Wesco International Inc (WCC) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q1 2009 WESCO International Inc. Earnings Conference Call. My name is Antoine and I will be your operator for today. At this time all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to Mr. Daniel A. Brailer, Vice President and Treasurer. Please proceed sir.

Thank you. Good morning ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review the first quarter 2009 financial results. This morning participating in the earnings call are Mr. Roy Haley, WESCO's Chairman and Chief Executive Officer; Mr. John Engel, Senior Vice President and Chief Operations Officer; and Mr. Steve Van Oss, WESCO's Senior Vice President and Chief Financial and Administrative Officer.

Means to access this conference call via webcast was disclosed in the press release and was posted on our corporate website. Replays of this conference call will be archived and available for seven days. Following the conclusion of this conference call, we will post on our website a supplemental financial data presentation that provides a summary of certain financial and end market information provided in today's commentary by management.

This conference call may include forward-looking statements and, therefore, actual results may differ materially from expectations. For additional information on WESCO International, please refer to the Company's SEC filings including risk factors described therein.

The following presentation may also include a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be found via WESCO's website at www.wesco.com.

I would now like to turn the conference call over to Mr. Roy Haley.

Good morning and thank you for joining us. I often start these meetings by trying to put our results into context comparing to prior periods or prior events. But given the significant decline in market activity and the state of affairs that we're in, that's pretty difficult to do. So what I'd like to do today is maybe just touch on a few things that have gone well during the past quarter, a few that haven't, and where we're putting our emphasis.

As you know we successfully renewed our accounts receivable facility and are maintaining a very high level of financing flexibility for at least the next three years. That was an important accomplishment for us and something that we told you we would be working on this quarter.

We've been awarded additional national account preferred supplier agreements indicating to us that large and sophisticated organizations are continuing to validate the ongoing effectiveness and competitiveness of our product and service offerings. Of significant importance is the fact that our management and sales and service teams have responded in an exemplary way as we have worked to right size the organization and our cost structure. Our personnel have also done a very good job of demonstrating the value in what we do and thereby protecting our margins. All of these activities have taken a lot of effort and we've made excellent progress.

Well where did we miss the mark? Well to borrow a phrase from political analysts and Clinton campaigner, it's the economy stupid. No criticism intended but we are dealing with a very challenging environment as are others in our industry. The market decline that we encountered in late November and December worsened quite a bit during the first quarter and considerably more than we had anticipated based on the data that we had at the time and the amount of business that we were continuing to see come in the door.

Activity levels have dropped and we've experienced some deferrals in certain project opportunities where we believe that we would be successful bidders and beginning during this part of the year or later in picking up additional business.

But by in large, our activities have proceeded based on adjusting. We have proceeded through the quarter and things have worked reasonably well in that regard. We're working very hard on a wide range of new sales initiatives and programs and we're taking cost reduction actions on an ongoing basis.

Well with that introduction, let me turn it over to Steve Van Oss for a recap of the financial results.

Thanks Roy. Good morning everybody. WESCO has a terrific franchise was built by the extra effort of thousands of dedicated and hardworking employees. These employees have positioned our Company as a premiere product service and solutions provider to our large base of customers in diversified end markets and as a distributor partner of choice to our blue chip supplier base.

Despite the extra effort of our employees, our diverse customer base, and a multitude of sales and marketing activities, we are not immune to the broad based economic slowdown. For the quarter, reported sales declined 19.5%. Our response was quick, decisive and is ongoing. Given the magnitude of the revenue shortfall, our overall results and ability to expand gross margins, make meaningful structural cost reductions, and generate record free cash flow have been encouraging.

Margin actions, which included multiple pricing and procurement initiatives, were successful in improving our gross margins by 30 basis points sequentially on top of a 50 basis point sequential improvement in the fourth quarter of 2008.

Further staffing actions resulted from the closure of 5 underperforming branches and personnel reductions affecting 500 positions during the quarter. Discretionary spending was reduced in excess of 30% during the quarter. Furthermore, capital expenditures have been deferred or eliminated resulting in a 75% reduction in cash outlays versus last year's first quarter.

Our emphasis on working capital performance, cash generation, credit availability and debt reduction resulted in $132 million of free cash flow for the quarter, a record first quarter performance for the Company.

Our liquidity position at the end of the quarter was $365 million and improved by $92 million over last year. Further bolstering our balance sheet, we renewed our Accounts Receivable Securitization facility this month, extending the term into 2012. We are highly confident our proven business model will again be resilient in this economic downturn, providing ample free cash flow and credit availability to fund operational and other financing requirements in 2009 and beyond.

Look at the first quarter results in a little more detail. Adjusting for the negative impact of foreign exchange and one less workday in the quarter, consolidated sales at $1.18 billion decreased 15.7%. Additionally, lower commodity prices primarily copper, which began a rapid decline starting in the fourth quarter of last year, contributed to the lower revenue. Sales of products with heavy copper and steel content declined by $65 million versus the first quarter of 2009 due to lower pricing and lower volume and accounted for 30% of the quarter-- decline for the quarter.

