Wesco International Inc (WCC) 2010 Q4 法說會逐字稿

Good morning. Welcome to the WESCO fourth quarter and full year 2010 earnings conference call. All participants will be in listen-only mode. (Operator Instructions)After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Daniel Brailer. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review the fourth quarter, whole year 2010 financial results. Participating in the earnings conference call this morning are the following officers. Mr. John Engel, President and Chief Executive Officer, and Mr. Richard Heyse, Vice President and Chief Financial Officer. Also participating in today's call is Mr. Steve Van Oss, Senior Vice President and Chief Operating Officer, who will be commenting on the recent acquisition of TVC Communications. Means to access this conference call via webcast was disclosed on the press release and was

posted on our corporate web site. Replays of this conference call will be archived and available for seven days.

A supplemental financial presentation has been produced, which provides a summary of financial -- certain financial and end market information to be reviewed in today's commentary by management. We have posted this presentation on our corporate web site and filed it with the Securities and Exchange Commission.

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 the 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 obtained via WESCO's web site at www.WESCO.com. I would now like to turn the conference call over to John Engel.

Thank you, Dan, and good morning, everyone. We delivered a strong fourth quarter to close out an excellent year. Execution of our growth strategy is on track, resulting in increasing momentum across our global business during 2010. After declining 3% in the first quarter, sales grew 9% in the second quarter, 15% in the third quarter, and 18% in the fourth quarter, resulting in full-year growth of 10%. Customers are responding favorably to our One WESCO initiative to actively promote, sell, support. And support our comprehensive portfolio of products and services across our businesses.

In Q4, we experienced double digit sales growth in all four of our end markets except for Utility and in all six of our major product categories. Of particular note was the continued growth in our backlog, which remained at a record level in the quarter, up 18% versus prior year-end. The fourth quarter results highlight the effectiveness of our sales and marketing programs and demonstrate our continued ability to take advantage of growth opportunities, capture share, and improve our market position.

Overall, this has translated into operating margins of 4.5%. Net income of $35 million and EPS of $0.72 in the fourth quarter which were up 70 basis points, 60%, and $0.21 respectively over prior year. The strength, diversity, and operating leverage of our business model are clear and are reflected in the improving profit quality of our business where operating margins improved from 3.3% in the first quarter to 4.5% in the fourth quarter. Operating margins on a full-year basis improved to 4.2%, up 80 basis points versus prior year after adjusting for the impact of the temporary cost and benefit reductions in 2009.

We're continuing to invest in our business and are making excellent progress on our previously outlined eight major growth initiatives. Sales in our Industrial Construction the CIGN market showed particular strength in the quarter posting gains of 28%, 15%, and 22% respectively versus last year while Utility sales declined 8%. Sales on our Data Communications product line continued to show good momentum and were up 18%. We enter 2011 with an expanding global footprint and an increasing set of customer growth opportunities, which are reflected in our combined global accounts and government opportunity pipeline of over $2.4 billion. Overall, while bidding activity remains competitive, we are encouraged by our improving sales and gross margin trends in 2010.

Our disciplined and balanced approach to improving asset management and deleveraging our capital structure remains in place. We increased our working capital turns, improved our financial leverage, and maintained sufficient liquidity levels in 2010. Free cash flow generation of $112 million last year was strong at 97% of net income as we continued to fund our strategic initiatives while growing the business 10%. We believe that our capital structure is in excellent shape, affording the Company the continued financial flexibility to support our strategy of above-market organic growth plus accretive acquisitions.

