Q2 2025 WESCO International Inc Earnings Call
Operator: Hello, and welcome to Wesco's 2025 second quarter earnings call. I would like to remind you that all lines are in listen-only mode throughout the presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. Please note that this event is being recorded. I will now hand the call over to Scott Gaffner, SVP Investor Relations, to begin. Please go ahead.
Hello and welcome to West Coast 2025. A second quarter earnings call.
I would like to remind you that all lines are in listen-only mode throughout the presentation.
Scott Gaffner: Thank you, and good morning. Before we begin, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and, by their nature, are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today we will be using certain non-GAAP financial measures. Required information about these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On the call this morning, we have John Engel, Wesco's Chairman, President and Chief Executive Officer, and Dave Schulz, Executive Vice President and Chief Financial Officer.
Required information about these measures is available on our webcast slides and in our press release, both of which are posted on our website at westco.com.
Scott Gaffner: Now I'll turn the call over to John.
John Engel: Well, thank you, Scott. Good morning, everyone. Thanks for joining our call today. We're pleased to report that our sales momentum accelerated in the second quarter, and that's building on our strong start to the year. This marks three consecutive quarters of accelerating sales momentum. After growing 6% in Q1, organic sales grew 7% in Q2. Preliminary July sales per workday have accelerated even further and are up approximately 10% year over year. Our second quarter performance was led by 17% organic growth in CSS and 6% organic growth in EES. Setting a new record and a new mark, our total data center sales eclipsed $1 billion, and that's for the entire Wesco enterprise in the second quarter, and they were up 65% versus the prior year. This is a clear indication of our leading value proposition and the enduring secular growth trends of AI-driven data centers.
On the call this morning, we have John Engel West Coast, chairman president and chief executive officer and Dave Schultz Executive Vice President and Chief Financial Officer. Now I'll talk to call over to John
Well, thank you Scott. Good morning everyone. Thanks for joining our call today.
We're pleased to report that our sales momentum accelerated in the second quarter and that's building on our strong start to uh, the to the year.
This marks three consecutive quarters of accelerating sales momentum.
After growing 6% in q1 organic sales grew 7% in Q2.
Preliminary, July sales per work, they have accelerated even further and are up approximately 10% year-over-year.
Performance was led by 17% organic growth and CSS and 6%. Organic growth in EES.
Setting a new record and a new Mark are total data center sales at clipped 1 billion dollars. As for the entire Westco Enterprise in the second quarter and they were up 65% versus the prior year.
John Engel: Utility, as expected, had declining sales in the first half but has begun to show signs of improvement as sales to investor-owned utilities return to growth in the second quarter. We continue to expect to return to growth in utility in the second half of the year. So all in all, we're off to a good start in the first half of 2025. Shifting to profitability, adjusted EBITDA margin was up 90 basis points sequentially as we generated strong operating cost leverage and stable gross margin. And finally, adjusted EPS was up 6% versus the prior year. Turning to our balance sheet and capital allocation priorities. As planned, we completed the redemption of our preferred stock in June. This refinancing strengthens our balance sheet. It also extends our debt maturities, and it significantly improves our earnings and cash flow run rates.
This is a clear indication of our leading value proposition. And the enduring secular growth trends of AI driven data centers.
Utility has expected had declining sales in the first half, but has begun to show signs of improvements as sales to investor-owned utilities return to growth in the second quarter.
We continue to expect the return to growth in the utility in the second half of the year. So, all in all, we're off to a good start in the first half of 2025.
Shifting the profitability, adjusted ebit down, margin was up, 90 basis points, sequentially as we generated strong operating cost, leverage and stable gross margin
And finally, EPS adjusted EPS was up 6% versus the prior year.
John Engel: Following this redemption, we have strong liquidity to support our capital allocation priorities. As you'll recall, and as we outlined at our last Investor Day, after funding our common stock dividend and offsetting equity award dilution through stock repurchases, over 75% of our free cash flow generation is targeted to debt reduction, additional stock buybacks, and acquisitions. As we begin the second half of the year, I'm very encouraged by our positive and increasing momentum that we're seeing across our business. Backlog is at record levels, up both year over year and sequentially across all three business units. July, as I mentioned earlier, is off to a very strong start with preliminary sales up approximately 10% versus prior year. Importantly, in July, for this preliminary number, this reflects growth in all three SBUs, and that obviously is including our UBS segment.
Turning to our balance sheet and capital allocation priorities as planned. We completed the Redemption of our preferred stock. Um, in June, this refinancing strengthens our balance sheet. It also extends our debt maturity and a significantly, improves our earnings and cash flow run rates.
Following this Redemption, we have strong liquidity to support our Capital allocation priorities.
As you'll recall. And as we outlined at our last investor day,
After funding our common stock dividend and offsetting equity award dilution through stock repurchases, over 75% of our free cash flow generation is targeted to debt reduction, additional stock buybacks, and acquisitions.
As we begin the second half of the year, I'm very encouraged by our positive and and increasing momentum that we're seeing across our business.
Backlog is at record levels up, both year-over-year and sequentially across all 3 business units.
Approximately 10% versus prior year, importantly.
John Engel: We raised our full-year outlook for organic sales growth based on our positive trajectory while maintaining our EPS range at the midpoint. As always, we remain focused on what we can control, and that's executing our cross-sell initiatives, managing margins to ensure we get operating leverage on our sales growth, and delivering operational improvements enabled by our technology-driven business transformation. As the market leader, we're clearly seeing the growth potential of our Wesco portfolio, and that's supported by the enduring secular growth trends of AI-driven data centers, increased power generation, electrification, automation, and reshoring. All this underpins my confidence that Wesco will continue to outperform our markets this year. Before I turn it over to Dave, I wanted to take a brief moment to thank Bill Geary for his service to Wesco.
In July for this preliminary number. This reflects growth in all 3 spus and that obviously is including our UBS segment.
we raise our full year outlook for organic sales growth based on our positive trajectory while maintaining our EPS range at the midpoints
As always we remain focused on what we can control and that's executing our cross. Sell initiatives managing margins, to ensure we get operating leverage on our sales growth and delivering operational improvements enabled by our technology-driven business transformation.
as the market leader, we're seeing
We're clearly seeing the growth potential of our Westco portfolio and that's supported by the enduring. Secular growth trends of AI driven data, centers, increased power, generation, electrification, Automation, and reassuring.
All this, underpins my confidence that Wesco will continue to outperform our markets this year.
John Engel: Bill ran our CSS business through June and has left Wesco to assume a CEO position at a privately held company. We wish Bill well in his new endeavors and thank him for positioning the business for continued success. In line with our succession management plan and reflective of our deep talent bench, we appointed Dirk Naylor as EVP and GM to run our communications and security solutions business. Dirk is an accomplished and proven leader within Wesco, and he has been instrumental in developing our growing data center business. With that, I'll turn it over to Dave to walk you through our Q2 results and our outlook for the remainder of the year. Dave.
Before I turn it over to Dave, I wanted to take a brief moment to thank bill giri for his service to Wesco.
Bill ran our CSS business through June. And his left, West go to assume a CEO position at a privately held company.
We wish Bill well in his new Endeavors and thank him for positioning a business for continued success.
In line with our s succession management plan.
And reflective of our deep Talent bench. We appointed Durk nailer as EVP and GM to run our Communications and Security Solutions business.
Durk is an accomplished and proven leader within Westco, and he has been instrumental in developing our growing Data Center business.
Dave Schulz: Thank you, John, and good morning, everyone. Turning to page four, organic sales in Q2 were up 7% year over year at the high end of our expectations. This growth was driven by approximately 5.5 points of volume and 1.5 points of price. Reported sales increased 8% with sequential growth of 10%. The strong top-line performance was led by continued momentum in our data center business, which surpassed $1 billion in sales and grew 65% year over year. CSS delivered 17% organic growth, and EES grew 6%. UBS sales declined 4%. Adjusted EBITDA margin was up 90 basis points sequentially on strong operating cost leverage and stable gross margin. Adjusted EBITDA margin was down 60 basis points year over year, driven by gross margin.
With that, I'll turn it over to Dave to walk you through our Q2 results and our outlook for the remainder of the year.
Dave.
Thank you, John, and good morning everyone. Turning to page 4, organic sales and Q2 were up 7% year-over-year at the high end of our expectations.
This growth was driven by 5 and a half points of volume and 1 and a half points of price.
Reported sales increased 8% with sequential growth of 10%.
The strong Topline performance was led by continued momentum in our data center business, which surpassed 1 billion dollars in sales and grew 65% year-over-year.
CSS delivered. 17% organic growth and E's grew 6%.
UBS sales declined 4%.
adjusted ebit do margin was up, 90% sequentially on strong operating cost, leverage and stable gross margin
Dave Schulz: Gross margin was 21.1%, flat sequentially but down 80 basis points year over year due to project and product mix in CSS and EES that started in Q4 of 2024. Adjusted SG&A increased approximately 8% year over year, in line with our expectations, driven by higher employee and facility costs. SG&A as a percentage of sales improved due to operating leverage on our sales growth. Adjusted EPS was $3.39, up 6% from the prior year. I'll walk you through our business unit results, beginning with EES on slide five. In the second quarter, EES reported and organic sales both increased 6% year over year. This improvement in growth was led by strong performance in OEM and construction, along with a return to growth in industrial. Construction grew mid-single digits, supported by strong wire and cable sales tied to data center and infrastructure projects across the US and Canada.
Adjusted ebita margin was down 60 basis points. Year-over-year driven by gross margin gross margin was 21.1% flat sequentially but down 80 basis points year-over-year due to project and product, mix and CSS and E's that started in Q4 of 2024.
Adjusted sgna increased approximately 8% year-over-year in line with our expectations, driven by higher employee and facility costs.
Sgna has a percentage of sales improved due to operating leverage on our sales growth.
Adjusted EPS was 3.39 cents up 6% from the prior year.
I'll walk you through our business unit results. Beginning with EES on slide 5.
In the second quarter, EES reported and organic sales both increased 6% year-over-year.
This Improvement in growth was led by strong performance in OEM and construction, along with a return to growth in industrial.
