What WESCO’s $1 Billion Commitment Means

Last week WESCO’s board of directors announced a $1 billion stock repurchase authorization. This exceeds the two prior authorizations of $400 million, which expired in 2020, and $300 million initiated in 2017.

According to the press release,

“Wesco International (NYSE: WCC) today announced that its board of directors approved a new $1 billion share repurchase program. The Company expects to repurchase common and preferred shares from time to time subject to the company’s repurchase program limit, its capital plan, market conditions and other factors, including regulatory restrictions and required approvals, if any.

John Engel, Wesco’s Chairman, President and CEO, said, “The new share repurchase authorization of up to $1 billion demonstrates continued confidence in our long-term growth outlook and our ability to consistently generate strong free cash flow. Following our transformational combination with Anixter in June of 2020, we have deployed cash to support the growth of our business and the integration of Anixter while rapidly deleveraging our balance sheet. Now that we expect to be within our target leverage range during the second quarter, we are adding another important tool to opportunistically drive further shareholder value.”

The Company may utilize various methods to effect repurchases of its shares under the repurchase program, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be affected through Rule 10b5-1 plans. The share repurchase program does not obligate Wesco to acquire a specific dollar amount or number of shares and may be extended, modified, or discontinued at any time.”

Reading Between WESCO’s Lines

In “reading between the lines”, this announcement, and an evaluation of WESCO financials, says:

• WESCO has deleveraged its business from the Anixter acquisition much faster than they originally projected. A combination of integration synergies, internal performance, and a good economy.
• The company is generating more than enough free cash flow to fund obligations, inclusive of dividends, as well as further investment into the business and potential acquisitions. According to an analyst, WESCO have about a $600 million targeted free-cash-flow run rate.
• Some areas where WESCO will probably continue to invest, on the electrical side, include lighting, eCommerce (from a holistic viewpoint, not solely an online presence), marketing to drive brand preference, sales tools / resources for account penetration, profit optimization tools, renewables (and all the segments that can mean) and people. One source shared that the company had 1800 new hire “postings” across its various business units.
• It seems to be an announcement that WESCO currently does not envision a large acquisition. Yes, they could go into the market to borrow money but, if they were considering something in the short-term, they probably wouldn’t be making such a sizable commitment of capital to shareholders. Within the traditional electrical space there are limited “big / transformative” opportunities in the US. Something “big” would either mean diversification into a complementary market segment (and there are some that could be considered) or geographic diversification.
  • This doesn’t mean that WESCO won’t be interested in fill-in acquisitions that fit their ”needs”, just means that they could fund it internally or through other means without impacting their balance sheet. And “fill-ins” for WESCO are rarely, if ever, the small distributor as the internal cost to do those deals is high. The deals that they have made (i.e., Hill Country, Needham Electric, and AED were not “small” … although, it would be interesting to see if they would expand their Schneider Electric relationship (Hill Country, AED.)
• Shows that WESCO has confidence in its business model and ability to fund the stock repurchases as the current stock price is not “cheap” (hasn’t dropped like much of the stock market.) WESCO has confidence in its business outlook looking towards the next few years and feels that the current stock price represents “a good buy” (from an investment viewpoint.)
  • Part of this optimism is its focus on IoT/ security/ datacenter/ 5G/ denser fiber as well as grid modernization and the industrial market.

And, perhaps for the broader industry, this is also a positive. Perhaps WESCO’s confidence is also confidence that there are growth opportunities in the electrical industry, as a whole.