, Capital Deployment – David Schulz
Financial Outlook Capital Deployment David Schulz Senior Vice President & Chief Financial Officer • Joined WESCO in 2016 • Prior experience - CFO, Armstrong World Industries - 15 years with Procter & Gamble and J.M. Smucker Company - U.S. Marine Corps • Responsible for global finance 60
Slide 61: An Update on Our Commitments
An Update on Our Commitments 2017 Investor Day Commitments Results Drive Above-Market 6% $8.2 billion Sales Growth CAGR 2016 - 2018 record revenue in 2018 Expand Margins +30bps 4 gross margin consecutive quarters of y/y 2H18 vs. 1H18 EBIT margin expansion1 Generate Strong Free Cash Flow $261 million
Slide 62: 2019 Second Quarter To Date
2019 Second Quarter To Date Q2 Outlook • Continued strength in Utility and Canada Sales 3% to 6% • Backlog at May 31 is stable Operating margin 4.5% to 4.8% • Revenues tracking to low end of 2Q Effective tax rate ~ 23% outlook range Note: Outlook provided on May 2, 2019 − Reported sales: • April +6%
Slide 63: Future MRO Revenues Under Agreement
Future MRO Revenues Under Agreement Estimated Revenue of MRO Supply Agreements1 Global Accounts | Integrated Supply | Utility Alliances $2.6B MRO Substantial portion of annual $2.0B 40% MRO revenue is already $1.7B under agreement for balance $1.5B of current and future years 2019 2020 2021 2022 and
Slide 64: Deconstructing Margins Versus WESCO Average
Deconstructing Margins Versus WESCO Average Gross Margin Operating Margin Factors Industrial ABOVE AVERAGE Higher proportion of stock sales CIG AVERAGE AVERAGE END MARKET Construction BELOW AVERAGE Higher proportion of direct-ship sales Utility BELOW AVERAGE Higher proportion of direct-ship sales Ca
Slide 65: WESCO Investment Thesis
WESCO Investment Thesis WESCO offers a closed-loop cash generation cycle that generates sufficient free cash to fund investment and return of capital 3% market growth 10%+ EPS growth + 50% gross profit to and 1-2% market + operating profit = outperformance pull through >$300 million cash from operat
Slide 66: Free Cash Flow
Free Cash Flow Cumulative Free Cash Flow Free Cash Flow as % of Last 3 years $671M 112% of net income Adjusted Net Income Last 5 years $1,163M 107% of net income Last 10 years $2,261M 114% of net income Great 300% Recession 250% Industrial 265% Recession 200% 150% 154% 100% 118% 121% 125% 116% 97% 5
Slide 67: Free Cash Flow is the Hallmark of WESCO
Free Cash Flow is the Hallmark of WESCO 5-Year Free Cash Flow as % of Market Capitalization 60% 50% 54% 40% 42% 30% 34% 20% 25% 24% 23% 22% 19% 10% 13% 12% 4% 0% WESCO Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Note: As of June 7, 2019 Source: Factset …best-in-class free
Slide 68: Value Creation Through Capital Deployment
Value Creation Through Capital Deployment Operating Cash Flow Hypothetical Five Year 2014 – 2018 Operating Cash Flow Debt levels now well Debt Retirement Significant cash remaining after within target range ~$400 meeting investment needs and repurchase expectations Optionality ~45-60% Potential uses
Slide 69: Capital Deployment: Share Repurchases
Capital Deployment: Share Repurchases Shares Repurchased Summary 5.4 • Repurchased $25 million in 3Q and 4.2 million $100 million in 4Q 2018 million • Executed a new $150 million Accelerated Share Repurchase transaction in May 2019 – 2.4 million shares received to-date – Receipt of remaining shares
Slide 70: Capital Deployment: Mergers and Acquisitions
Capital Deployment: Mergers and Acquisitions Financial and One of Three Strategic Requirements Requirements 1 2 3 Consolidate Expand Invest Large, core, electrical Adjacent product Digital technologies Higher margins than distributors and service and applications WESCO, net of synergies with categor
Slide 71: Capital Deployment: Debt Retirement
Capital Deployment: Debt Retirement $1.8 billion Net debt $2 billion 4.5x 1,900 Net debt / TTM EBITDA 1,800 37% 1,700 reduction in 1,600 net debt 1,500 1,400 $1.1 billion Net debt 1,300 2.7x 1,200 Net debt / TTM EBITDA 1,100 $1 billion 1,000 2012 2013 2014 2015 2016 2017 2018 ...supports WESCO strat
Slide 72: Putting It All Together
Putting It All Together Sales Acquisitions • WESCO’s growth algorithm delivers 10%+ 4% + EPS growth over the long-term annual growth >$12B • Strong cash flow is a hallmark of WESCO; $8B we expect to generate more than $300 2018 2028 million of operating cash flow per year Earnings Per Share • We hav
Slide 73: Key Messages
Key Messages • WESCO is focused on driving growth and margin improvement as well as leading industry consolidation • WESCO is differentiated by our extensive product and service offerings that leverage our supplier partnerships and big data to provide complete solutions for our customers • WESCO con
Slide 74: Thank you
Thank you 74
Slide 75: Q&A
Q&A 75
Slide 76: Appendix
Appendix INTERNATIONAL, INC.
Slide 77: Glossary of Terms
Glossary of Terms Term Definition Term Definition 5G Fifth-generation Cellular Wireless Technology KPI Key Performance Indicators AI Artificial Intelligence kWh Kilowatt Hour B2B Business-to-Business LBO Leveraged Buyout C$ Canadian Dollar LED Light Emitting Diode CAGR Compound Annual Growth Rate LN
Slide 78: Free Cash Flow and Adjusted Net Income Reconciliation
Free Cash Flow and Adjusted Net Income Reconciliation Twelve Months Ended December 31, ($ millions) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Net cash provided by operating activities 292 127 168 288 315 251 283 300 149 297 Less: capital expenditures (13) (15) (33) (23) (28) (21) (22) (18) (
Slide 79: Gross Margin Reconciliation
Gross Margin Reconciliation Three Months Ended, ($ millions) 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 Net Sales 1,994 2,104 2,067 2,011 1,961 Cost of Goods Sold 1,614 1,704 1,670 1,621 1,579 Gross Profit1 380 400 397 390 382 Gross Margin1 19.1% 19.0% 19.2% 19.4% 19.5% 1 Gross profit is cal
Slide 80: Organic Growth Reconciliation
Organic Growth Reconciliation Twelve Months Ended December 31, Core Less: Less: Organic ($ millions) 2016 2017 Growth Fx Impact Workday Impact Growth Industrial Core Sales 2,655 2,865 7.9% 0.3% (0.4)% 8.0% Construction Core Sales 2,488 2,537 2.0% 0.7% (0.4)% 1.7% Utility Core Sales 1,163 1,188 2.1%
Slide 81: Net Debt and Leverage Reconciliation
Net Debt and Leverage Reconciliation Twelve Months Ended December 31, ($ millions) 2012 2018 Adjusted income from operations1 369 353 Depreciation and amortization 38 63 Adjusted EBITDA 407 416 Short-term borrowings and current debt 40 56 Long-term debt 1,695 1,167 Debt discount and debt issuance co