Dave Schulz: Industrial was up low single digits with improved day-to-day demand in the US and increased large infrastructure project activity in Canada. OEM sales were up double digits. Backlog increased 6% year over year and was up 1% sequentially. We continue to see strong quoting activity and a healthy pipeline of opportunities, particularly in data center and electrification-related projects. Adjusted EBITDA margin for EES was 8.1%, a sequential improvement of 120 basis points, reflecting strong operating leverage on higher sales volume, improved gross margin, and disciplined SG&A management. Adjusted EBITDA margin was down 80 basis points year over year, primarily due to lower gross margin, which declined 100 basis points. This was driven by a higher mix of large, lower margin projects, particularly in wire and cable, as well as competitive pricing pressures discussed last quarter.
Construction Group, mid single digits supported by strong wiring cable sales, tied to Data Center and infrastructure projects across the US and Canada.
Industrial was up low single digits with improved day-to-day demand in the US and increased large infrastructure project activity in Canada.
OEM sales were up double digits.
Backlog increased 6% year-over-year and was up 1% sequentially.
We continue to see strong quoting activity, and a healthy pipeline of opportunities, particularly in Data Center and electrification related projects.
Adjusted. Eva margin for EES was 8.1% for sequential Improvement of 120 basis points.
Reflecting strong operating leverage on higher sales, volume improved gross, margin and disciplined STNA management.
Adjusted Eva margin was down 80 basis, points year-over-year, primarily due to lower gross margin, which declined 100 basis points.
This was driven by a higher mix of large lower margin projects, particularly in wiring cable.
Dave Schulz: Looking ahead, we remain confident in the long-term growth trajectory of EES, supported by secular trends in electrification, data center expansion, and infrastructure modernization. Turning to slide six, in the second quarter, CSS delivered strong performance with organic sales up 17% and reported sales up 19% year over year. This growth was driven by continued strength in Wesco Data Center Solutions, which was up over 60% year over year, fueled by large-scale project activity with hyperscale customers. The Ascent acquisition completed in December of 2024 added about 1.5 points to CSS growth this quarter. Data center sales represented nearly 40% of CSS revenue in Q2, up from approximately 30% in the prior year quarter. Importantly, we have not seen any slowdown in customer demand. Based on discussions with our end-user customers, capital budgets remain intact, and customers are expanding their scope of products and services with Wesco.
Most competitive pricing pressures discussed last quarter.
Looking ahead. We remain confident in the long-term growth trajectory trajectory of EES supported by secular Trends and electrification.
Data center expansion and infrastructure modernization.
Turning to slide 6 in the second quarter, CSS, delivered strong performance with Organic sales up, 17% and reported sales up 19% year-over-year.
Growth was driven by continued strength in Westco data center Solutions.
Which was up over 60% year-over-year fueled by large-scale project activity with hyperscale customers.
The ascent acquisition completed in December of 2024 at about 1 and a half points to CSS growth this quarter.
Data center sales represented, nearly 40% of CSS Revenue in Q2 up from approximately 30% in the prior year quarter.
Importantly, we have not seen any slowdown in customer demand.
Dave Schulz: Security sales were also a positive driver of our CSS results and were up double digits. When including security-related data center sales, the business grew high teens year over year. Enterprise network infrastructure declined high single digits, primarily due to reduced demand from service providers. Enterprise network infrastructure, including sales for Wesco Data Center Solutions projects, grew in the quarter. DSS backlog increased 36% year over year and 11% sequentially, reflecting continued strength in data center project activity and strong order momentum across our global accounts. On profitability, CSS delivered an adjusted EBITDA margin of 8.8%, up 60 basis points year over year and 90 basis points sequentially. This improvement was driven by strong operating leverage on higher sales, partially offset by lower gross margin, which declined 80 basis points year over year due to mix from large hyperscale data center projects.
Based on discussions with our end-user customers Capital budgets, remain intact and customers are expanding their scope of products and services with Westco.
Security sales were also a positive driver of our CSS results and we're up double digits.
when including security related data, center sales, the business grew High Teens year-over-year,
Declines High single digits, primarily due to reduced demand from service providers.
Enterprise Network infrastructure including sales for Westco data center Solutions, projects grew in the quarter.
DSS backlog increased 36% year-over-year and 11% sequentially, reflecting continued, strength, and data center project, activity and strong order momentum across our Global accounts.
On profitability CSS delivered, an adjusted Evita margin of 8.8% up 60 basis. Points year-over-year and 90 basis points sequentially.
Dave Schulz: Turning to slide seven, I want to take a moment to discuss the continued momentum we're seeing in the broader data center space and Wesco's role in that growth. Customers continue to rely on Wesco and our supplier partners to meet their evolving needs, including an expanding portfolio of services we provide across the data center lifecycle. From a total company perspective, data center sales surpassed $1 billion in the quarter. Data center sales represented approximately 18% of Wesco's sales in Q2 2025 and 16% on a trailing 12-month basis, up from 10% TTM through June 2024. This growth was driven by strong performance by CSS in the white space and by EES in the gray space, with CSS representing the majority of the sales contribution. As shown across the top of the slide, we first introduced this framework at our Investor Day last September.
This Improvement was driven by strong operating leverage on higher sales, partially offset by lower gross margin. Which declined, 80 basis points year-over-year due to mix from large hyperscale data center projects.
Turning to slide 7, I want to take a moment to discuss the continued momentum we're seeing in the broader data center space and the West Coast's role in that growth.
Customers continue to rely on Westco and our supplier Partners to meet the evolving needs including and expanding portfolio of services. We provide across the data center life cycle.
From a total company perspective data center sales surpassed 1 billion dollars in the quarter.
Data center sales represented approximately 18% of West Coast sales in Q2 2025 and 16% on a trailing 12-month basis, up from 10%. The trailing 12 months ended in June 2024.
This growth was driven by strong performance by CSS in the whites space and by E EES in the grey space with CSS representing the majority of the sales contribution.
Dave Schulz: It outlines the two key stages of the data center construction cycle: time to power and the construction period. The key takeaway remains: projects announced and funded typically take four to seven years to become operational. Our solutions now span the full spectrum of the data center lifecycle, from power and electrical distribution systems and advanced IT infrastructure to onsite services that support ongoing operations. This ensures we can deliver value throughout every phase of the data center lifecycle. On the lower left side of the slide, you can see the substantial and accelerating growth in our total data center business over the past five quarters. Data center sales on a trailing 12-month basis were approximately $3.5 billion. This growth has been driven by organic initiatives and strategic acquisitions that have expanded our service capabilities.
As shown across the top of the slide, we first introduced this framework at our Investor Day last September.
It outlines the 2 key stages of the data center construction, cycle time to power and the construction period.
The key takeaway remains projects, announced and funded typically take 4 to 7 years to become operational.
Our Solutions. Now span the full spectrum of the data center life cycle from power and electrical distribution systems and advanced IT infrastructure to on-site services that support ongoing operations.
This insurers we can deliver value throughout every phase of the data center life cycle.
On the lower left side of the slide, you can see the substantial and accelerating growth in our total Data Center business, over the past 5 quarters.
Data center sales on a trailing 12-month basis were approximately 3.5 billion dollars.
Dave Schulz: We remain committed to partnering with our suppliers to service our customers from cradle to cradle, supporting everything from initial builds, onsite services, ongoing upgrades, and modernization. Turning to slide eight. In the second quarter, organic and reported sales and UBS declined 4% year over year. As we've discussed since early 2024, the utility market continued to face headwinds from customer destocking and slower project activity, driven in part by the current interest rate and regulatory environment. These dynamics have weighed on both investor-owned and public-powered customers over the past six quarters. Utility sales were expected to be down year over year in Q2 but came in lower than what we thought at the beginning of the quarter. That said, we saw a return to growth in our IOU customer base, which was up low single digits in the quarter.
This growth has been driven by organic initiatives and strategic Acquisitions that have expanded our service capabilities.
We remain committed to partnering with our suppliers to serve our customers from Cradle to cradle.
Supporting everything from initial bills, on-site Services, ongoing upgrades and modernization.
Turning to slide 8.
In the second quarter, organic and reported sales and UBS decline 4% year-over-year.
As we've discussed, since early 2024, the utility Market continued to face headwinds from customer red stocking and slower project activity driven in part by the current interest rate and Regulatory environment.
Power customers over the past, 6 quarters.
Utility sales were expected to be down year-over-year in Q2 but came and lower than what we thought at the beginning of the quarter.
Dave Schulz: We expect this improved momentum to continue, and preliminary July sales for UBS were up slightly, supporting our outlook for a return to overall utility growth in the second half of 2025. Broadband performance remains strong in the quarter, with sales up mid-single digits year over year, reflecting a return to growth in the US and continued growth in Canada. Backlog increased both sequentially and year over year, reflecting improving order rates and new customer wins. Adjusted EBITDA margin for UBS was 10.4%, down 40 basis points sequentially from 10.8% in Q1, and down 160 basis points year over year. We remain highly confident in the long-term growth potential of our utility business, supported by and required for the secular trends of electrification, green energy, and grid modernization. These drivers are expected to accelerate demand for our solutions over the coming years. Turning to page nine.
That said, we saw a return to growth in our IOU, customer base, which was up low. Single digits in the quarter.
We expect this improved momentum to continue and preliminary July sales for UBS. We're up slightly supporting our outlook for a return to overall utility growth in the second half of 2025.
Broadband, performance remains strong in the quarter with sales up mid single digits year-over-year.
To growth in the US and continued growth in Canada.
Backlog increased both sequentially and year-over-year, reflecting improving order rates and new customer wins.
Adjusted, Evita margin for UPS was 10.4%.
Down 40 basis points sequentially from 10.8 in q1 and down 160 basis, points year-over-year.
We remain highly confident in the long-term growth potential of our utility business supported by and required for the secular trends of electrification, green energy and grid modernization.
These drivers are expected to accelerate demand for our Solutions over the coming years.
Dave Schulz: In the second quarter, we delivered $87 million of free cash flow, representing approximately 45% of adjusted net income. On a trailing 12-month basis, we've generated $644 million of free cash flow, representing approximately 96% of adjusted net income. We've had strong accounts payable performance and discipline receivables management throughout the first half of the year. Inventory increased to support customer projects and to ensure supply chain disruptions are limited. On the right side of the page, you can see that networking capital intensity has steadily improved over the past three years. This quarter, we saw a 60 basis point year-over-year improvement, with networking capital intensity declining from 20.5% to 19.9%. That follows a 40 basis point improvement in 2024 over 2023. We remain confident in our ability to drive stronger cash generation in the second half.
