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Wesco management was fairly positive regarding current business trends during its presentation on Monday. Sales growth has shown good momentum in recent months. From a flat year-over-year result in the first quarter, April sales were up 4% (up 5% adjusted for Canadian holiday) and remained near 5% in May.
Canada drove the improved result, which is now running above 5% growth. The U.S. business was up 3% in the first quarter and 5% in both April and May. Given the trend, management is comfortable with its second-quarter sales guidance for 5%-8% growth versus flat in the first quarter. We and the Street model about 6.5% growth.
Thus far in 2014, Wesco has made significant organizational changes to accelerate One Wesco, drive better execution to maximize investments, and leverage internal talent. The company now has one sales-and-marketing leader across the entire enterprise for an integrated front end. The new structure should drive better results from the One Wesco initiative through 1) marketing leadership, 2) sales management, and 3) product category management at a corporate level. Under this setup, new functions have been created for end-market sales leaders, product category managers, call centers, e-commerce, and supply-chain services.
In a similar fashion, the U.S. business is now operating under a single leader, which should help improve sales and operating efficiencies. The old regional structure has been restructured to fewer larger regions.
Wesco has added industrial MRO and safety to its list of eight key growth engines, replacing government. Wesco has done two acquisitions in the space over the last two years with sales of $165 million, and it has a strong integrated supply offering focused on industrial MRO and supplies. Government remains a priority but is not at the top of the focus list.
Management did not provide details, but at numerous times it mentioned the importance of e-commerce going forward. E-commerce is not expected to be an overnight game-changer, but it will be an important capability for the business over the next 10-plus years.
We are buyers of shares at current levels with a reasonable valuation and the chance for 2015 numbers to move materially higher. Wesco remains a favorite name to play U.S. nonresidential construction, which finally appears to be gaining momentum.