We strengthened our portfolio with the acquisitions of Potelcom in June and TVC Communications in December. Expanding our suite of products and services, and expanding our geographic footprint into previously untapped international growth markets. We enter 2011 with an improved product mix where the communications product category is expected to represent approximately 20% of our total portfolio sales with the addition of TVC. Versus just 2% five years ago.We believe the long term growth potential in communications product is very attractive and we are well positioned for continued growth. Our long-term outlook remains unchanged, and as we expect the economy to continue to recover slowly over the next few years. We expect overall and economic growth to continue in 2011 but at a more moderate pace. Our 2011 end market outlook includes growth in industrial and CIG, initial stabilization and nonresidential construction, and improvement in utilities as we move through the year. We remain on track to deliver against our 2013 financial targets, which were outlined in our investor day in August of last year. Specifically for 2011, and consistent with our 2013 targets, we expect total sales growth to be at or above 12% and operating margins to expand by at least 50 basis points. In addition, we expect to be above our annual net income growth target of 20% to 25%. In summary, our strategy of providing industry-leading supply chain solutions to our global customers is being executed. As we focus on expanding our business through above market organic growth plus accretive acquisitions. We see excellent opportunities to continue to strengthen our portfolio, accelerate our growth initiative and expand our geographic footprint and customer base. I'd like to thank all our 6800 plus WESCO employees for their extra effort and commitment in working together as one WESCO team to provide superior customer service and to actively sell and support our portfolio products and services to all customers. I'm very proud of the results delivered in 2010, and I'm confident in our team's ability to produce outstanding results again in 2011. Now, Richard Heyse, our CFO, will provide details on our full-year, first quarter outlook for 2011. Steven will also again give a quick update on our integration of TVC Communications, and then we will open it up for the question-and-answer session. Richard?

Thanks, John. First, I will share with you our fourth quarter results, and then conclude with our 2011 first quarter and full-year outlook. Our fourth quarter total sales were up 17.6% year-over-year and up 0.5% sequentially. Sales for the quarter compared to last year included a 0.7% positive impact from foreign exchange.

We closed on two acquisitions in 2010. Potelcom with annual sales of approximately $25 million was acquired on June 30, and TVC Communications with annual sales of approximately $298 million was acquired on December 16. Sales from these acquisitions had a 1.1% positive impact on fourth quarter total sales versus the prior year. Our fourth quarter organic growth rate of 15.7% excludes the impact of foreign exchange in acquisitions. Sequential sales increased $7 million or 0.5%. The sequential impact of foreign exchange and acquisitions on fourth quarter total sales was 0.3% and 0.9%, respectively. For the full year, total sales were $5.1 billion, up 9.5% over 2009. Sales for the full year included a 1.3% positive impact from foreign exchange and 0.4% from acquisitions.

Our fourth quarter gross margin which includes the favorable impact of supplier volume rebates and inventory-related reserve rates was 20.3%, up approximately 110 basis points year-over-year. This improvement in fourth quarter gross margin was driven primarily by an increase in our supplier volume rebate rate and favorable inventory reserve rates. In addition, despite a very competitive landscape and rising commodity prices, we were also able to slightly improve year-over-year product margins.

Sequentially, product margins were steady. The buyer volume rebate rates improved and inventory-related reserve rates were favorable. Our fourth quarter sequential supplier volume rebate rates were the result of our strong sales momentum throughout the fourth quarter driving increased full-year overall rebate rates. 2010's full-year gross margin at 19.7% represents a 25 basis point improvement over 2009.

SGA expenses for the quarter were $204 million, or 15.3% of sales, compared to $168 million, or 14.9% of sale in the comparable 2009 quarter. Our fourth quarter 2009 results included the net favorable impact of approximately $6 million in temporary cost and benefit reduction. In total, WESCO had approximately $25 million of net temporary cost and benefit reduction in 2009 with approximately $12 million in Q2, $7 million in Q3, and $6 million in Q4. Fourth quarter 2010 SG&A expenses were somewhat higher than third quarter's SG&A of $191 million due to increased commission incentive rates triggered by higher sales, costs related to our TVC acquisition, and two weeks of TVC operating expense. Our increased SGA levels have been instrumental in supporting our sales growth in both the fourth quarter and full year. We expect to continue our balanced approach to disciplined cost control and focusing investments to improve our overall market position.

Operating profit for the fourth quarter was $60 million versus $42.6 million dollars for the fourth quarter of 2009, a year-over-year increase of 41%. Adjusting for our temp 2009 temporary cost and benefit reductions, year-over-year operating profit increased approximately 64%. Operating margin at 4.5% of sales hit 70 basis points higher than Q4 2009 operating margin of 3.8%. 2010 operating margin is at 130 basis points higher after adjusting for 2009 temporary cost and benefit reductions. Full-year operating profit pull-through, after adjusting for temporary expense reductions at 57%, was above our target of at least 50%.