Turning the page 9 in the second quarter, we delivered 87 million of free. Cash flow representing approximately 45% of adjusted net income.
On a trailing 12-month basis. We've generated 644 million of free cash flow representing approximately 96% of adjusted. Net income.
We've had strong accounts payable performance and discipline receivables management throughout the first half of the year.
Inventory increase is support customer projects and to ensure supply chain disruptions are limited.
On the right side of the page you can see that networking Capital intensity has steadily improved over the past 3 years.
This quarter, we saw a 60 basis point year-over-year, improvement with networking Capital, intensity declining from 20.5% to 19.9%, that follows a 40 basis, point Improvement in 2024 over 2023.
Dave Schulz: Turning to page ten, we redeemed our $540 million Series A preferred stock in June, the first opportunity to do so at face value. This high-cost instrument carried a 10 and 5/8 dividend rate, and its redemption marked a significant milestone in our capital structure optimization. To fund the redemption, we utilized proceeds from our $800 million issuance of six and three-eighths senior notes due 2033, which we completed earlier in the year. This refinancing action reduced our total financing costs and created a substantial benefit to our net income, EPS, and cash flow run rates. The estimated annualized benefit from this transaction is approximately $32 million or $0.65 per diluted share. Note that you will see in the press release that we recognized a $28 million gain on the redemption, which is not included in our adjusted results.
We remain confident in our ability to drive stronger cash generation in the second half.
Turning to page 10.
We redeemed, our 540 million dollar series, a preferred stock in June the first opportunity to do so. At face value.
This high-cost instrument carried a 10% and 58% dividend rate.
And its Redemption marked a significant milestone in our capital structure optimization.
The fund. The Redemption. We utilize proceeds from our 800 million issuance of 6, and 38 senior notes due to 2033, which we completed earlier in the year.
This refinancing action reduced, our total financing costs and created a substantial benefit to our net income Epps and cash flow run rates.
The estimated annualized benefit from this transaction is approximately 32 million or 65 cents per diluted share.
Dave Schulz: In addition, with the financing completed in the first quarter, we extended the maturities of our accounts receivable facility and revolver to 2028 and 2030, respectively. As a result, we now have no significant debt maturities until 2028, providing enhanced financial flexibility and stability. Turning to page 11. On this slide, we provide an overview of the actions we've taken to manage the potential impacts on our business from the recent tariff announcements. The left side of the chart lists the potential impacts, including supplier price increases. We received a significant number of price increase notifications in the second quarter, with a continuation of increased notifications in the third quarter. Second, the potential for lower customer demand due to higher costs. We continue to monitor overall demand and have not seen any significant demand destruction through the first half of 2025. Third, transitional benefit from inventory gains.
Note that you will see in the press release that we recognize a 28 million gain on the Redemption which is not included in our adjusted results.
In addition to the financing completed in the first quarter, we extended the maturities of our accounts receivable facility and revolver to 2028 and 2030, respectively.
As a result, we now have no significant debt maturities until 2028.
Providing enhanced Financial flexibility and stability.
Turning to page 11.
On this slide, we provide an overview of the actions. We've taken to manage the potential impacts on our business from the recent tariff announcements.
The left side of the chart listed potential impacts including supplier price increases. We received a significant number of price increase notifications in the second quarter, with the continuation of increased notifications in the third quarter.
Second, the potential for lower customer demand due to higher costs.
We continue to monitor overall demand and have not seen any significant demand destruction through the first half of 2025.
Dave Schulz: Inventories valued using average costs, meaning in an inflationary environment, our inventory is below market price. We will see a temporary gain to gross margin, assuming higher supplier price increases are absorbed in the market. Note, this is a temporary benefit as we turn our inventory every two to three months. And lastly, our direct tariff exposure on purchases, for which Wesco is the importer of record into the US and from the US to Canada, represents less than 4% of our cost of goods sold. In response, we took the following actions to mitigate these impacts and protect our margins. We're passing supplier increases through, including our margin. We're working with suppliers so that minimum lead times between announced price increases and effective dates are adhered to according to our standard purchasing terms.
Third transitional benefit from inventory gains.
Inventory is valued using average costs, meaning that in an inflationary environment, our inventory is below market price.
We will see a temporary gain to gross margin. Assuming higher supplier, price increases are absorbed in the market.
note, this is a temporary benefit as we turn our inventory, every 2 to 3 months,
Our direct tariff exposure on purchases for which Wesco is the importer of record into the U.S. and from the U.S. to Canada represents less than 4% of our cost of goods sold.
In response, we took the following actions to mitigate these impacts and protect our margins. We're passing supplier increases through, including our margin.
Dave Schulz: We're leveraging our global scale to identify opportunities to purchase locally sourced products or products less impacted by tariffs, and we're reducing imports from those countries with the highest tariffs. Finally, we're optimizing our supply chain logistics and re-engineering our global supply chains to mitigate risk and manage tariff exposure. I want to provide an update on the tariff environment during the second quarter and what we've seen in July. In the second quarter, the number of price increase notifications was up 300%, with an average price increase announcement of a mid to high single digit rate. Through July, price increase notifications are up 30% in count versus all of Q3 2024, with an average mid-single digit rate increase. This continues to be an evolving and dynamic situation based on the timing of tariff implementation and negotiations.
We're working with suppliers, so that minimum lead times between announced price increases and effective dates are adhered to according to our standard purchasing terms.
We're leveraging our global scale to identify opportunities to purchase locally, sourced products, or products less impacted by tariffs and we're reducing imports from those countries with the highest tariffs.
Finally, we're optimizing our supply chain Logistics and re-engineering our Global Supply chains to mitigate risk and manage tariff exposure.
Want to provide an update on the Tariff environment during the second quarter and what we've seen in July.
In the second quarter, the number of price increased notifications was up 300%.
With an average price. Increase announcement of a mid to high single-digit rate.
Through July price, increased notifications are up 30% in Count versus all of Q3 2024 with an average, mid single digit rate increase.
Dave Schulz: Wesco has a long operating history of successfully navigating similar global supply chain challenges. We're executing our playbook to effectively manage our business in the current volatile environment. Turning to slide 12. This slide shows our updated 2025 outlook by strategic business unit and the individual operating groups. As John mentioned, we are revising our 2025 outlook and increasing our expected organic sales growth rate to up 5% to 7% versus 2.5% to 6.5% previously. Sales into data centers continue to exceed our initial expectations, as do broader electrical sales trends. These strong positive tailwinds are only partially offset by the timing of the utility recovery. For EES, we are benefiting from data center growth along with broader positive trends in electrical end markets.
This continues to be an evolving and dynamic situation based on the timing of tariff implementation and negotiations.
Let's go has a long operating history of successfully navigating similar, Global Supply Chain challenges.
We're executing our Playbook to effectively manage, our business in the current volatile environment.
Turning to slide 12. This slide shows our updated 2025 Outlook by strategic business unit and the individual operating groups.
As John mentioned, we are revising our 2025 Outlook and increasing our expected, organic sales growth rate to up 5% to 7% versus 2.5% to 6.5% previously.
Sales in the data centers. Continue to exceed, our initial expectations as do broader electrical sales Trends. The strong positive Tailwinds are only partially offset by the timing of the utility recovery.
Dave Schulz: We now expect growth across all three markets we serve: construction, industrial, and OEM, supporting our revised segment outlook of mid-single digit growth, up from our prior growth expectation of flat to low single digits. Due to the continuation of exceptionally high growth in our data center business, we are increasing our full-year outlook for reported sales growth of Wesco Data Center Solutions from up about 20% to up approximately 40%. Security momentum accelerated in Q2, and as a result, we now expect full-year reported sales to increase and improve from our prior outlook of flat. These are the primary drivers of our CSS sales outlook, moving to growth of up low double digits from mid to high single digit growth prior.
For EES, we are benefiting from data center growth, along with broader positive Trends in electrical and markets.
we now expect growth across all 3 markets, we serve construction, industrial and OEM
Supporting our revised segment outlook of mid single-digit growth, up from our prior growth expectation of flat to low single digits.
Due to the continuation of exceptionally high growth in our data center business. We are increasing our full year outlook for reported sales, growth of Westco data center solutions from up about 20% to up approximately 40%
Security momentum accelerated in Q2. As a result, we now expect full-year reported sales to increase, improving from our prior outlook of flat.
Dave Schulz: And lastly, within UBS, given a lower than expected sales performance in the second quarter and the evolving timing of the utility recovery, we are revising the segment sales to down low single digits to flat from our prior expectation of flat to up low single digits. We continue to expect utility to inflect in the second half and return to growth. IOU customers return to growth in Q2, and we anticipate public power customers will follow suit in the back half of the year. Broadband is still expected to be roughly flat for the full year. Moving to page 13, we are increasing and narrowing our ranges for organic and reported sales growth, adjusting our EBITDA margin range, and maintaining the midpoint of our prior ranges for adjusted EPS and free cash flow.
These are the primary drivers of our CSS, sales Outlook. Moving to growth of up low double digits from mid to high single digit growth prior.
And lastly, within UBS given a lower than expected sales performance, in the second quarter in the evolving timing of the utility recovery, we are revising. The segment sales to download single digits to Flat from our prior expectation of flat to upload single digits.
We continue to expect utility to inflect in the second half and return to growth.
I owe you customers return to growth in Q2 and we anticipate Public Power. Customers will follow suit in the back half of the year.
Broadband is still expected to be roughly flat for the full year.
The page 13. We are increasing and narrowing our ranges for organic and reported sales growth.
Dave Schulz: We are revising our 2025 sales outlook based on the accelerating growth in the first half of the year and our expectation for continued strong top-line growth in the second half of 2025. We acknowledge the uncertainty and volatility surrounding tariffs and the impact to the overall economy, but demand for data centers has been strong and our electrical end markets are improving. Backlog grew sequentially and year over year in all three businesses, with CSS up 36%. I want to emphasize that our outlook does not include the impact of future pricing actions, including tariffs. This is consistent with our past practice, given the lag between when a supplier announces a price increase and when it begins to impact our revenue.