Volumes in these categories were affected by lower demand and our margin standards for incremental business. Sales of these products were down $58 million sequentially. Deteriorating end market activity throughout the quarter resulted in lower sales to customers in our industrial, OEM, construction and utility end markets. Sales to customers in Canada on a Canadian dollar basis were up during the quarter. Backlog, which consists of firm orders for future delivery, ended the quarter down 5% from year end.

Consolidated gross margins at 20.2% improved sequentially by 30 basis points despite a substantial decline in commodity prices during the fourth quarter and first quarter and a shift to a higher mix of direct shipment, project-related sales. Improvements in our project and stock margins more than offset this mixed shift as well as offsetting lower margins associated with sales of copper-related products in an environment where first quarter average spot to copper commodity prices declined by over 55% versus last year's first quarter and 11% versus last year's fourth quarter.

Our SG&A costs excluding $2.2 million of severance-related charge were reduced by $26 million or 12.4%. Sequentially, cost (inaudible) $17 million. Actions taken in the fourth and first quarter should result in annualized structural cost reductions of approximately $60 million. Identified actions being taken in the second quarter of this year will provide an additional $22 million of annual structural cost reductions. The 2009 impact of these permanent actions will be approximately $70 million.

In addition, volume and variable cost items like transportation expense and incentive payments should result in an additional $30 million of reduced expenses in 2009.

So in summary, we've taken actions that should result in overall annual savings totaling approximately $120 million of which $100 million should be realized in 2009.

All (inaudible) costs are low at approximately 2.9% and along with reductions in debt levels have allowed the Company to reduce interest costs $6 million from last year's first quarter.

As discussed in our press release, we implemented retrospectively APP 14-1, that's the new accounting standard covering convertible debentures. The application of this standard resulted in an increase of non-cash interest expense for the quarter of $3.8 million and a negative impact of $0.06 to earnings per share. Full-year impact of this accounting change is estimated at $15 million of additional non-cash interest expense and a negative impact of $0.25 to earnings per share in total.

The effective income tax rate for the quarter was 29% versus last year's first quarter rate of 31%. Full year 2009 tax rate is expected to be approximately 30%.

Net income for the quarter was $23 million and resulted in earnings per share of $0.55 versus net income of $43 million and earnings per share of $0.97 last year.

At this time, John Engel, our Chief Operating Officer, will provide additional commentary on our end markets and initiatives we are undertaking to deal with the current economic environment and to expand WESCO's market share. John?

Thanks Steve and good morning everyone. I'll be providing a performance summary for each of our major end markets. But let me first start out with a brief overview.

Sales to our construction, industrial, and OEM and utility customers were down 19.5% in the first quarter. The sales declines were broad based and occurred across the quarter and into April. As we did last quarter, we responded quickly and executed another round of cost reduction actions and we continue to place the priority on our margin improvement and working capital reduction initiatives. We'll continue to evaluate end market demand and we're planning and are taking further cost reduction actions in the second quarter in the second half of this year.

Our served markets remain large and our customers are increasingly looking for ways to streamline their supply chains and improve their productivity. We are dedicating additional sales resources to target these attractive end market segments. And we are investing in new initiatives to track and respond to the potential government stimulus plan opportunities.

WESCO is well positioned to provide value-added solutions to our customers. And recent feedback from suppliers and customers suggested our performance is better than our major competitors and the overall market.

Moving to a summary of our major end market segments and I'll start off with construction. Sales to construction customers were down in all but two of our geographic regions. Despite reduced new project activity and project delays and cancellations, the non-residential construction market remains large. With our size and capability, we have the opportunity to increase our participation rate in the available business and develop significant new customer relationships.

Our construction sales and service initiatives continue to be focused on large regional and national contractors, particularly those involved with healthcare, educational facilities, data centers, energy and government infrastructure-related projects. In the current environment, contractors are heavily weighing the financial health and stability of their potential distributors in their supplier selection and project award criteria. And this bodes well for WESCO.

Our project activity and opportunity pipeline in structured cabling remains healthy as our sales and marketing initiatives are yielding positive results. This was reflected in key wins in government and healthcare in the quarter.

We continue to expand our geographic footprint and have opened three communication supplier locations within existing WESCO branches so far this year. This brings our total new data com branch count to eight over the last year.

This branch-within-a-branch expansion strategy increases cross-selling and service opportunities in our blue chip customer base. Our long-term outlook remains for increasing bandwidth demand as customers will continue to migrate to higher capacity network architectures, invest in data centers, improve the security of their facilities and IT networks and seek green solutions that are both cost effective and reduce power consumption.

Green and sustainability is expected to be a growth driver over the mid to long term. WESCO has kicked off a series of symposium-style events in major cities across the US to provide education on the opportunities and benefits of green buildings and green data centers. We're positioning our company to be the trusted business advisor and solutions provider for our customers as they work to meet their energy efficiency requirements and sustainability goals while operating their firms in a cost effective and environmentally responsible manner.

