EUR 850.00 For Business Accounts Only

Morningstar | Wesco's Gross Profit Margin Improvement Initiatives Are Taking Hold.

In 1994, Westinghouse Electrical sold its electrical distribution business, Westinghouse Electric Supply, or Wesco, to a private equity firm. Wesco went public in 1999. Since its separation from Westinghouse, Wesco has used most of its cumulative free cash flow on acquisitions, which have expanded its scale, diversified revenue, and fueled a meaningful portion of the company’s growth. Once squarely focused on construction end markets, Wesco now serves a much broader array of customers across industrial, construction, utility, commercial, institutional, and government markets.Wesco operates in very fragmented markets, but its large scale, global footprint, expansive product portfolio and supplier base, and service offerings differentiate it from smaller local and regional competitors. Service offerings, such as vendor-managed inventory, efficiency assessments, product repairs, and training, generate a meaningful portion of Wesco’s sales and are key components of the firm’s value proposition to customers. Wesco’s size is also an important competitive advantage because the company has the scale to serve large, multinational clients anywhere in the world.Weak industrial end markets and a soft pricing environment contributed to two straight years of declining sales; however, over the coming years, we believe a combination of factors, including normalized industrial demand and pricing, acquisitions, execution of the firm’s One Wesco initiatives, and a continued trend of customers consolidating their spending with larger distributors, will provide ample opportunity for Wesco to gain market share and grow faster than its end markets. The company has taken a significant amount of costs out of the business over the past few years through workforce reductions, branch consolidation, and lean operating initiatives, so as Wesco continues to grow its top line, we expect operating margins will improve as it realizes strong operating leverage. Improving gross profit margin performance due to price increases and internal initiatives should also support better operating margins.