Adjusting our EBITDA margin range and maintaining the midpoint of our prior ranges for adjusted EPS and free cash flow.
We are revising our 2025 sales Outlook, based on the accelerating growth, in the first half of the year,
And our expectation for continued strong Topline growth in the second half of 2025.
We acknowledge the uncertainty and volatility surrounding tariffs, and the impact of the overall economy.
But demand for data centers, has been strong and our electrical and markets are improving.
Backlog, grew sequentially and year-over-year in all 3 businesses with CSS up. 36%
I want to emphasize that our Outlook does not include the impact of future pricing actions, including tariffs.
Dave Schulz: While we have seen a significant uptick in price increase notifications as we move through the second quarter, our outlook does not include any potential benefit to sales at this time. We recognize the potential risks of demand given tariff-related pricing. Any future pricing would help mitigate any demand impact to our revenue outlook. In terms of free cash flow, we expect to deliver between $600 million to $800 million in 2025. At the midpoint of our outlook, this implies free cash flow of approximately 100% of adjusted net income. Our strategy for how we deploy cash flow remains unchanged. The use of available cash will be allocated to the highest return opportunity, and we will continue to make decisions in the best interest of shareholders over the long term.
and when it begins to impact our Revenue,
While we have seen a significant uptick in price increase notifications as we move through the second quarter.
Our Outlook does not include any potential benefit to sales at this time.
We recognize the potential risks of demand given tariff related pricing.
Any future pricing would help mitigate any demand impact to our Revenue Outlook.
In terms of free cash flow, we expected to deliver between 600 million to 800 million in 2025.
At the midpoint of our Outlook. This implies free cash flow of approximately 100% of adjusted net income.
Our strategy for how we deploy? Cash flow remains unchanged.
Dave Schulz: Our top priority is to invest organically in the business to drive growth and operational efficiency, including the completion of our business and digital transformation. In the near term, given the current economic environment, we expect to prioritize delivering the balance sheet. However, we will continue to be opportunistic regarding share repurchases and acquisition opportunities. We continue to seek acquisitions that expand our capabilities and better serve our customers, particularly those engaged in high growth end markets. Turning to page 14, this slide shows the year-over-year monthly and quarterly sales comparisons and our expectations for the third quarter. You can see the return to growth in the last quarter of 2024 and the acceleration in the first half of 2025. As mentioned, preliminary July sales per workday growth is up approximately 10%, and we expect third quarter reported sales will be up mid to high single digits.
The use of available cash will be allocated to the highest return opportunity and we will continue to make decisions in the best interest of shareholders over the long term.
Our top priority is to invest organically in the business to drive growth and operational efficiency, including the completion of our business, and digital transformation.
In the near term. Given the current economic environment. We expect the prioritized de-levering, the balance sheet,
However, we will continue to be opportunistic. Regarding, share, repurchases and acquisition opportunities.
We continue to seek Acquisitions that. Expand our capabilities and better serve our customers, particularly those engaged in high growth and markets.
Turning to page 14.
This slide shows the year-over-year monthly and quarterly sales comparisons and our expectations for the third quarter.
See the return to growth in the last quarter of 2024. In the acceleration in the first half of 20125.
Dave Schulz: We expect organic sales will be up a similar amount as there is no difference in workdays year over year, and FX headwinds have moderated. We expect adjusted EBITDA margins will be approximately 40 basis points lower than the third quarter of the prior year, again primarily reflecting the project and product mix impacts to gross margin discussed earlier. Sequentially, we expect EBITDA margins to be up approximately 20 basis points. Moving to slide 15, let me briefly recap the key points before we open the call to your questions. We delivered another strong quarter with organic sales up 7%, led by CSS up 17%, EES up 6%, and data center revenues surpassing $1 billion, up 65% year over year. Utility was softer than expected, but investor-owned utility sales returned to growth. EBITDA margin expanded 90 basis points sequentially, driven by stable gross margin and strong operating leverage.
As mentioned preliminary, July sales per workday growth is up approximately 10% and we expect third quarter reported, sales will be up mid to high single digits.
We expect organic sales will be up a similar amount as there is no difference. In work days, year-over-year in FX, headwinds have moderated
We expect adjusted Evita margins will be approximately 40 basis points, lower than the third quarter of the prior year. Again, primarily reflecting the project and product mix impacts to gross margin discussed earlier.
Sequentially. We expect evida margins to be up approximately 20 basis points.
Moving to slide 15, let me briefly recap. The key points before we open the call to your questions.
We delivered another strong quarter with Organic sales up 7% led by CSS up 17% EES up, 6% and data center Revenue surpassing 1 billion up 65% year-over-year.
With softer-than-expected utility sales, we expect to return to growth.
Dave Schulz: Momentum continues into Q3 with record backlog, strong July sales, and an increased full-year organic growth outlook. We redeemed our preferred stock in June and have no debt maturities until 2028. Finally, we're actively managing tariff impacts and global trade uncertainty, leveraging our proven playbook to protect margins and to support growth. With that operated, we can now open the call to questions.
Evita margin expanded 90. Basis point sequentially driven by stable growth margin and strong operating Leverage
momentum continues into Q3 with record backlog, strong July sales and an increase fully your organic growth Outlook.
We redeemed our preferred stock in June and have no debt maturities until 2028.
Finally, we're actively managing tariff impacts and global trade uncertainty leveraging. Our proven Playbook to protect margins and to support growth.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Our first question today is from Nigel Coe with Wolf Research. Please go ahead.
With that operator. We can now open the call to questions.
We will now begin the question and answer session.
If you would like to ask a question please press star. Followed by 1 on your telephone keypad.
Please limit your questions to 1 question and 1 follow-up.
John Engel: Oh, thanks. Good morning, everyone.
Our first question today is from Nigel. Co with wolf research. Please go ahead.
Dave Schulz: Morning.
John Engel: Morning, Nigel.
Dave Schulz: Good morning. Just, yeah, so very, very clear, Dave, about the policy around pricing. So just to be double clear, the gross margin benefit from any price increases in the second half of the year, not part of the guide, no price increases are part of the guide. Just want to make that double clear. And then, you know, within the third quarter, obviously strong start in July, have you seen a genuine demand increase? You know, thinking about sequential trends here more than anything else, or was July mainly easier comps?
Dave Schulz: Yeah, let me start with the outlook. You are correct. So none of the tariff impact, whether on sales or gross margin, is included in our second half outlook.
Oh, thanks, good morning everyone. Um, good morning. Uh, just um yeah, so um, so very, very clear, they've about the uh, the policy around pricing so just to just to, to be double. Clear. Um, the gross margin benefit from any price increases in the second half of the year, not part of the guide, no price increases uh part of the guy just, just want to make that double uh, double clear. And then, you know, within the third quarter, obviously strong start in July, have you seen a genuine demand increase, you know, thinking about sequential Trends here more more than anything else or is July mainly easier comps.
John Engel: With respect to July, Nigel, we're really encouraged with the start. For CSS, the beat goes on. For EES, we saw accelerating momentum, you know, really starting with the return to growth in Q4 last year. So that trend continues. And most notably, what's different is, and again, this is the last day of July today. So, you know, tonight's sales will close out the month, but UBS is now tracking as a segment as positive growth. So again, that's accelerating momentum. The vector continues.
Yeah, let me start with the aloe, you are correct. So none of the Tariff impact whether on sales or gross margin is included in our second half Outlook.
Continues and most notably what's different is and again this is the last day of July today. So, you know today tonight, sales will close out the month but
UBS is Now tracking is POS as a segment uh as positive growth. So uh
John Engel: Okay, that's clear. Thanks, John. And then just on the UBS margins in Q2, they were down 40 basis points versus 1Q, despite, you know, volumes being higher sequentially. So just wondering if you just maybe touch on that. I understand utility margins are higher, but just wondering about the mix within the mix there. You know, what are you seeing within the mix in utility?
Again, that's accelerating momentum. The vector continues.
Dave Schulz: Yeah, Nigel, a couple of things that are driving that. There was some mix, different customer mix, obviously coming through in the second quarter, but also sequentially, one of the big drivers is that the SG&A went up sequentially. Like in all of our businesses, you know, we do that merit increase effective April 1. And the utility and broadband solutions business runs a very lean SG&A. So on the aspect of declining sales versus the prior year, plus that increase in SG&A was an impact to the margin.
Okay, that's that's clear. Thanks John. And then just on the, the UBS margins in 2q, um, they were down 40 based points versus 1 Q. Um despite you know volume has been been higher sequentially. So just wondering if you just maybe touch on that, I understand utility margins are higher but just wondering about the mix within the mix there. You know, what are you seeing within the mix in utility?
John Engel: You know, Nigel, when you think about the structure of the P&L for utility, it's, and UBS overall, that is, you know, very good operating cost as a percentage of sales. It runs with lower gross margin, but it has the highest EBITDA margin of all three businesses, all three reporting segments. So we're very well positioned as utility returns to growth and overall UBS returns to growth in the second half. You know, as it's been the case in the past, we'll get significant operating leverage on that sales growth, which will result in better EBITDA margins for UBS.
Yeah. Nigel a couple of things that are are driving that there. There was some mix different customer mix obviously coming through in the second quarter uh but also sequentially. 1 of the big drivers is that the the sgna went up sequentially like in all of our businesses, you know, we do that that Merit increase effective, April, 1 and the, the utility and Broadband Solutions business runs a very lean scna. So on the the aspect of declining sales versus the prior year, plus that increase in FTA, uh, was an impact to the margin, you know, Nigel when you think about the structure of the p&l for utility you, it's, it's uh, and UBS overall that is, you know, very good operating cost as a percentage of sales, uh, it runs
John Engel: Very clear. Thank you.
With lower gross margin but it has the highest ebita margin of all 3 businesses, all 3 reporting segments. So we're very well positioned. As you as utility Returns the growth and overall, UBS Returns the growth in the second half, you know, as, as it's been the case in the past, we'll get significant operating leverage on that sales growth and and which will result in better Evita margins for UBS.