We're also tracking the flow of government funds associated with the American Recovery and Reinvestment Act of 2009. This act is expected to fuel new construction and retrofit projects that require many of the products and services that WESCO sells. Specifically, civil works projects such as new water and sewage facilities and transit projects present opportunities for WESCO as does the government focused on energy efficiency upgrades to federal buildings and the new construction and renovation of VA hospitals, military bases and military multi-family housing.

Due to project time and considerations, it's unlikely that the industry will see significant benefits from the stimulus plan investments in 2009. But we do expect that opportunities will arise at an increasing rate as we move into 2010 and 2011.

Now moving to industrial, sales to our national accounts customers declined in the quarter, although the daily sales rate improved sequentially each month in the quarter. Our integrated supplier and OEM customers, most of whom are diversified manufacturers, reflected the overall weakness in the industrial market and declined by more than 20%.

National account bid activity increased significantly in the quarter and our national account opportunity pipeline expanded to another successive all-time record level. This indicates that purchasing executives at our customers are increasingly concerned about supply chain integrity and are looking for large financially-strong companies to mitigate their risks. We believe our increased activity levels reflect their heightened concerns and overall favorable assessment of WESCO.

Our customer-facing initiatives continue to be focused on providing value-added services and selling the complete WESCO portfolio of our products to serve our global customers' needs in MRO, capital projects, and OEM materials and value-added assemblies.

Shifting to utility, utility spending weakened in December and that trend has continued into 2009. Customers have been focused on addressing only the required maintenance activity, although transmission-related and alternative energy projects remain a priority over the mid to long-term.

We have an expanding pipeline of MRO alliance opportunities and secured a significant win in the quarter to provide MRO services to all the nuclear facilities of a major US utility.

The market does remain active with bid requests and interest in our lean customer value creation programs and integrated supply capabilities remains high. We anticipate that end market levels in 2009 will be down as utility customers evaluate power demands and continue to adjust their inventory levels and capital spending accordingly.

Despite these overall market conditions, we're actively involved in new customer presentations and remain well positioned as utilities look to rationalize their supply chains and respond to government stimulus funding for improving the nation's electrical system infrastructure.

So in summary, we're continuing to maintain a clear focus on our corporate financial priorities; number one, generating sales performance that is better than market; number two, managing and expanding our gross margins; number three, aligning costs with revenues; number four, managing working capital to deliver strong, consistent free cash flow; number five, maintaining a strong capital structure.

WESCO is a much stronger and more capable company today than during the last downturn in 2001 to 2003. In addition to our capital structure being in excellent shape, today's WESCO is bigger, with better end market and product diversification, is stronger with an expanded arsenal of lean initiatives and marketing programs, and is more profitable. We've strengthened our organization and talent base and have the strongest team that we've ever had where our extra effort in people and employees are our differentiator.

With that, we remain confident in our ability to exit this downturn an even stronger company. Now back to Steve.

Thanks John. I'd like to comment on pricing and then take a look at the rest of 2009.

As previously indicated, sales of copper and steel-based products were down $65 million in the quarter. Overall, we estimate there was approximately a $25 to $30 million of aggregate negative price impact on sales for the quarter as the positive impact of the 2008 general price increases were more than offset by lower commodity prices. Continuation of current copper price levels will negatively impact sales of copper-related products for the remainder of the year.

We have an established policy of marking up our inventory to current market levels and we're generally able to sell through commodity price declines. We do not anticipate taking any inventory write-downs in 2009 based on the current price levels.

Margin levels however on these projects will be compressed over the next 45 to 60 days as we continue to sell through the remainder of the higher-priced inventory.

For 2009, the rest of the year, given the volatility in virtually all of our served markets, we will not be giving detailed quarterly sales guidance or earnings guidance.

We remain confident that our sales and marketing initiatives and our leading market position will enable our company to perform better than the end markets as we maintain or improve current positions and grow with new customers.

Our April activity levels have continued to trend we have been experiencing the last two quarters. We had anticipated that we would be leveling off and seeing some signs of stabilization or recovery by now. But at this time, our best estimate is for top line revenue for the year to be down at a range of 15% to 20%.

Our near-term focus is on real-time right sizing of the business and maintaining ample liquidity and credit availability. The actions taken in the fourth and first quarters along with the second quarter actions that are underway should position WESCO to outperform others in our industry both commercially and financially.

We anticipate another $2 to $3 million of severance charges to be taken in the second quarter as we continue to adjust our cost structure in line with incoming order rates. Capital expenditures are expected to be in the range of $16 million for the year.

Our debt facilities are in good shape with our earliest maturity now occurring in April of 2012 for our new $400 million Accounts Receivables Securitization facility. Also in late 2010, we have the potential to have our $150 million convertible debenture put back to the Company. This redemption can be readily financed through current debt capacity or free cash flow over the next 18 months.