In the fourth quarter, we resolved the US-Canadian tax matter involving royalty payments and other fees. Successful resolution of this matter, netted several other one-time international tax items, had a $0.03 per share unfavorable impact on fourth quarter's EPS, impacting interest expense unfavorably, income tax expense favorably, and net income unfavorably. As a result, our fourth quarter effective income tax rate was reduced to 21.1% in comparison to the 26.6% rate experienced in the fourth quarter of 2009. Our full-year effective tax rate after adjustment was 27.9%. This is slightly favorable to the 28% to 30% guidance we provided at the beginning of 2010.

Fourth quarter net income grew 60% to $34.8 million and resulted in an EPS of $0.72 per share on $48.3 million fully diluted shares outstanding. This compares to a reported net income of $21.8 million dollars and an EPS of $0.51 per share on 42.9 million fully diluted shares outstanding in the fourth quarter 2009. Our fourth quarter 2009 temporary cost and benefit reduction had a $0.10 per share favorable impact on last year's results, while tax items had a $0.03 per share unfavorable impact on the current quarter's results. Our current quarter results therefore reflect a $0.34 per share underlying improvement in EPS. Likewise, the combination of a full-year, 2009 temporary cost and benefit reduction and gain on debt retirement had a $0.60 per share favorable impact on full-year 2009 EPS, while the combination of our first quarter LADD JV divestiture and fourth quarter transfer pricing resolution had a $0.09 per share unfavorable impact on full-year 2010 EPS. 2010 full-year results therefore reflect a $0.73 per share, or 39% underlying improvement in full-year EPS.

Fourth quarter cash flow at $46.8 million compares favorably to last year's use of $1.7 million. Fourth quarter working capital days were steady when compared to prior year-end levels. During the fourth quarter, working capital increased approximately $50 million due to the acquisition of TVC. Full-year cash flow at $112 million reflected a net income conversion rate of 97% in a year when we delivered 10% top line growth. Our all-in cash borrowing costs for the quarter, including commitment fees, was $4.7%. Liquidity, defined as invested cash plus committed borrowing capacity, was $338 million.

During the fourth quarter, the funding of our TVC acquisition required the borrowing of $183 million. In addition, we redeemed and converted $92 million of our 2025 convertible debentures. Both transactions occurred in December and were funded using our accounts receivable facility. As of year-end, financial leverage was at 3.5 times total par value debt to pro forma LTM EBITDA. It remains within our targeted range of 2.0 to 3.5, it improved from 2009's year-end level of 4.2, and is consistent with third quarter levels.

I will now discuss our 2011 outlook. Our outlook for 2011 includes continued economic growth but at a more moderate pace than experienced in 2010. We expect growth in industrial, communication products, government and international markets, and stability in nonresidential construction and utility markets. In total, we anticipate that the overall demand in our served markets will grow approximately 2% to 4% from 2010 levels. And that our growth initiatives will drive our sales results at a level above those rates -- that rate. Despite continued competitive pressures, we are targeting our margin expansion efforts to achieve improvements -- modest improvements in gross margin.

Our 2011 operating expenses will continue to reflect investments in our growth initiatives. Our operating profit pull-through target of at least 50% pull-through remains intact. Our capital structure is sound. We have a low-cost structure with no near-term maturities. We expect 2011 average interest expense rates to be stable to slightly higher than 2010. During 2011, we expect our effective tax rates to be in the range of 28% to 30%. Historically, WESCO has been very effective in tax planning, and 2010 was no exception. In 2010, we executed a number of tax planning strategies. Barring major changes in tax regulations, these efforts should enable WESCO to sustain our effective tax rates for the next several years.

2011 CapEx is expected to be at approximately $20 million to $25 million in support of our growth initiatives. Specifically, we are targeting to continue our branch within a branch program and open new additional branches in 2011. Finally in 2011, we are targeting to convert at least 80% of 2011 net income into free cash flow.