Operator: The next question is from Dean Drey with RBC Capital Markets. Please go ahead. Mr. Drey, your line is open on our end. Perhaps you have it muted on yours. Moving on, the next question is from Tommy Maul with Stevens. Please go ahead.
Very clear. Thank you.
The next question is from Dean Dre, with RBC Capital markets, please go ahead.
Mr. Dre, your line is open on our end. Perhaps you have it muted on yours.
Tommy Moll: Good morning, and thank you for taking my questions.
Moving on to the next question is from, Tommy mall with Stevens. Please. Go ahead.
John Engel: Morning, Tommy.
Good morning, and thank you for taking my questions.
Tommy Moll: On utility, the insight you provided on the IOU trends was helpful. And so I wanted to dig on that a little bit. What can you tell us about the rest of the business there ex-IOU? Did things just slide to the right? Just any kind of insight you can provide there would be helpful. Thank you.
Morning, Tommy.
On utility the Insight, you provided on the IOU, Trends was helpful. And so I wanted to dig on that a little bit.
Um, what can you tell us about the the rest of the business, their ex IOU, did things just slide to the right?
John Engel: Yeah, Tommy, thanks for that question. So let's step back and put utility in the context. Remember, let's just, let's, you know, let's look at this year in particular. Utility was down mid-single or was high, down high single digits in Q1, down mid-single digits in Q2. But overall, inside Q2, as you've outlined and as we've outlined, investor-owned utilities returned to growth inside Q2. And so far here in July, UBS overall, you know, is positive growth, which represents further improvement in utility as a momentum vector. When you look at the composition of Q2, it's really important to understand the pieces. For investor-owned utilities, which is the largest percentage of our utility sales, they grew low single digits in the quarter.
Um, just any kind of insight, you can provide there would be helpful. Thank you.
Yeah, Tommy, thanks for that question. Um, so let's step back and put your utility in context.
Remember, let's just let's, you know, let's look at this year. In particular utility was down. Mid single or was high down high single digits in q1.
Down mid single digits in Q2.
But overall inside Q2 is as you've outlined and as we've outlined investor-owned utilities return to growth inside Q2 and so far here in July UPS overall you know is is is is positive uh growth which represents further Improvement in utility as a momentum vector.
John Engel: That's driven by new program wins and the new utility contracts that we started servicing that we had mentioned previously, as well as resumed shipments to the IOUs. So it's good to see that those sets of customers returning to growth. IOUs in general are much further along in the destocking process than public power customers. They have larger work plans to complete. It really was the public power customers that were still down in the quarter. And that public power softness was driven by just a slower recovery versus the IOUs. Let's let me dig into that a little bit because I know that's where your question was going, the drivers. The public power customers are less capital-intensive than the IOUs, and they typically, those customers typically don't own their own transmission and substation networks.
When you look at the the composition of Q2, it's really important to understand the pieces for investor owned utilities, which is the larger, the largest percentage of our of our utility sales. Um they grew low single digits in the quarter that's driven by new program wins.
And the new utility contracts that we started servicing that we had mentioned previously, as well as resume shipments to the IUS. So it's good to see that those sets of customers returning to growth.
Uh, I use in general are much further along in the D stocking process than Public Power customers they have larger work plans to complete, it really was the Public Power customers that were still down.
Uh, in the quarter, that public power softness was driven by just a slower recovery versus the IOUs. Let's, let me dig into that a little bit because I know that's where your question was going—the drivers.
John Engel: And if you look at over the last several years, the cycle coming out of the pandemic when we had extended supplier lead times, the public power customers were behind the IOUs in getting their materials in 2022 and 2023. So as the IOU customers were being delivered all that material, the public power customers started building inventory in late '23 and through '24 as the manufacturers switched from the IOUs to building for the public power customers. So when you look at the phasing, it's great to see the IOUs returning to growth. We have high confidence that the public power segment of our utility business returns to growth in the second half of this year.
The Public Power customers are less Capital intensive than the IUS and they typically those customers typically don't own their own transmission and substation Networks.
And if you look at at over the last several years, the cycle coming out of the pandemic. When we had extended supplier lead times,
John Engel: Again, and in addition to that, we have a very strong backlog for our transmission and substation business, and our overall grid services, applications, and solutions will be much stronger in the second half than the first half given project timing. So that gives us really strong confidence that the second half represents an overall return to growth for utility. Keep in mind that was consistent with our outlook when we entered the year and we gave the full year outlook and guided us back earlier in the year.
Materials in 2022 and 2023. So as the as the IOU customers were being delivered, all that material. The Public Power customers, start building, inventory in late. 23, and through 24 is the manufacturer switched from from the IUS to building for the Public Power customers. So um, when you look at the phasing, it's great to see the IUS returning to growth. We have high confidence, the Public Power segment of our utility business, returns to growth. And in second half of this year again, uh, we and, and in addition to that, we have a very strong backlog for our transmission and substation business and our overall grid Services applications and solutions will be much stronger in the second half, uh, than the first half given project timing. So, um, that that gives us, uh, really strong confidence that the second half represents an overall return to growth for utility. Keep in mind that was consistent.
Tommy Moll: Thank you, John. That's very helpful. On data center, another big move higher here in terms of the outlook for 2025 from up 20 to up 40. You made some good comments just in terms of not seeing any slowdown in demand, expansion of scope, etc. I'm just curious, with the moves as big as they are, what other kinds of metrics are you tracking, whether it's number of orders or size of orders, or how much visibility do you have into these trends right now? I can appreciate it would be difficult.
With our Outlook when we entered the year and we gave the full year outlook and guided. Yes, back earlier in the year.
Thank you, John. That's very helpful.
On Data Center.
Another big move higher here in terms of the outlook for 2025.
From up, 20 to up 40 you, you made some good comments just in terms of not seeing any slowdown in demand expansion of scope Etc.
I'm just curious with the moves as big as they are.
John Engel: Yeah, I think we have outstanding visibility because I'll remind you and remind our whole investor base that we have this impressive array of direct end-user customer relationships for our WDCS, what we call our Wesco Data Center Solution business. So we also sell through, through, with, and through contractors and specialty integrators. But we, but the real power of this business is where we're with the end user. And that includes the hyperscalers, the global hyperscaler customers, Magnificent 7 Plus. It includes the MTDC customers, multi-tenant data center customers, many of which are global, as well as enterprise class customers. We have a customer account organization that's where we have teams lined up by customer with an overall leader, and whose customers are sharing, you know, their R&D investment plans and build schedules with us.
What other kinds of metrics are you tracking whether it's number of orders or size of orders? Or how, how much visibility do you have into into these Trends right now? I can appreciate it would be. Yeah, we have. I think we have outstanding visibility because I'll, I'll remind you uh, and remind our whole investor base that.
we have this impressive array of direct end user customer relationships for our
John Engel: And in particular, you know, with the relationship that we have with them and the complete solution, white space, gray space, plus the power equation, we're deeply embedded in helping them plan out their, you know, the overall planning for their global deployment of data center buildouts, as well as the execution. We have an industry-leading capability. It's unmatched in terms of global deployment. And our customers are asking us to do a lot more. So we build up our forecast to give you the short answer to this by customer. And what's a great leading indicator is you can see the strong momentum growth. The exceptional sales growth has been continuing. Very strong growth continues in the white space. The gray space continues to grow faster than the white space.
Whose customers are sharing, you know, their R&D investment plans and build schedules with us.
John Engel: The total dollar contribution is smaller because of our breadth and depth in the white space, but we're encouraged that the gray space is growing faster than, excuse me, the number that we've outlined in the materials, the 65%. And so, and we're expanding our scope of supply. So we're just really good momentum vector. I think the other thing that's really important that I do want to mention is we're also seeing a lot of discussion about, you know, with the AI-driven data center build, that increases our scope of supply significantly. As our end-user customers move from CPU to GPU-based builds, that provides much more content for us. That's true for new data center builds. It's also true for those data centers that are getting upgraded or retrofitted or renovated, let's say, to support the higher AI applications.
And you know, in particular, um, you know, this with the relationship that we have with them and the complete solution white space gray space plus the power equation, we're deeply embedded in helping them plan out their their, you know, the overall planning for their for their Global deployment of data center build outs as well as the execution, we have an industry-leading capability. It's unmatched in terms of global deployment and our customers are asking us to do a lot more. So uh we build up our forecasts to, to give you the short short answer to this by customer and what's a great leading indicator is, you can see the strong momentum growth. The exceptional sales growth has been continuing very strong growth continues in the white white space. The grey space continues to grow faster than the white space. The total dollar contribution is smaller, uh, because of our breadth and depth in the white space.
But we're encouraged that the grey space is growing faster than excuse me. The number that we've outlined in the materials uh, the 65%. Um, and so, uh, and we're expanding our scope of Supply. So uh, we're just really good momentum Vector. I think the other thing that's really important that I do want to mention is
We're also seeing a lot of discussion about, um, uh,
You know.
John Engel: So our position in the value chain, the end-user relationships, the momentum vector is strong. And then finally, I'll end with this, look at the backlog growth, up 11% sequentially and 36% year over year. So that gives a good look into what the future demand profile looks like.
And finally, I'll end with this. Look at the backlog growth.
Operator: Thank you, John. I'll turn it back. The next question is from Dean Drey with RBC Capital Markets. Please go ahead.
Up 11% sequentially and 36% year-over-year. So that gives a good a good look into what the future demand profile looks like.
Thank you John. I'll turn it back.
Deane Dray: Thank you. Good morning, everyone. You hear me this time?
The next question is from Dean Dre, with RBC Capital markets, please go ahead.
Operator: Yes, sir.
Deane Dray: Good morning, Dean. Yeah, maybe you want to send a CSS team to check out my vendor. We will help you. We will help you, Dean. It's great to have you back. Okay, appreciate it. So just to follow up on the data center growth and unpacking, and I really find that slide seven to be so helpful. Just, is there been growth and difference in your opportunity in gray space versus white space? We talked about that at your analyst day. And just how has that played out?
Thank you. Good morning everyone. You hear me this time.
Yeah, good morning Dean.
Yeah, maybe you want to send a uh CSS team to check out my vendor.
We we, we will help you. We will help you Dean. It's great to have you back.