In summary, we had a reasonable quarter against a very tough economic backdrop. We have proactively addressed our cost structure in the face of further declining end market activity. The Company's in good position to execute in a difficult economic environment and we are confident we have the balance sheet and liquidity to allow us to further strengthen our position with customers and suppliers. We remain confident in our ability to outperform the market.

At this point Antoine, would you please open up the call for a question and answer session.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Sam Darkatsh with Raymond James. Please proceed with your questions.

Morning gentlemen. How are you?

Morning.

A few questions here. Number one, a number of your vendors have talked about really sharp destocking in the industry. And looking at your inventory levels, they were down but not as sharply as perhaps I was thinking based on the other commentary. Talk about what you're seeing in terms of the channel from a destocking standpoint either from a distribution standpoint or from a customer base standpoint?

Sam let me address both. We'll start with customers. Let's go outside in and start with customers and move to WESCO and what we're seeing and hearing about other competitors.

There's no doubt that our customers have been working to reduce their inventories. They've been working to cut costs permanently, structurally. They've been looking to defer costs and expenditures. So I-- you know depending on what customer segment you're talking about, we're seeing pervasive, across-the-board attack on costs and throttling down the expense side of the equation. The way they're controlling inventory is basically throttling or cutting off the input side of the inventory equation, which is purchasing. So we've seen those challenges. We're seeing those challenges with our industrial companies. You can't pick up a paper and see where a company isn't taking some a range of Draconian action. So we're seeing that no doubt.

For us, it's important to maintain an appropriate level of inventory, breadth and depth of inventory. Inventory availability is critical for us because we want to be there and make sure we can provide the service that our customers demand. We're in good shape financially. We have trimmed inventories as you've acknowledged. But we don't want to over correct here and not be in a position to serve customers, number one. Number two, because we are in good financial health, we can afford to carry these inventories. We had a very solid quarter in terms of free cash flow generation.

And we are hearing Sam that competitors that may not be as strong financially and I'm specifically referencing a lot of the regionals and small locals. You know what is the way for them to address their challenging financial shape or if their balance sheet's not in good shape. They're going to aggressively work the inventory side of the equation in two forms. One is shutting off purchasing and two, pushing back returns to suppliers.

Second question, Steve, what-- I can appreciate the effort in keeping the gross margins at or above 20% based on all the headwinds. Copper has switched since Q4, Q1 now. It's higher. It's a little over $2 or so. At what point does that become a benefit sequentially and how should we be looking at gross margins for the next two or three quarters, the foreseeable sight lines that we have?

We want to be able to maintain the gross margins in the geography we're at right now. And you could see I don't know a 50-basis point swing in any quarter.

As far as copper and we have-- if you have a average price of copper on the spot market was $1.75 in the fourth quarter, was down a bit in the first quarter, just under $1.60. Yesterday it closed out around $2.05, $2.10. So we'll probably see that be neutralized during this quarter and you know at this-- the range we're at right now should not have a significant impact on the results.

But you would imagine that there might be a chance that gross margins would be flat to even mildly up over Q2, Q3, over current levels?

Depends on mix and everything else. It's still an extremely competitive and challenging environment. You know I would see a 50-basis point move. It could be up or down. It's too hard to call at this level.

Then I'll ask one more then I'll get back in the queue.

Hey Sam, I'm going to-- if you don't mind, but we've got a number of people on the queue. Can we take this one at the tail end or I'll take it offline?

Of course. That'd be fine. I appreciate it.

Okay thanks Sam.

Your next question comes from the line of Matt Duncan with Stephens Inc. Please proceed with your question.

Good morning guys.

Good morning.

The first question I've got and John I appreciate all the detail you gave us on what you're seeing in all of your various businesses. But I was wondering if you could tell us how much your sales changed year over year for industrial, construction, and utilities?

Yes, I'll-- there are three big end market segments and as you know our industrial position is our largest at around 40% and construction's at 39% to 40%, utility's the balance. We saw declines across all three major end markets. For industrial and OEM down over 20%. As we said, the corporation was down 19.5%. Our construction just a tad under 20% and utility in the low double digit. I'll be specific on the numbers; industrial/OEM down 23%, construction minus 19% and utility minus 13%.

Okay. That's very helpful. You know as you look out in the marketplace for construction and you look at bid activity, the margins that are associated with the bids that you're making today and then also what's happening with your backlog, are you guys seeing meaningful cancellations? Is bid activity way down? Talk about what you're seeing in terms of the backlog type building process for the construction business right now?

Okay I think there's two key-- there's a number of questions and there are two key points I'll address. Let me first start with backlog. I think it's noteworthy that our backlog dropped considerably less than our overall sales. Backlog was down 5% in the quarter. So we would have preferred that backlog didn't decline. But the fact that it's down less than sales is encouraging. And as you know and as we've talked about in the past, our backlog includes construction-oriented orders and does not include our pipeline of opportunity. That's the first point.