Next, I'd like to discuss our first quarter expectations. Historically, first quarter sales have been somewhat less than fourth quarter sales due to winter weather-related impacts in the construction and utility markets. We anticipate the positive impact from our sales initiatives, improvement in market prices, and continued strengthening in our industrial and international end markets and communications products to partially offset seasonal demand contraction at first quarter as occurred in the first -- fourth quarter of 2010. With the addition of a full quarter of TVC revenue, we anticipate that first quarter 2011 sales will therefore increase at least 16% from first quarter 2010 levels, and that gross margins will be in the upper 19% range.

First quarter operating expense will likewise increase due to our first full quarter with TVC's operating expense. Given these dynamics, our first quarter operating margins anticipated to be at or above 4.1% of sales. Finally, our first quarter interest and tax expense rates are expected to be consistent with our full-year assumption. I would now like to turn the call over to Steve Van Oss, who will discuss our acquisition of TVC Communications, and the progress we are making on its integration. Steve?

Thank you, Richard. Let me take a few minutes to provide you with an update on our latest acquisition, TVC Communications, which we closed in late December. First, I will provide an overview of the business and what it adds to WESCO's portfolio and then a brief status of our integration activities to date. TVC with approximately $300 million of sales is a leading end-to-end distributor of broadband communication infrastructure products to the cable televisions and telecommunication industries. Its product offerings include premiere branded components and a proprietary and private label products necessary to build out the entire broadband network. TVC offers a full suite of value-added services including design, engineering, installation, repair, and maintenance.

Their sales are made in four geographic areas. United States, which accounts for 58% of the sales, Britain and Latin America, which accounts for 26% of sales, and Canada, which accounts for 16% of sales, and a modest but growing amount of sales in Europe. Our integration activities are well underway with over 25 functional and operational teams engaged in a wide range of activities with specific tasks which were developed during our due diligence process. Tasks include sales and marketing actions, supplier and inventory-related activities, [braden] logistics and facility consolidation, and back office integration into WESCO's infrastructure. We believe that this acquisition will exceed our $0.30 of earnings per share accretion estimate. In summary, we are off to a great start. At this point, Camille, would you please open up the lines for questions?

Thank you. We will now begin the question-and-answer session. (Operator Instructions)Our first question will come from Scott Gaffner from Barclays Capital. Please go ahead.

Good morning.

Good morning, Scott.

Thanks for some of the extra details on TVC. By our calculations, that business looks to have something like 25% gross margin. I guess I would have thought in 2011 we could possibly have more than just the 50 basis points of operating margin improvement off of including that business in your results. Now, can you just talk about what the gross margin profile of the overall Company should look like? And maybe how much TVC should raise the total gross margin if all else was equal, 2011 to 2010?

Sure. I think when we announced the acquisition, we explained that the TVC gross margin is similar to WESCO's overall margin that we have in our Data Communications business. So the profile of TVC is pretty similar to our [CSC] business, and operating margins, again, as we have mentioned in the script that's an at least number. Clearly, our goal was to drive superior performance on that.

Okay. How much of the SG&A in the fourth quarter, was that -- any of that one-time acquisition-related costs go away after this quarter?

Yes. There was acquisition-related expense. The new accounting rules require that all to be expensed in the month it was incurred. So the bulk of the acquisition-related expenses booked in December.

Do you have a dollar amount on that?

No. We haven't broken that out.

Okay. And then just looking at your end market forecast, for EPC and Contractor, it looks like maybe your forecast improved a little bit there. You turned the arrow up from down to sort of side ways in 2011 now. Anything you are seeing there that -- ?

With respect to the -- let's say the overall construction and contractor market, we are seeing increased bidding activity levels. So when it's all said and done, you look at 2010, nonresidential construction market was down. We've maintained our position and our view that 2012 is the year of recovery for non-resi construction, and that we would begin to see stabilization potentially trough this year.

For us and where we fit into -- I'll call it the construction cycle, we need to see first, starts to grow and sustain growth on a consistent basis. Then put in place data which lags six to nine months needs to begin to grow. Depending on what project it is and what product we're selling, there will be some additional time lags -- switch gear versus data com versus lighting versus other bulk materials. Clearly, it was a very challenging market in 2010 for nonresi construction. We feel terrific about our results. Our results are very broad-based and balanced. As we exit 2010 and enter 2011, we are seeing increased bidding activity, and that is encouraging. Yet, I think the overall market still will remain a challenge as we move through 2011 for construction.