John Engel: So we have a tremendous position, as we've said for a long time, white space, breadth and depth. The gray space historically, if you look over a multi-year basis, let's go back five to ten years, was traditionally served direct. But because we are the one-stop shop and complete supply chain solution customer for our end-user data center customers, be it a hyperscaler or MTDC customer or enterprise class customer for that matter, they're increasingly asking us to do more to manage the total global deployment, which extends into the gray space. So as I mentioned earlier, Dean, to Tommy's question, the gray space grew at a materially higher rate. I'll just give it now. The gray space grew at a 90% rate. EES's sales in the data centers grew at 90% quarter over quarter, Q2 over Q2, year over year, in the second quarter.
Okay, appreciate it. So just to follow up on the the data center growth and and unpacking. And I really find that uh slide 7 to be so helpful. Um just is there been growth and difference in your opportunity in Grace Space versus whitespace. We talked that about about that at your analyst day. Just how is that played out?
so, um,
We have a tremendous position as we've said for a long time, white space, breadth, and depth, the grey space. Historically, if you look over a multi-year basis, let's go back 5 to 10 years. Those traditionally served Direct.
But because we are one, the 1 Stop Shop and complete supply chain solution, customers for our end-user data center customers, be it a hyperscaler, MTDC customer, or enterprise-class customer for that matter, are increasingly asking us to do more to manage the total global deployment, which extends into the grey space.
so, as I mentioned earlier, Dean to the last Tommy's question,
Uh the grey space grew in a materially higher rate, I'll just give it now. The grey space grew in a 90. 90% rate, EES is sales in the data centers.
John Engel: And the white space was still north of 60%. So we did foreshadow. We thought we'd be picking up some gray space scope. In terms of dollar contribution, the majority of the sales are still in the white space, but the gray space is growing at a faster rate versus our white space mix at this point. I think what's really important to understand on that one page that shows three to five years' time to power, one to two-year construction period, that implies a new greenfield or brownfield renovation of a data center build. What's also going to happen is existing data centers are going to get upgraded or retrofitted to support AI applications, shifting from CPU-based builds to a GPU-based retrofit.
Screw it. 90% quarter over quarter of Q2 over Q2 year over year in the second quarter and the white space was you know still north of 60%. So we have we did foreshadow. We thought we'd be be picking up some grey space scope.
In terms of dollar contribution, the majority of the sales are still in the white space, but the grey space is growing at a faster rate versus our white space. Um, uh, mix at this point. I think what's really important to understand on that 1 page that shows 3 to 3, to 5 years, time to power 1 to 2 year construction period.
That implies a new Green Field or brown field renovation of a data center build.
John Engel: You'll have to increase the power to that facility, but that doesn't result in necessarily a lot of gray space and additional content, but it's substantial white space content. Substantial white space content because of the greater power density required for GPU-based builds and the liquid cooling designs, which is a lot more addressable application spend for us. So I want to be clear. I think the strength in the white space, which puts us on a plane because we're involved in even the design of these data centers with our end-user customers, is really the strength we've been pulling through the gray space, and we expect to continue to do that.
What's also going to happen? Is existing data centers, are going to get upgraded or retrofitted to support AI applications shifting from CPU based builds to to a GPU based retrofit.
You'll have to increase the power to that facility but that doesn't result in necessarily a lot of gray space and additional content. But it's substantial, white space content.
Substantial white space content because of the greater power density. Required for gpu-based builds, and, and the liquid cooling designs, which is a lot more addressable application, spend for us. So,
Deane Dray: You know, that's fabulous color and insight and definitely the kind of context that I wanted to hear because you get mesmerized by the big number, but when you break it out into the individual components and the sectors within data center, that makes sense. So congrats there. Just a follow-up question for Dave. Is there a target on networking capital intensity? Because you've made really good progress there. And then can you just clarify on the inventory gains? You say they're temporary, but you know, will that be hitting the P&L and can you size it at all at this stage?
I want to be clear. I think the the strength in the white space, which puts us on a plane because of we're involved in. Even the design of these data centers with our end-user customers is really the strength. We've been pulling through the grey space and we expect to continue to do that.
You know, that's fabulous, caller, and insight, and definitely the kind of context that I wanted to hear because you get mesmerized by the big number. But when you break it out into the individual components and the sectors within data centers that make sense. So, congrats there. And just a follow-up question for Dave, um, is there a target on network and capital intensity? Because.
Dave Schulz: Yes, sir. Let me start with the networking capital. So, you know, we clearly have been running higher days. We want to continue to improve our days, particularly on the inventory side. You know, we've not shared publicly the specific target, but we have referred back to, you know, we would like to return back to our pre-COVID levels, which would be closer to a 19% range. So again, part of this comes back to the mix of the business that we have in front of us, particularly with the large projects and, you know, how we're providing more services on our sites, which requires we bring inventory in earlier. And then we service that.That
You've made really good progress there and then can you just clarify on the inventory gains? You say they're temporary. But you know, will that be hitting the p&l and and can you size it at all at this stage?
Operator: out to our customers. So that's what we're targeting. You know, in terms of the inventory gains on the air price-related increases, generally what we will see is as prices go up, our average with inventory costs will increase over time. Our goal is to use that opportunity to basically price our products at the market, which would reflect a higher price. But our average with inventory will be catching up to that. That creates the margin opportunity. We have not timed that out for you. It's one of the reasons why we don't include it in our outlook. It's very difficult to project given the volatility right now about these price increase notifications and how that will be accepted by the market.
Bring inventory in earlier and then we service that we get that out to our customers. So that's what we're targeting. Um,
You know, in terms of the inventory gains on,
The Tariff price related increases.
Scott Gaffner: That's real helpful. Thanks, David.
Generally, what we will see is as prices go up, our average with inventory costs will increase over time. Uh, our goal is to use that opportunity to basically price our products at the market which would reflect a higher price. Uh, but our average with inventory, uh, will be catching up to that, that creates the margin opportunity. Um, we have not timed that out for you. It's 1 of the reasons why we don't include it in. Our Outlook, very difficult to project, given the volatility right now, about these price increased notifications and how that will be accepted by the market.
Operator: The next question is from David Manfi with Baird. Please go ahead.
That's real helpful. Thanks Dan?
John Engel: Yeah, hi. Good morning, everyone. Thanks for taking the question. First off, to clarify, when you say that you're not factoring in any incremental tariff pricing, you are factoring in known price increases that you've already taken from suppliers in your guidance. Is that correct?
The next question is from David manthy with beard. Please go ahead.
Yeah. Hi good morning everyone. Thanks for taking the question. Um the first off to clarify when you say that you're not factoring in any any incremental tariff pricing
Operator: That is correct. So those prices that we've already seen flowing through our P&L, we have included. If you go back to our initial outlook for the year, we had assumed that we would see about a point and a half of carryover pricing. And as you think about what we've included in our expectations going forward, that's relatively consistent in our outlook that we just provided you today.
You are factoring in known price increases that you've already taken from suppliers in your guidance. Is that correct?
John Engel: Okay. And was the price benefit that you saw, that one and a half percent, is that uniform across the segments, or is it overweight or underweight one segment or the other? And then just to be clear here, it sounds like you have seen more price increases, but what you're saying is the guidance did not move for the price increases that was sort of as you expected. Is that right, Dave?
That is correct. So those prices, that we've already seen flowing through our p&l, we have included, if you go back to our initial outlook for the year, uh, we had assumed that we would see about a point and a half of carryover pricing, uh, and as you think about what we've included in our uh our expectations going forward, that's relatively consistent in our out, our Outlook that we just provided you today.
Okay. And was the, uh, was the price benefit that you that you saw, um, that 1 and a half percent is that uniform across the segments, or is it overweight or underweight? 1, segments, or the other? And then, just just to be clear. Here, it sounds like you have
Operator: That's correct. So let me go back to the buy SBU question first and then provide some more color on the pricing that's included in our outlook. If you take a look at how we've reported pricing over the last couple of years, CSS had generally flat impact due to price. We saw more of the increases in our EES and our utility and broadband solutions business. What we're seeing here in the first half of 2025, we've actually seen some pricing benefit, primarily here in the second quarter for CSS, just given, you know, some of the price increases that were taken either last year or earlier this year prior to the tariff announcements beginning to hit. In EES, we saw about a one-point impact in both the first and second quarter.
Seen more price increases but what you're saying is the guidance, did not move for the price increases. That was sort of as you expected. Is that right? Dave.
That's correct. So, uh, let me go back to the, the, uh, buy spu question first, and then provide some more color on the, uh, pricing. That's included in our Outlook.
If you take a look at how we've reported pricing over the last couple of years, CSS had a generally flat impact due to price. We saw more of the increases in our EES and our Utility and Broadband Solutions business.
Operator: And a lot of that impact in the second quarter was some of the commodity-driven price increases, particularly as you saw copper pricing and other commodity prices go up. It impacted more of our EES business. I would say that UBS is consistent with EES, where they've seen about a point of pricing here in the first half of the year. So it's relatively consistent amongst the three SBUs.
John Engel: Okay. Thank you. And just to close the loop on this whole thought here as it relates to the price increases, where you were referring to that inventory gain situation that you have inventory on the shelf, average costs, and that the price increase gives you a lift in gross margin, we should expect that in the third quarter. And then just to gauge that, I'll look back to 2022, and I think you got 80 or 90 basis points, but I think there was annexed benefits and other things in there. Could you just give us an idea of what you're thinking about that lift might be in the third quarter?
What we're seeing here in, uh, the first half of 2025, we've actually seen some pricing benefit, uh, primarily here in the second quarter for CSS. Just given, you know, some of the price increases that we're taking either last year or earlier this year, prior to the tariff announcements beginning to hit, uh, in EES, we saw about a 1-point impact in both the first and second quarters. Uh, and a lot of that impact in the second quarter was some of the commodity-driven price increases, particularly as you saw copper pricing and other commodity prices go up. It impacted more of our EES business. I would say that UBS is consistent with EES, where they've seen about a point of pricing here in the first half of the year. So it's relatively consistent amongst the three SBUs.
Okay, thank you and just to close the loop on on this whole thought here, um, as it relates to the price increases were, you were referring to that inventory, gain situation that you have inventory on the Shelf, average costs and that the price increase gives you a a Lyft from 0 margin.