Second point is in terms of an environment, the pricing environment and margin impacts, it is becoming increasing more challenging and competitive. There's no doubt about it. There are smaller and fewer project opportunities. And we are seeing anywhere of upwards of two to three times more electrical contractors and distributors bidding on these opportunities. The net result of that is increasing price pressures through the channel. In addition, what we're finding is contractors are traveling further from home to find work. They're taking jobs at lower margins. And all in an attempt to keep their workforces intact.

So, there's no doubt that it's a much more intense pricing environment. The type-- the mark-- the credit markets remain tight. So builders and owners are looking at potentially re-pricing their job, rebidding their jobs. So we've seen an increase in bid activity but I would not-- I would not spotlight that as encouraging. I would call it kind of an increased intensity due to really the fact that more players are competing for less business.

Thanks guys. I'll hop back in the queue. Appreciate it.

Yes. We're encouraged by our gross margin performance just to close that out. You know we're working very hard on all our pricing programs and supplier cost initiatives. So we're doing everything we can to try to kind of at least maintain if not improve going forward.

I'd just add to John's comments quickly. On our project business, we actually were able to expand our margins during the quarter and the margins in our backlog in our project business are remaining solid. So it is a tougher price environment. We're doing an excellent job of working the customers as well as our suppliers on that end.

Your next question comes from the line of Adam Uhlman with Cleveland Research. Please proceed with your question.

Yes hi, good morning. I guess just related to that last comment, what-- could you walk us through the drivers in change of gross margin from the fourth quarter to the first quarter in terms of how many basis points was mix, supplier purchase incentives, etc.?

Yes, basically we have-- the mix was slightly negative. Okay we had a 30 basis improvement sequentially and we were equal to last year. So the mix was slightly negative. We improved our stock and DS margins, which-- our project margins which I just mentioned. And for our supplier incentives and everything at that point in time, we've maintained what we call our spread for the most part between our product margins and our reported gross margin. That includes supplier discounts, customer discounts that we give, inventory adjustments and the like.

So we've kind of worked every angle of the equation on margins and have been able to essentially negate the natural downward tendencies that you see in an environment where sales are declining. So it's a little bit-- it's a lot of effort in a lot of areas with small incremental improvements in each one of the areas.

Now with the pricing environment appearing to deteriorate, are suppliers increasing your charge back allowances? Are you allowed to capture more savings from suppliers in this environment or how is that playing out?

No I would say the answer to that is probably no. It-- the distributor's going to, imagine a vice, coming in you have suppliers on one end and customers on the other pushing and the distributors in the middle has to flex back. So we're working literally every angle of the equation.

We've got a lot of opportunities that-- opportunities. We have a lot of areas that we are pushing on dramatically. We've used our lean processes really to address margin opportunities that relates to how we buy things, how we price it, size of customer, where we can work with our suppliers and the like. So there's some supplier optimization going on inside our business and other items. So I wouldn't point at one thing. I think the good news is, is it a multitude of initiatives.

Okay and then Steve the $70 million of savings or $100 million if you roll it up, how much of that for the year did you capture in the first quarter?

We had roughly $20 some million. Our SG&A was down $26 million once you adjust for severance. But we got almost a quarter of that. And a lot of that came because of the volume was-- the volume component was a little higher than what we would expect for the full year. But I got to give great compliments to the organization for the speed at which we've acted on, our management team and our employee base have been just terrific in this area.

Yes I want to echo that. We've spoken in the past about-- cause we've gotten the question repeatedly. How quick can you react? And we said we'll be quick reaction, quick response. And this really started in the fourth quarter, continued throughout this quarter. And I echo that we want to really recognize our team for-- across the organization for responding.

Great. Thanks.

Your next question comes from the line of Shannon O'Callaghan with Barclays Capital. Please proceed with your question.

Good morning guys. Hey, you know I realize you're doing a lot of things to offset this as you were saying. But in terms of just-- can you give us a little more flavor on how competitive the bidding is now for these projects in terms of how much lower the prices are going to be on the initial bids? So you know how much do you have to make up through lean and through going back to suppliers and trying to get more leverage that way? How-- give us a sort of a order of magnitude on the competitiveness of the bidding?

It's a wide range. There's no-- we can't put a good aggregate number on it cause quite frankly when you think about our diversity of geography, product categories, end market segments and what these specific competitive dynamic is related to that bid.

You know I'll just tell you that the pressure has intensified. There is more water troughed up so to speak. The other thing that we're arguing is we've got financial staying power. So as we go to our suppliers and say, at the end of the day, we would like as much support as possible. We're working with you. You work with us. We're going to be around. So you know that should take the form of some preferential cost side support, hopefully cause we're partnered with our top suppliers and we're going-- we've got staying power.

