Wesco to reduce debt ‘quickly,’ reach targeted leverage range in 2018

By Devika Patel

Knoxville, Tenn., Dec. 13 – Wesco International, Inc. plans to reduce its debt “quickly” and bring leverage metrics into the company’s targeted range of 2x to 3.5x total debt to EBITDA from its current 3.7x leverage ratio.

The company has been generating strong free cash flow, which it will use to reduce debt, and management expects to be within its targeted leverage range in 2018.

“We have used our capital structure and cash flow to fund acquisitions and quickly reduce debt afterwards,” senior vice president and chief financial officer David S. Schulz said on the company’s 2018 outlook conference call on Wednesday.

“In doing so, we have historically been able to manage our financial leverage ratio against our targeted range of 2x to 3.5x total debt to EBITDA.

“At the end of the third quarter, we were at 3.7x leverage, having repurchased a total of $100 million of shares during the second and third quarters of 2017.

“We have retained fairly consistent debt leverage in the downturn as well as in an upturn.

“With our track record of cash flow performance, we expect to be within our target range in 2018,” Schulz said.

Debt reduction is a priority.

“Our near-term focus, because we bought back $100 million worth of stock last year which drove our leverage up, is debt reduction,” chairman, president and chief executive officer John J. Engel said on the call.

“We’re very focused on that as the number one cash utilization priority in the very near term and, given our strong and consistent free cash flow generation, we’ll de-lever very strongly next year as we have in the past,” Engel said.

Management expects strong free cash flow to continue into 2018.

“Strong cash flow is a hallmark of Wesco and as 2017 draws to a close, we expect to have delivered nearly $1 billion of free cash flow over the past four years,” Schulz said.

“Our working capital management is an important determinant of free cash flow and we continue to focus our efforts to improve overall working capital velocity.

“For a business our size, we have historically operated with a relatively low level of required capital expenditures, typically, $20 to $30 million per year on average.

“For 2018, we expect continued strong cash flow performance, with free cash flow exceeding 90% of our net income,” Schulz said.

Wesco is a Pittsburgh-based provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services.

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