Operator: We would anticipate that in the second half, we would begin to see sequential gross margin improvement. If you take a look at, you know, right now, the uncertainty is what will the pricing really be reflected in our income statement? You know, again, reinforcing one of the reasons why we choose not to include it because we don't want to speculate. But if you go back to the period that you were referring to back in 2022, you know, we were getting pricing that was high single digit, low double digit in our business units in each of the quarters. And so we were seeing that rapid inflation led to gross margin improvement. As you mentioned, Dave, not all of that was related to pricing. There were other synergies that were being recorded as part of the merger with Annexter.
Um, we should expect that in the third quarter and then just to to gauge that out of the fact that 201, uh, 22 and I think you got 80 or 90 basis points, but I think there was um, an extra benefits and other things in there. Could you just give us an idea of what you're thinking about that lifts? Might be in the third quarter.
Operator: But generally, we would expect to see some sequential improvement in gross margin in the second half. But I would tell you that primarily what we're counting on now is given the increase in our sales, in our volume for the second half of the year, sequentially, we should see better supplier volume rebates.
Recorded as part of the merger with annexer. Uh, but generally we would expect to see some sequential Improvement in gross margin in the second half. But I I would tell you that, that primarily what we're counting on now is given the increase in our
John Engel: Perfect. All right. Thanks very much. I appreciate it.
Sales in our volume for the second half of the year sequentially. We should see better supplier volume rebates.
Operator: The next question is from Christopher Glynn with Oppenheimer. Please go ahead.
Perfect. All right, thanks very much. I appreciate it.
Dave Schulz: Hey, good morning, guys. A couple on EESS. So, you know, industrial had been down low single digits for some time, flipped to plus low single digits, you know, after maybe some deer in the headlight market dynamics going on. You talked about US daily activity a little better. Does that feel like just kind of, you know, timing noise a little better here, a little worse there, or does that feel like a real cadence pivot in terms of, you know, even in terms of animal spirits type of thought process?
The next question is from Christopher Glenn with Oppenheimer. Please go ahead.
Hey, good morning, guys. Um, a couple on ESS EES. Uh, so you know industrial had been down low single digits for some time, flip to plus low single digits. Uh, you know after maybe some deer-in-the-headlight market dynamics going on, um, you talked about us uh daily activity a little better. Um,
just just kind of, you know,
timing noise.
John Engel: Yeah, I mean, look, we, if you step back to the beginning of the year, even in our original outlook, we had expected that industrial would improve as we move through the year. And then obviously, you know, what was not foreseen was when Trump took office, all the tariffs, those announcements, that's beginning to settle out as the deals are being struck by country and providing some more, I'll say, more stability, more certainty. But that clearly had an impact on the first half of industrial, Chris. So here's the way I'd ask you to think about EES. You know, we returned the growth in Q4 last year. First quarter was up 3%. 3% organic growth. Q2 plus 6% organic growth. And now we have a second quarter where all three operating groups grew.
A little better here, a little worse there or do. Does that feel like a a real Cadence uh, pivot in terms of, you know, even in terms of animal spirits type of thought process?
yeah, I mean look we um
If you step back to the beginning of the year, even an original Outlook, we had expected that industrial would improve as we move through the year. And then obviously, you know what, what was not foreseen was when Trump took office. All the tariffs that those announcements, that's beginning to settle out. As these as, as the deals are being struck by country and providing some more, I'll say more stability, more certainty. But that clearly had an impact on the first half of industrial, uh, Chris so here, here's the way I ask you to think about EES, you know, we return to growth in Q4 last year. First quarter was up 3%.
3% organic growth Q2 plus 6% organic growth.
John Engel: A step up in construction now at mid-single digit growth, benefiting from data center projects, as I mentioned earlier, and increased infrastructure activity. So that's encouraging across the non-RESI space. OEM continues to be up double digits. And that's, you know, that's something that is a continuation of a trend that occurred over the last two quarters, two to three quarters. We're stepping up there. And then industrial, where your question was. And look, we saw improved day-to-day demand in the US and some increased project activity as well, so in the US and Canada. So it's really good to see the momentum vector picking up. And look at backlog. Backlog's up not just year over year, but sequentially for all of EES.
And now we have a second quarter where all 3, operating groups grew a step up in construction. Now at Mid single digit growth benefiting from uh data center projects as I mentioned earlier and increased infrastructure activity.
Uh, so that's that's encouraging across the non-res, space. OEM continues to be up double digits. And that's, you know, that's something that is a continuation of a trend that occurred over the last 2, quarters, 2, to 3 quarters, we're stepping up there and then industrial where your question was and look, we saw improved day-to-day demand in the US and some increased project activity.
John Engel: So clearly, one of the takeaways should be, you know, for CSS, the exceptionally strong data center growth, the beat goes on, eclipsing a billion dollars of sales in the second quarter, a huge mark. EES momentum's picking up. Definitely improving, improving vector. We're seeing that show up in the numbers. And then for UBS, the improvement has begun, just started to begin in Q2 with the return to growth for IOUs. And then we gave you the July snapshot. So hopefully that addresses your question.
Uh, as well. So in the U.S. and Canada, it's really good to see the momentum Vector picking up. And look at backlog; backlogs are up, not just year-over-year, but sequentially for all of EES. So, clearly, one of the takeaways should be, you know, for CSS, the exceptionally strong data center growth, which goes on to clutching a billion dollars of sales in the second quarter. A huge mark; EES momentum is picking up.
Dave Schulz: Yeah, yeah. And just to add one more topic within that, it sounds like the gray space growth in excess of overall data center is certainly, you know, could potentially see further acceleration from that 6% level into the third quarter for EES organic. If you'd care to comment on that.
Definitely improving improving Vector. We're seeing that show up in the numbers. And then for UBS the Improvement has begun, just started to begin, uh, in Q2 with the return to growth for IUS. And then we gave you the July snapshot. So hopefully that addresses your question.
Yeah, yeah. And just to add 1 1 more topic within that it uh, it sounds like the the grey space growth in in excess of overall data center is
John Engel: Yeah, no, I think, look, I think we're really pleased that gray space is growing faster than white space. I gave you the numbers. Again, it's on a much smaller base, but that's clearly one of a number of positive sequential growth drivers for EES. You know, so far, clearly, clearly has helped, Chris, as we move through Q1 and Q2. But as we look at the second half, there's a number of other drivers too. I'd say generally electrical demand at all is stepping up. That's the key takeaway.
Certainly um you know, could potentially see further acceleration in uh from that 6% level into the third quarter for EES organic. Uh if you care to comment on that uh bow tie,
Yeah, no I think look I think we're really pleased that gray space is growing faster than whitespace. I gave you the numbers again, it's on a much smaller base but that's clearly 1 of a number of positive sequential growth drivers for EES.
John Engel: Thanks, John.
I, you know, so far, clearly, clearly has helped Chris as we move through Q1 and Q2. But as we look at the second half, there are a number of other drivers too. I'd say generally, electrical demand at all is stepping up. That’s the key takeaway.
Operator: The next question is from Ken Newman with KeyBank Capital Markets. Please go ahead.
Thanks John.
Dave Schulz: Hey, good morning, guys. Thanks for squeezing me in. Maybe for the first question here, just a clarification on the pricing on the tariff comments not being built into the guide. When you say, Dave, that the average request or the average increase on some of these quotes is up mid-single digits, is that a blended impact from both book and ship and the project pricing, or do we think about that ultimate price increase as something closer to half of whatever the nominal increase looks like from the suppliers, just given your project mix?
The next question is from Ken Neumann with keybanc. Capital markets, please go ahead.
Hey, good morning, guys. Thanks for, uh, squeezing me in.
Operator: Ken, you're correct. So the number that we quoted where we're seeing on average mid to high single digit price increase notifications, that's the increase coming from the suppliers. So in the letter that they send to us, they're generally giving us mid to high single digit increases on their products. As you mentioned, because of the type of business that we do, where half of our revenue is project-based, those are negotiated prices, which aren't necessarily impacted by these price increases dollar for dollar. So generally, the other half of our business, which would go through our warehouse, our stock and flow business, that's where we'll see those suppliers increase the pricing to us. You know, so you know we're really only going to recognize about half of that over the long term. Half of the announced price increases over the long term, all of the things being equal.
Say, uh, Dave that the the average request of the the average increase on some of these quotes is up Miss single digits. Is that a blended impact from both book and ship and the project pricing? Or should we think about that ultimate price increases something closer to half of whatever the nominal increase looks like in the suppliers? Just giving your project mix?
Ken, you're correct. So the number that we quoted where we're seeing on average mid to high single digit,
Dave Schulz: Right. And then when you think about, I think it's typically you give customers, what, 60 to 90 days to kind of realize a price push. Is that any different today, or is there kind of more of an emphasis to kind of pull that forward, just giving all the moving pieces?
Uh, price increase notifications, that's the increase coming from the suppliers. So in the letter that they send to us, they're generally giving us mid to high single digit increases on their products as you mentioned because of the type of business that we do. We're half of our revenue is Project based, those are negotiated prices uh which aren't necessarily impacted by these price increases dollar for dollar. Um, so generally the other half of our business, which would go through our warehouse, our stock and flow business. That's where we'll see those suppliers increase. The pricing to us, you know. So, you know, we're really only want to recognize about half of that over the long term, half of the announced price increases over the long term, all of the things being equal.
Operator: We're trying to hold our suppliers to the contractual terms, which requires a lead time. You know, generally, it's 60 to 90 days, depending on the relationship and the individual supplier. So that we are holding to that the best we can. It does take, you know, quite a bit of time and effort. You know, we generally get a price increase notification letter. We need to see the buy SKU detailed list to ensure that it gets appropriately loaded into our systems. So that does take some time. We want to make sure that we do it appropriately. You know, and you know, from our perspective, you know, our suppliers are dealing with the same volatility that we are. So, you know, this has been a very volatile situation that we're trying to manage as aggressively as possible.
Right. And then when you think about, I think it's typically you give customers what 60 to 90 days, to kind of realize a price push, is that any different today or is there kind of more of an emphasis to kind of pull that forward, just giving all the moving pieces?