Thanks a lot. Appreciate the color.

Our next question will come from Deane Dray from Citi Investment Research. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Deane.

Was hoping to start with some additional color on the mix in the quarter. And then hopefully you could size for us what that contribution was for supplier rebates. That's a good sign. Tells you the volume is there. Just any color on the inventory adjustment as well.

Well, a couple different ways to look at mix. I'll give an end market perspective which is outlined in the supplemental, and then I'll ask Richard to talk about shipment category mix and gross margins. If you step back and look at the quarter, we continued to see strong results in Industrial. So we feel good about that growing at 28%. Just very strong numbers. And we had good balanced growth across all of the various end markets.

Construction was very strong at 15% growth in the quarter. As well, that was balanced. Backlog was essentially flat in the quarter, and we exit the year with backlog up 18% on a core basis without counting TVC -- the addition of TVC. Our CIG segment was up nicely as well, good double digit growth. Government and good balance, and Utility was down year-over-year on a reported basis. If you were to adjust for the two alliances that we had lost, Utility actually grew 6%. On a full-year basis, Utility was flat if you adjust for those two non-renewals.

So if you look at kind of the across the market segments, I think very good balanced growth. And then from a product category standpoint, double digit growth across the product categories. So we feel really good about the quality and composition of the sales results. Richard, if you could comment on the shipment category mix?

Yes, I think the shipment mix has been relatively steady the last several quarters. We've been successful in maintaining both mix and product margins, also. I think, overall, it's been fairly stable.

And then the contribution of the gross margin -- .

The way to look at the rebate rates and inventory, the best way to look at it is on a full-year basis. Inventory reserve rates were steady. Typical for the full-year amount, and our rebate rate for the full year was pretty close to a typical rate, especially when you [are through] a growth year. So the overall rebate rates were fairly consistent with what we would normally experience.

But on a year-over-year basis, Deane, for the quarter, the gross margin expansion was predominantly driven by supplier volume rebates only slightly driven by favorable inventory adjustments. On a sequential basis, it was still more driven by supplier volume rebates than the inventory -- favorable inventory adjustments. Did that answer your question?

Yes, that's really helpful. Appreciate it. Then on the TVC acquisition, and we hear loud and clear -- that you have said it several times now -- that accretion should be above the $0.30. And we'll be watching that carefully. Having seen you do acquisitions like CSC previous in the last cycle, and you've got balance sheet room to do more. And this is a highly fragmented industry still. What's your capacity to do more TVCs? And is there -- is it management bandwidth? Do you have the capability to fold in more of these transactions? And what kind of time frame?

Great question. I'll take you back to the Investor Day. Investor Day, we outlined over -- from that point through 2013 a 7% to 11% sales [kegger]. We said that was inclusive of acquisitions. And we said 2% to 3% of the sales growth on average over that multi-year period would be contributed by or driven by acquisitions. So we feel good about our results and our scorecard in 2010 with Potelcom and TVC. We are a little bit above that 2% to 3%, but we feel good about that. It's our intention to continue to aggressively work the portfolio and look at expanding and strengthening it with acquisitions.

I mentioned in the last conference call that our -- that we pushed some additional resources into the business development and front end process related to acquisitions, and we had as robust a pipeline as we have ever had. I would say that pipeline only got stronger in the fourth quarter. We enter 2011 with the strongest -- I'll say opportunity pipeline for additional acquisitions than we've ever had in our history. We've got some more resources focused on it. Really, the limitation is not balance sheet. The limitation is really not even management bandwidth because I think our team is the strongest team we've ever had. It's a matter of just right deal, right time, right place at the right price. And I think the market is --continues to support that as we move through 2011. The engine is turned on. It remains on, and we want to try to be as consistent as possible with it.

Great. Then, just last point on -- I really appreciate getting the insight into the outlook both for 2011 and for the quarter. And if you start looking at back of the envelope assumptions -- or our calculations on these assumptions -- you're basically guiding fairly significantly above consensus estimate at this time. It's not hard to get to see it north of $0.80. Does that seem reasonable?

I think part of -- a number of analysts haven't updated their numbers yet for TVC, so I think we expect that to happen. So I'd wait to make that judgment until you see all of the updates and what the services pick up the adjusted estimates.

Great.

The other point is, Deane, and you'll recall that if you look at the shape of our costs through the year, the first quarter typically has higher costs associated with front end benefits loading. We pay out our incentive comps there. If you were to look at our profile of costs, and you were to adjust for acquisitions and other specific management actions taken. And look at it over a long running, multi-year period, you see the shape of our costs being a little higher in Q1.

Understood. Thank you very much.

Our next question will come from Sam Darkatsh from Raymond James. Please go ahead.

Good morning, John, Steve, Richard. How are you?

Good morning, Sam.

Signed on a little late, so I apologize if this was covered in the early section of your script. Couple questions. First off, did you go over -- I don't know how you say this -- whether its tonnage or unit volumes? Did you go over volumes versus pricing as it related to the components of your organic growth in the quarter?

No, we didn't.

Would you care to elaborate?

Sure, yes. Pricing for the quarter was approximately about 3% year-over-year.

Okay. Second question. John, I think in your remarks, you mentioned that you anticipated at least 12% sales growth for 2011.

Yes.

If that's the case, you are talking about -- I think first off that equates to about a 6% organic number -- 6% plus organic. That means if you are thinking the overall market is going to be up 2% to 4%, that you pick up another 2% to 4% in share. That's a little bit below your -- at least of what I can tell, your share gains of late versus the industry. Is that [conservative] on your behalf? Or more difficult comparisons? Or perhaps the way the mix is shaking out? That's how the share expectations might be? If you could throw a little color on that, John?

Yes. The way that you summarized that and parsed it back out is you got it right relative to how we think about it. And we did say at or above that. I think we're trying to set an expectation we're going to be at 12% or greater. Here is the color we'd give you.

We benefited clearly from an industrial market recovery in 2010. We think Industrial will continue to grow, albeit at a more moderate pace. We're very pleased with our results against that improving market in 2010 in Industrial. Very strong results. And we've got a series of initiatives wrapped around it and significant opportunity to continue to perform extraordinarily well in Industrial.

I think government -- there are other companies that talk about government being down or being very challenging. For us, we see terrific government opportunities in 2011. We have maintained all along that 2010 and in 2011 were the two big stimulus years. You look at our capabilities that we have invested in and our position. We think government will support very strong growth. That gets to the remaining -- and that's part of CIG. The remaining two are Construction and Utility. That's where the wild card comes in.

We've had very, very strong results in Construction against an extraordinarily difficult and challenging market. As we move through 2011, the comps will get much tougher. And because that business is not like an MRO contract integrated supply, you have got to do it again and win it with new projects. So the question is going to be the rate of recovery of non-resi.

For Utility, we had some unique challenges because of the two non-renewals. We actually had nice growth in Q4. We've been signaling that improving momentum. We think that will happen. I think there is a number of companies that are forecasting very strong growth in Utility. This comes down to the mix of transmission versus distribution, T versus D. You'll recall that transmission is predominantly served with more of a direct model, although we're increasing our capability and growing there nicely. And so I think fundamental and sustainable and significant growth in the distribution grid, not counting smart grid retrofit upgrade which is occurring, is going to be linked with the non-resi construction cycle.

So I wanted to take some time and go through that just to give the color. You know that's been our look. Really, our outlook hasn't changed that much since the Investor Day with some improvement in momentum. Does that make sense, Sam?

It does. Thank you. Last question if I might before I defer to others. First off, this was a terrific quarter so I don't mean to imply that this is nitpicking or anything. But in terms of OpEx, Richard, in the fourth quarter. I think your implied guidance was originally in the high 14% in terms of a percentage on sales. I understand there's going to be some -- that there was some TVC impact on that. I guess you could help quantify that. But I would have thought with the additional volumes, even though you pay some of it out in commissions, that you'd get some leverage on that, also. So was that a negative variance versus your plan? How should we look at the pull-through in Q4?