Now does that translate on a specific bid basis? You know well we're again-- we're working all levers possible. There's no way to put a good number on it. We have talked in the past about using our ABC model. And if you remember, we are really focused on total bottom line profitability. And we're optimizing using the ABC model.

We know what customers are profitable. We know what customers are not as profitable. Where we have a profitable customer, our business model works. The customer values what we do. And so we factor that into our pricing strategy.

Okay. And then you know you said a weakness continued through April. Can you give us a little more flavor on how it played out month to month through the quarter? And you know you're saying I think down 20 for the year. In terms of stabilization, can you just give us what that monthly trend will look like?

Yes what we talked about is the fourth and first quarter trend continued. And that was a trend where you know we're kind of down slightly for the quarter. Started in November, accelerated in December. And we essentially saw it accelerate throughout the first quarter. And as we exited March, April's been in that type of a level. So just north of 20%.

Okay, so March and April-- so each month is still sort of worse than the month before in terms of year-over-year decline? Or March and April were about the same?

Yes we saw a progression getting worse. In March and April were similar.

Okay. Thanks guys.

Your next question comes from the line of John Baliotti with FTN Equity Capital Markets. Please proceed with your question.

I don't know if this is a question for John or for Roy, but I was just curious is there anything-- you know obviously as your customers work down inventory and capacity utilizations are at low levels, are you getting anything from the field in terms of what the local competitors are-- how they're faring?

Well it's pretty hard to get that information. We pick up some bits and pieces. But it's hard to confirm the reliability of the information we get. We try to track what's going on with buying groups and how their memberships are faring. But again that-- there's no public reporting there. So it's very idiosyncratic picking up the little bits and pieces of information.

But we get better information as we talk with our supplier partners and who have-- serve a broad range of customers. And we compare with certain broad terms how we're doing and how their other customers are doing, sort of in the aggregate. And with a wide range of our largest suppliers can tell you we're-- the data that we're getting, the feedback that we're getting is that our performance is outpacing the market, meaning that others are faring more poorly.

Can't tell you about specific suppliers, depends on the relation-- I mean competitors. It depends on the relationships they have, the kinds of customers that they have and how those customers are performing in their given market areas. But just generally speaking this is an industry-wide phenomenon. It's affecting all the players in the industry, the manufacturers, the distributors and customers of course as well.

I would think that just because of they're more focused on a geography or by customer subset that, you know that unfortunately it is-- it's private information but that they would have to be faring worse than the bigger distributors?

Well the diversity that we get in our business is a real strength. We're not reliant on a single market or for that matter a single industry or product type. So that does give us some additional strength without that kind of concentration.

I'm sure they don't want to give you price or-- you know I'm sure that in this environment it's tough to get that, but is there-- are you noticing a different relationship with your suppliers given that you're probably on a relative basis more stable than some of their other customers?

Well I don't want to overplay that. I think the thing that most of our suppliers appreciate is that while we're making some tough decisions organizationally, we are equally as focused on increasing market performance. We have a wide range of sales initiatives. We tailor those with major supplier customers. We've formed stronger relationships in teams. I've been out on the road the last couple of weeks specifically calling on major suppliers. And I think they're all pleased that we are approaching this particular environment as a-- with a mindset that problems can create opportunities. And if we can be proactive, if we can be creative then we can help them as well as them helping us. And I think those partnerships are clearly stronger than ever because of that kind of mindset.

Okay. Thank you very much.

Your next question comes from the line of David Manthey with Robert W. Baird. Please proceed with your question.

Hi guys. Good morning. Two clarifications and a question-- Steve did you say that roughly a quarter of the $82 million in cost savings had hit the first quarter already?

Yes we-- our SG&A was down about $26 million adjusting for the one-time charge. If you look at the permanent of $82 million, we would estimate probably in the neighborhood of, for the year, roughly $70 of that $80 we'll hit for the year. And we got not quite a full quarter of that component. We did get a little bit more of the volume-sensitive savings because of the sales being down further than anticipated.

Right, okay. And then in terms of the discussion month by month here, could you discuss the seasonal ramp in terms of timing and magnitude? To say that the year-to-year declines are starting to stabilize now, does that imply that you are seeing an increase in dollar average daily sales in April?

If you look at our business, first quarter is typically the smallest as far as percent of the total year in unit. Second and third quarter were generally the largest and generally equal to each other. So and then the fourth quarter comes down a little bit, falling off from the-- on a seasonal basis. We are seeing and would anticipate seeing higher sales in the second quarter. But I would not tell you at this point in time that the rate of decline has changed. We've not seen it-- we've not seen something we could the bottom yet.

Right, okay. And then final question, could you discuss about the topic of your backlog, with the April [beige] book reflecting a, almost a complete lack of financing for new projects, would it be reasonable to think that you'll work through your backlog as we've moved throughout 2009?

I guess I didn't read the beige book the same way that you did as a complete lack of financing for projects. A lot of project activity is-- either was-- is already funded in some way that is those that are already started and moving ahead. There clearly are some high profile projects that have interim funding issues that are in the news quite a bit.

But we're still seeing new projects of various types, healthcare, various governmental projects, energy-related initiatives. We've started a number of industrial projects related to energy. The capital spending plans for example of all the major petrochemical companies are still very large. They may be cut back somewhat, but they are very large in size and scope. So there's still activity going on and new projects being planned and moving ahead.

Now there clearly are projects that are sensitive to financing. You know even something like the wind energy wind farm activity has slowed down in part because the developers are finding it more challenging to get the financing that they need on lower demands for energy.

So there are some dynamics that are going on that I think you're absolutely right, there are funding challenges. But I don't think they're as significant as maybe you're pointing out.

Very helpful. Thanks Roy.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Please proceed with your question.

Thanks, pretty impressive cash flow. Just a question on that. Where can you go from here? It's been tremendous of late, but getting a little deeper into the well given the demand environment. Can you comment on expectations in that front?

Sure I mean obviously a very strong cash flow quarter, big feeling on that was the lower sales volume with the lion's share of the cash flow being driven through very strong accounts receivable performance during the quarter. We would expect to see even on the lower earnings for the year, our total year cash flow will be in the range of where we were last year, maybe up a little bit. As we move into the second quarter and hit a seasonal growth in sales, which is anticipated, that will consume some of the cash which will be probably-- we would expect probably in the range of $50 million or so in the second quarter.

Okay, pretty good. And then did you mention what the pricing was in the quarter?

Pricing sorry-- what we thought the impact of pricing was?

Yes for the first?

About $25 to $30 million.

Okay. Thank you very much.

Negative.

Your next question comes from the line of Dan Whang with B. Riley. Please proceed with your question.

Yes, morning. First question was regarding the mix of between direct and stock products. For the company overall, I mean how-- what was that percentage of mix and how is that-- how did that change year over year?

We had slightly-- Dan it's slightly higher, the amount of project that I think as John talked about the industrial construction margin that you can see that we had (inaudible) impact on the project business. But even with that was not a significant change. You know we generated around roughly 40% project business, and roughly 40%, a fair amount in the industrial. The rest would be in our utility and governmental and commercial markets. So not a big change but a slight change.

Okay and in terms of the gross margin improvement that you saw on a sequential basis, I mean did that come more from the one category or the other?

No it was pretty broad based. We have a host of initiatives addressed at margin improvement and as I think I just said earlier, it was a lot of small wins across a variety of our end markets. So I-- we did have some pretty decent improvement in our project business but we also saw it in our day-to-day MRO as well. And that essentially offset the mix shift.

Got it. And just in terms of the free cash flow again. I mean obviously you've paid down a substantial amount of debt during the quarter and I mean in terms of how you, you know allocate that, would that-- is the intent going forward?

Yes we're going to continue to-- to continue to address the-- our debt and maintain strong liquidity.

Got it. And finally you talked about some of the turns in national accounts and integrated supply and I think this directly those businesses have outperformed your other segments historically even during the last downturn. And you know do you think this kind of the negative trends you saw there is that, you know, it's a lot more temporary? I mean kind of [gloss] around the outlook on those businesses?

Yes I mean we would expect that again we would outperform the overall market with our national accounts and integrated supply business model. And I think what we experienced in the first quarter was an extension as Steve said that what we started to see in December you know literally across-- you know we have 15 different end market segments in industrial and we were down across a high percentage of those. And so what we've seen is this broad based across the board decline-- you know in terms of deferrals of capital spending and expenses, shutting down factories, etc. And so you think about that as if these Draconian actions that were taken by many of our customers over the last four-month period.

I did mention that bid activity is up. We're encouraged by that. It's significantly up. And our opportunity pipeline, which again does not reflect what's in backlog, we have a five-stage opportunity development process where we track opportunities that go through the bidding stage and our proposal submittal stage and ultimately our win or loss stage, is at an all-time record level as we left-- as we exited the quarter, more national accounts.

Great. Thank you.

Your next question comes from the line of Bernard Horn with Polaris Capital. Please proceed with your question.

Hi, good morning. I wonder if you could give us perhaps a little bit more historical context in the sales change year to year? I'm kind of curious about the split between industrial, construction, and utility. And my sense would have been that the construction business declines would have been much stronger than the industrial. I know it all happened very rapidly last year.

But I'm kind of surprised or maybe not surprised that the industrial has been that much weaker than construction business given that I thought construction would have been feeling the pain a little bit more than the industrial. And so maybe the-- you can give us a little bit more-- has the industrial just started to fall off more recently or was it always that way throughout the decline? And then industrially are there more-- as you have more exposure let's say to the auto business or other industries that are feeling the pain more?

First I'd say this is following a little bit of [passes per log] and we saw this in the 2001 to 2003. And it really, if you think about our business model, makes a lot sense. The MRO day-to-day activity gets hit by the reduced industrial production and inventory destocking comes more rapidly and hits our industrial businesses quicker.