Dave Schulz: Yep. Okay. And then just quickly for my follow-up here, John, I appreciate all the color on the utility activity this quarter. Maybe just one other question is, can you help us kind of think about what, if there was any sales drag from the project-based activity versus the stock and flow headwind this quarter? And then maybe just, you know, how do we think about the margin cadence for UBS as it flips back to growth in the second and third quarter?
We're trying to hold our suppliers to the contractual terms which requires a league time, you know, generally it's 60 to 90 days depending on the relationship, and the individual supplier. Uh, so that we are holding to that the best. We can, it does take, you know, quite a bit of time and effort, you know, we generally get a price, increase notification letter, we need to see the buy skew detailed list, so to ensure that it gets appropriately loaded into our systems, uh, so that does take some time. We want to make sure that we do it appropriately. Um, you know, and you know from from our perspective you know our suppliers are dealing with the same volatility that we are. So you know, this has been a uh, a very volatile situation that we're trying to manage as aggressively as possible.
Yep.
Okay, um, and then just quickly for my follow-up here John. I I appreciate all the color on the utility activity this quarter.
John Engel: Nothing to really call out on project versus stock and flow because what we've got there is, you know, we got, you know, by and large, these very end-user relationships with IOUs or public power, you know, and we have these utility alliance agreements for many of these customer relationships. And, you know, there's nothing meaningful to call out on mix, Ken. In terms of margin, look, UBS overall has still got a 10 handle on the EBITDA margins. And just think about the overall Wesco reported results with, you know, being UBS being down 4% year over year and being the highest EBITDA margin business. So the SG&A as a percentage of sales is the lowest of all three SBUs. Part of that is business model. When the sales growth kicks back in, we get exceptional operating cost leverage, and the EBITDA margin pull-through is outstanding.
Um, maybe just one other question is, can you help us kind of think about if there was any sales drag from the project-based activity versus the stock and flow headwind this quarter? And then maybe just, you know, how do we think about the margin cadence for UBS as it flips back to growth in the second and third quarter?
John Engel: So that's why we were very clear that, you know, as the sales growth recovers and returns, which we appear to be at the front end of that, that the EBITDA margins will expand handsomely as we realize that growth.
Nothing to really call out on Project versus stock and flow. Because what we've got there is, you know, we got, you know, by and large these very end user relationships with IUS or Public Power, you know, and we have these utility Alliance agreements for many of these customer relationships. And, you know, there's nothing meaningful to call out on mix Ken in terms of margin, look at what's UBS overall has still got a 10 handle on the, the Evita margins. And just think about the overall Westco reporter results with, with, you know, utility being UBS being down 4% year-over-year, um, and being the highest debit on margin business. So the sgna is a percentage of sales is the lowest of all 3 SBS, part of that is business model. When they when the sales growth kicks back in, we get exceptional operating costs, leverage and Ava margin. Pull through is is outstanding so that's that's
Dave Schulz: Thanks.
That's why we were very clear that, you know, as a sales growth recovers and returns which we we appear to be at the front end of that that the IBA margins will will will expand handsomely. As we as we realize that growth
Operator: The next question is from Patrick Bauman with JP Morgan. Please go ahead.
Thanks.
John Engel: Oh, hi. Good morning. Thanks for taking my questions. First, clean-up one here on the July growth of 10%. Do you think that included any better than the one and a half percent price you reported for the second quarter, or is it too hard to discern at this point? And then related to that, you know, given the wild swings we're seeing in copper, which I think was up a lot in July and is obviously down a lot today, we always get questions on the impact to Wesco. Can you remind us the percentage of your business exposed to, you know, that copper price movement and the lift maybe you got from that specifically in July? Just trying to kind of peel back the onion a little bit and understand why you assume sales slow in the rest of the quarter versus what you saw in July.
The next question is from Patrick Bowman with JP Morgan. Please go ahead.
Oh, hi, good morning. Um, thanks for taking my questions. Um, morning for first, uh, clean up 1 here on, on the July growth of 10%. Um, do you think
um that included any better than the 1 and a half percent price, you reported for the second quarter or is it
It's too hard to discern at this point. And then, related to that, you know, given the wild swings we're seeing in copper, which I think was up a lot in July and is obviously down a lot today, we always get questions on the impact to WESCO. Can you remind us of the percentage of your business exposed to copper?
John Engel: Maybe that's a factor.
Operator: Yeah, Patrick, it's Dave. Let me start with, are we seeing increased pricing benefit in July? Very hard for us to discern that at this point. You know, we've got to go through our full close in the analysis. So I really can't comment on the overall pricing benefit in July relative to what we experienced in Q2. On copper, we've seen the swings on copper. So just to remind our investors that, you know, commodities are about, you know, pure commodity product. It's a mid-single digit percentage of our revenue. And most of our commodities are repriced weekly. So, for example, copper is repriced weekly for what we inform our sales force, what they're going to cost on any bids or a stock and flow sale. And so we have seen that.
I'm just trying to kind of peel back the onion a little bit and understand why you assume sell slow in the rest of the quarter, versus what you saw in July. Maybe that's a factor.
That Patrick, it's Dave. Let me start with, um, are we seeing increased pricing benefit in July? It's very hard for us to discern that at this point. You know, we've got to go through our full close in the analysis, so I really can't comment on the overall pricing benefit in July relative to what we experienced in Q2.
On copper, we've seen the swings on copper. So, just to remind our investors that, you know, commodities are about, you know, pure commodity product. It's a mid-single-digit percentage of our revenue.
Operator: Now, going back to those fluctuations, we did see a copper benefit in the second quarter, but the overall EES pricing was only about 1%. So we didn't see a material impact from that copper volatility in Q2. You know, that you saw some of the tariff-based announcements were, you know, occurring back in June. There's been some changes to that already. So, but we have not seen any material impact from that copper volatility through Q2. And as I mentioned, for the July pricing, we can't discern that at this point.
And most of our commodities are repriced weekly. So, for example, copper is repriced weekly for, uh, what we inform our sales force about what they're going to cost on any bids or a stock and flow sale. And so, we have seen that. Now, going back to the fluctuations, we did see a copper benefit in the second quarter, but the overall EES pricing was only about 1%. So, we didn't see a material impact from that copper volatility in Q2. You know, that, uh, you saw some of the tariff-based announcements were, you know, occurring back in June. There's been some changes to that already. So, uh, but we have not seen any material impact from that copper.
John Engel: Thanks, Dave. Helpful color. And then last one for me is just on a little bit obscure, so we don't talk about it much, but the security market for you is up double digits. Just curious, what drove the growth there? Was it, you know, any large projects? Was it more day-to-day flow type business? Just seemed like a big growth rate for what we generally consider to be a pretty low growth market.
Volatility through Q2. And as I mentioned for the July, uh, pricing, we we can't discern that at this point,
thanks Dave helpful color and then last 1 for me is just on um,
John Engel: Good question, Patrick. Look, it's up double digits without including the data center sales. If you include the data center sales, security is up high teens. So we've got a terrific security business. We've got the most advanced digital solutions, IP security-based solutions. It's more than just the cameras, as well as analog and can support full analog to digital transition for many of our customers in retrofit renovation upgrades, as well as new projects. We've had an upswing in momentum in our security business over the last several quarters. So this is really good to see. Keep in mind, this category, we've got a very strong set of supplier relationships, and it's a global business. So we're selling these applications to end-user customers across the global markets. And again, it's being driven beyond not just data centers, but kind of the overall core business. So we're really pleased.
A little bit obscure. So we don't talk about it much, but the security market for you is up double digits. Just curious. What drove the growth there is it. Um, you know, any large projects was it more day-to-day flow type business just seemed like a a big growth rate for for what we generally consider to be a pretty low growth Market.
Um, good question, Patrick um look uh it's up double digits without including a data center sales. If you include the data center sales security is up High Teens
So, uh, we've got a terrific security business. We've got the most advanced digital Solutions, IP, Security based Solutions. It's more than just the cameras as well as analog, um, and can support full analog to digital transition for, for many of our customers in retrofit renovation upgrades as well as new projects,
we've had an upswing in momentum in our security business. I have over the last several quarters, so this is really good to see. Keep in mind this category, we've got very strong supplier, set of supplier relationships, and it's a global business. So we are selling these applications to end user customers, across the the global markets. And again, it's being driven.
John Engel: Security as a business, we have a very large business that operates with scale.
Beyond just data centers, but kind of the the, the overall core business. So we're we're really pleased security as a business. We have a very large business that operates with scale.
John Engel: Helpful. And then along those lines, I mean, I think you compete with that, I think it's the ADI business from Residio, and it sounds like they're looking at alternatives for that business. Is that something that you would kind of look at from an acquisition perspective, or do you already have too much market share in that particular area, and it's not something that would work?
Helpful. And then, um,
Along those lines. I mean, I think
You you compete with the uh that a I think it's the ADI business from residio and it it sounds like they're looking at alternatives for that business.
Is.
John Engel: Yeah, I mean, look, we don't comment on any particular combinations. So it's, you know, I know it was announced earlier this week in that separation transaction. And, you know, I guess from just from a market perspective, we understand why those two businesses were separated. So, but we don't ever comment prospectively on potential combinations.
Is that something that you would kind of look at, um, from a, from an acquisition perspective, or or do you already have too much market share in that particular area, and it's not something that would work.
John Engel: Okay. Thanks so much for the time. Really appreciate it.
Yeah, I mean look we we don't comment on any particular combinations. Um so it's it's it's you know, it's I know it was announced um earlier this week and uh that separation transaction. And you know uh I guess from just from a market perspective we understand why there's 2 businesses were separated. So um, but but we, we don't have a comment prospectively on potential combinations.
John Engel: Thank you.
Okay. Um, thanks so much for your time, really appreciate it.
Operator: This concludes our question and answer session. I'll now turn the conference back over to John Engel for any closing remarks.
Thank you.
John Engel: Well, thank you for your support today. We've addressed all the questions that were queued up. So I'll bring the call to a close. And again, thank you for your support. It's much appreciated. We have a long list of follow-up calls already scheduled today, tomorrow, even into Monday and Tuesday. So we're looking forward to engaging with you. And then we'll be speaking to many of you over the coming months as well. We expect to announce our third quarter earnings on October 30th, 2025. Have a great day.
This concludes our question and answer session. I'll now, now turn the conference back over to John angle for any closing remarks.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect