Digging into Anixter

Given that Anixter has been in the consciousness of many in the industry lately due to WESCO’s successful acquisition bid, thought it may be informative to take a deeper dive into Anixter’s recent Q4 / end of year report.

Some insights from Anixter’s 8-K and their slide presentation

• Record Q4 sales of $2.3 billion with organic sales up 6.5% (faster growth rate than WESCO’s Q4)
  • Full year growth was 5.6% to $8.8 billion
• Gross margin increased by 15 basis points to 20.4% (higher than WESCO’s gross margin)
  • GP$ increased 7.1%
  • Gross margin has increased for 5 consecutive quarters
• Segment analysis
  • Network & Security Solutions (NSS) was up 8%, organically, for the quarter and for the year
    • NSS represents 44% of sales for Q4, 53% for the year
  • Electrical & Electronic Solutions (ESS) was up 5%, organically.  EES was up only 1.8% for the year.
    • EES represents only 27% of sales for the quarter and year. 
  • Utility Power Solutions, (UPS) was up 4.4% organically.  UPS was up 5.4% for the year.
    • The UPS group represents 20% of sales for the quarter and year. U
• Geographic Analysis
  • 80% North America and was up 7.8%
  • 13% emerging markets
  • 7% EMEA
• Geographic growth rates
  • North America grew at 6.2%
  • Emerging markets grew at 8.5%
  • EMEA grew at 6.9%
• Outlook
  • Q1 projections of 2-5%
  • 2020 outlook is 1-5% after adjusting for copper
    • Projecting copper at $2.55
• Anixter prides itself on its technical expertise, especially in the NSS space (which represents the growth opportunity for WESCO given overlap areas in ESS and UPS segments)
  • Opportunities exist for billable services as well as accelerated entry into data centers and other data communications / connectivity initiatives as well as building automation and factory automation opportunities.
• NSS driven by global accounts (which complements WESCO’s global accounts program … cross sell and upsell opportunities), “complex integrated supply programs” and growth in the security and professional audio video markets.
  • Company also sells to global integrators and professional audio video projects
  • Other segments covered by NSS include:
    • Data Centers
    • Access Control
    • Network Infrastructure
    • Fire & Life Safety
    • Wireless
    • Video Surveillance

Much of this is additive to WESCO whereas ESS, according to the Anixter 2018 Fact Book, is in automotive wire and cable, control cable, medium-voltage power cable, contractor solutions, electrical supplies and switchgear … all areas that WESCO is currently in.

Further UPS is in fiber to the home, gears / controls and equipment, pole line equipment, wire and cable, MRO and vide surveillance … many, if not all, areas WESCO is already in.  The UPS advantage is expansion of WESCO’s involvement with utilities given that, especially, IOUs are seeking to outsource MRO procurement and the pending, albeit continually delayed grid modernization. Further “Smart Cities” initiatives could benefit WESCO as will future California utility investments due to last year’s wildfires.

Perhaps Anixter is starting to turn the corner.  Even if it isn’t, the parts that have lower growth can be absorbed into WESCO (and could be the basis for the proposed “synergies”) with NSS being the growth engine.  The key will be execution.

Manufacturers who sell products into the NSS group may have the best insight into the opportunities in this segment.  From an electrical distribution viewpoint, Anixter wasn’t much of a player as indicated by ESS only representing 20% of sales.

Digging into Anixter could represent adjacent market opportunities for regional distributors, but it requires talent and investment to deliver the expertise as evidenced by Anixter’s investment into its services’ offerings.