But project business tends to be a more long-- larger projects have a longer life, put into place. And once the project's started, it's generally not stopped. It moves onto completion perhaps with some delay. So this is really fitting the pattern somewhat of what we've seen before.

We used to characterize the company a little bit of being a more late cycle business as we had a larger component of construction business. And you go back generally 10 or 12 years ago, we've really balanced the WESCO business model not only from a type of end market whether that's MRO, project, direct materials, our addition with big data component with some acquisitions has helped really stabilize that.

As far as your comment regarding any certain end market, you mentioned automotive. We do not have a big exposure to automotive. We are-- one of the strengths of WESCO is a very diverse customer base. And as you go across the multiple end markets we serve, we don't have a single end market that would be dominate in the WESCO portfolio.

So it's following-- you know there's no surprises to us here as far as kind of how the relative mix is. I think probably like every other corporate executive, we are "surprised or concerned by the speed and the depth of the slowdown in overall economic activity".

And then the bottom line is the [de-capacitization] for the industrial companies. They're taken out capacity. They shut off spending. And they're riding down their bumper stacks for MRO supplies that feed their factories. So ultimately they'll reach a point where that'll have to start kicking back in. It's that-- really it's that simple.

Yes and then, obviously some of this capacity has just been really taken out some of it's-- in the past, it's moved overseas. But the-- I guess I'm trying to reconcile that to the comment that your new business activity has never been, you know, it's kind of at a record. And is that-- if we reconcile those two things, does that mean that you know at some point where have gone through the inventory destocking phase and we're now down to a base level of industrial demand that is going to bump along at this level for who knows how long but where does the new account activity-- you know how does that factor into this whole sales change?

The opportunity pipeline, it's at an all-time record level that I commented on is with respect to our national account customer opportunities. So what we're seeing is and we've got a majority of Fortune 500 companies at our current customer base as national account models implement. It's a customer share play. We're looking at trying to do more with those current customers as they take a look at rationalizing their supply base, cause they're concerned about supply chain integrity. We're seeing the opportunity to take more customer share. In addition, we had two new additional national account wins in the quarter. We maintained a 100% contract renewal rate the last two years. There were no renewals in the first quarter but the overall pipeline again for doing more with current customers and new customers asking for national account-like service models. We have to make those available and propose those has hit an all-time record level. That's what those comments are with respect to.

And is that-- when you say it's at a record level, does that mean that the sales, you know the volume activity that you could bring in if you were to win all that business is also-- or it's not just like the number of new things that you're busy with?

The record is in terms of dollars.

Okay. And so if you compare that to the 22% change, how does that-- you know is there any kind of an offset that we could say alright, you're going to be down 23% but you're going to make up 5% of that on new activity if-- you know if you win a lot of that business?

I mean there's a long tail and there's different gestation periods. To some it-- depending on where it is in our pipeline, we've got a five-stage process. And what's the total scope? And when does that opportunity come alive? You know I think the-- what we're trying to articulate is the overall trend.

Some Draconian actions were taken over the last four to five months in the industrial space, dramatic. And yet, we're seeing more and more requests for additional-- expansion of our business model, doing more business with current customers and new customers that we don't have today are knocking on our door, saying can you do this for us? That trend is very positive. It will have all different-- you know different life cycles in terms of our ability to turn that into meaningful sales. And we're working on it very aggressively.

The trend is positive on the opportunity pipeline. And we would expect that because over the last downturn we grew materially double digit, 10%, with our national account business throughout the downturn.

Okay. And the national account is that primarily in the industrial or is-- does it fall over into utilities as well?

Its origins and roots were in the industrial space, but we've taken variants of that model and applied it to utility customers and large contractor customers, national contractors like an [M-COR] or [IAS IKEA] with and also major EPCs like a (inaudible). So but the-- you're correct kind of the roots, the genesis of it started in industrial and actually started decades ago when we were still part of Westinghouse. And we've just-- we've built upon that.

Okay, thanks very much.

We have time for one quick question and then to be respectful of the one-hour conference call, we'll shut it off at that point.

Your final question comes from the line Mike Barone with Sidus. Please proceed with your question.

How you doing guys? Just a quick question on the debt reduction during the quarter. Where did that come from? Did that come out of the bank line or what did you guys pay off?

A combination of our inventory revolver and our accounts receivable securitization. We just balance between those two lines of which one gives us the lowest rate, we'll keep that at the highest level. So we have the ability to adjust the revolver on a daily basis. And so that's-- those two lines, revolver and securitization.

Okay great. Thank you very much.

Well thanks again for joining us. It's very interesting times. I can only say that our team is energized to do the right kinds of things. We've got a lot on our plate and that involves both the finding ways to develop more business as well as challenge ourselves on how to make our business model more cost effective and efficient, not only for the short term but for the long term as well. And we'd expect to see coming out of this period a stronger and more productive organization just as we did several years back. Thanks again for being with us and have a good day.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.