Wesco International Bets on 2026 Earnings Breakout

Wesco International ((WCC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Valentine's Day Sale - 70% Off

• Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
• Stay ahead of the market with the latest news and analysis and maximize your portfolio's potential

Wesco International’s latest earnings call struck a cautiously optimistic tone as management highlighted strong top-line momentum, record backlog, and outsized data center growth, while acknowledging near-term pressures on cash flow and margins. Executives framed 2026 as an inflection year for free cash flow and profitability, even as mix headwinds, public power weakness, and higher interest expense weigh on results in the meantime.

Record Sales Underscore Resilient Demand

Wesco reported fourth-quarter revenue of $6.1 billion, up 10% year over year with 9% organic growth, underscoring resilient demand across its portfolio. Full-year sales climbed to $23.5 billion, an 8% increase with 9% organic growth, confirming that the company is still gaining share despite sector-specific softness.

Data Center Boom Becomes a Core Growth Engine

The standout story was data centers, where fourth-quarter sales reached about $1.2 billion, roughly 30% higher than a year ago. For the full year, data center revenue surged to $4.3 billion, up approximately 50% and now representing around 18% of company sales, with CSS leading the charge in this fast-growing vertical.

CSS and EES Deliver Strong Segment Performance

The Communications & Security Solutions unit posted 14% organic growth in Q4 and 17% for the full year, while its backlog jumped nearly 40% year over year. CSS also expanded its adjusted EBITDA margin to 9.1% in the quarter, lifting segment profit by roughly 30%, and the Electrical & Electronic Solutions unit delivered 9% organic growth in Q4 with margin gains to 8.5%.

Backlog Growth Signals Solid Near-Term Visibility

Company-wide backlog increased 19% from a year earlier, providing visibility into future revenue even as some end markets soften. CSS backlog rose about 40% and Utility & Broadband Solutions backlog climbed 23%, signaling robust project pipelines across major businesses despite near-term public power and broadband challenges.

2026 Targets Call for Above-Market Growth

For 2026, management is targeting reported sales growth of 5% to 8%, with organic growth of 4% to 7% supported by both volume and pricing. That outlook implies Wesco expects to outgrow its underlying markets while improving mix and execution sufficiently to lift profitability alongside revenue.

Free Cash Flow Poised for Sharp Rebound

After generating just $54 million of free cash flow in 2025 due to working capital investments, Wesco is aiming for a dramatic improvement in 2026. Management is guiding to $500 million to $800 million of free cash flow next year, driven by better cash conversion as net working capital is planned to grow at roughly half the pace of sales.

Capital Returns and Balance Sheet Discipline

Shareholder returns are set to rise, with Wesco planning to increase its annual dividend by more than 10% to $2.00 per share, or about $100 million per year. At the same time, executives reiterated that debt reduction remains a key priority, complemented by disciplined share repurchases and selective acquisitions rather than aggressive dealmaking.

Digital Transformation and AI Recognition

Wesco continued to advance its tech-enabled transformation, rolling out new technology stack pilots across its strategic business units and building a centralized data lake to support AI-driven tools. The company’s push into advanced analytics earned it a #10 ranking in Fortune’s inaugural AI list among Fortune 500 companies, validating its digital strategy.

Leadership Continuity Through CFO Transition

On the leadership front, the company detailed a planned CFO succession, with current finance chief David Schulz set to retire in May 2026. Responsibilities will transition to incoming CFO Neil Deve under a structured plan designed to preserve strategic continuity and reassure investors about the stability of Wesco’s financial stewardship.

2025 Cash Flow Drag from Working Capital Build

The most notable blemish on an otherwise strong year was weak free cash flow of only $54 million in 2025, despite healthy revenue growth. Higher accounts receivable and a significant inventory build, tied to supporting strong sales and backlog, absorbed cash and highlighted the near-term cost of funding the company’s growth cycle.

Gross Margin Compression from Mix and Competition

Full-year gross margin slipped 50 basis points to 21.1%, reflecting less favorable project and product mix and heightened competition in certain markets. While company-wide adjusted EBITDA margin edged up only 10 basis points to 6.5%, management emphasized 2026 as the year when mix improvement and operating leverage should begin to show more clearly.

UBS Feels the Pain of Public Power Weakness

The Utility & Broadband Solutions segment struggled, with full-year reported sales down 5% and organic sales down 1% amid public power softness. Although UBS returned to 3% organic growth in the fourth quarter, its adjusted EBITDA margin declined about 120 basis points in Q4 and roughly 90 basis points for the year, pressured by aggressive pricing in transformers and related products.

Broadband and Public Power Remain Near-Term Soft Spots

Broadband sales fell by high single digits in the fourth quarter as the business faced tough comparisons to last year’s surge. Public power customers are still normalizing inventory and facing price pressure, and management does not expect this area to return to growth until around the end of 2026, keeping a lid on UBS momentum in the near term.

Higher Interest Expense and One-Off Headwinds

Non-operating items also weighed on earnings, with interest expense rising due to the issuance of 2033 notes used to redeem preferred securities. In addition, a roughly $10 million one-time adjustment to interest on taxes payable further dragged on reported results, although these items do not reflect core operating performance.

Incentive Compensation Lifts SG&A and Skews Comparisons

Selling, general, and administrative expenses rose about 11% year over year in the fourth quarter, driven largely by the restoration of incentive compensation from a unusually low base a year earlier. Management framed this as a comparator issue that temporarily reduced operating leverage but aligns pay with strong underlying performance and long-term targets.

Guidance: 2026 as a Cash and Margin Inflection Year

Looking ahead, Wesco expects 2026 reported sales to grow 5% to 8%, with CSS growing at a high-single-digit or better pace, data centers up mid-teens, EES in the mid-single digits, and UBS in the low-to-mid-single digits as grid services accelerate and public power recovers. The company is targeting an adjusted EBITDA margin of 6.6% to 7.0%, adjusted EPS of $14.50 to $16.50, free cash flow of $500 million to $800 million, and an improved Q1 with high-single-digit sales growth and a stronger margin profile.

Wesco’s earnings call painted a picture of a company riding a powerful data center and infrastructure cycle while grinding through temporary cash and margin pressures. For investors, the key debate will be whether management can deliver on its 2026 cash flow and profitability targets, but the record backlog, rising dividend, and digital investments provide tangible reasons to watch this story closely.

Disclaimer & DisclosureReport an Issue