I mentioned in the script. First we had, strong fourth quarter sales throughout the quarter that drove incremental commissions. Some of our commission plans had growth increments. So we had strong commissions in the fourth quarter. We did have costs related to the TVC acquisition and two weeks of the TVC op expense. And we've continued to invest in our growth initiatives. Overall, was the operating expense a miss from management's perspective? No. And we are focused on driving at least 50% gross profit pull-through going forward. And we'll continue balancing our growth -- investment in growth and realizing operating margin expansion.

Thank you much. Great quarter, again.

Thank you.

Our next question will come perfect Matt Duncan from Stephens. Please go ahead.

Good morning.

Good morning, Matt.

The first question I've got is on copper prices. Did you see any impact on top line and gross margin from copper?

No. As far as I mentioned on pricing, year-over-year pricing was approximately 3% improved, and product margins overall were stable. So essentially in the fourth quarter, we passed through the cost increases. And I think in the first quarter that will continue to improve.

Two more real small questions. Number one, what is the price assumption in your guidance for the top line for 2011? And then, quarterly interest expense from a P&L perspective, where you think that ought to run?

First, on the impacts of price or FX, we always exclude that in our outlook. So that has potential to raise revenue. But our revenue guidance assumes a neutral price and neutral foreign exchange assumption. And then I apologize, what was your second question?

The quarterly interest expense from a P&L perspective, what should that run?

It should be -- again, it depends on where LIBOR ends up because we have some variable rate facilities. It should be pretty consistent with what we've been experiencing as far as a rate the last several quarters.

Less the [four two].

Less the [four two].

That's helpful, thanks.

As we generate cash flow through the year, clearly that will reduce those facilities and the interest expense will drop through the year.

Okay. Thanks.

Our next question will come from Ryan Merkel from William Blair. Please go ahead.

Thanks. A couple questions for me. First, on fourth quarter core sales, they were very strong. Can you comment on relative to your guidance, what are the areas that the biggest surprises came from?

Yes. It really -- as we saw it, and then the way it manifests -- it ended up being the shape of the quarter. The composition by end market and product category hasn't really changed for several quarters. We've had very strong, balanced growth. What we typically see is -- beginning to see the sequential drop-off that occurs in November as it moves through and into December and then through the holiday season. And we did not see it anywhere near the degree that we have seen it historically. At the end of the day, we went in and we saw it was 3% to 5% down sequentially. And we ended up growing.

So it sounds like a strong finish to the year. Can you comment on -- did that continue into the first part of this year?

We've had very good momentum to start 2011. And so it's a good start.

Okay. Then on the global accounts. The pipeline there is very robust. Can you comment on how many new accounts you signed up in 2010? And then maybe what your outlook is for 2011?

On that one, Ryan, I don't have the exact summary for the full year. We did sign up a number of new relationships in the fourth quarter. Dan, if we could take a note and get back to -- we can just follow up on that. Our focus on global accounts has really been twofold. One is to add new accounts, but more importantly -- I think we've talked about it before is, we see substantial opportunity to grow with our current relationships. And our vision is three value creation streams with every global account customer. MRO indirect, OEM direct value-added assemblies, and capital projects whether it's new construction or retrofit renovation and upgrade. And we want to capture our unfair share in all locations. The One WESCO initiative that we launched is gaining great momentum is about selling our entire product portfolio to all customers.

So we feel really good about that momentum, and that is going to carry into 2011. One note I will make, we'd have to total the full year. It was in the prior earning call scripts or transcripts. In the fourth quarter, we signed up a little over ten customers, new customers.

Great. Thanks a lot. Nice quarter.

Our next question will come from Matt McCall from BB&T Capital Markets. Please go ahead.

Thank you. Good morning, everybody.

Hello, Matt.

So just to understand the SG&A line a little bit more, and Richard, I know you didn't break out the one-time items. But as we look forward and as we try to model that line, if you can provide any more insight into what the one-time was directionally? Because if I look at the normal variability on that line, I have used 7% just as a rough number. It looks like based on that math, the number in Q4 was $13 million higher than we would have expected. I know you have had a couple of questions about it. So any more color there would be helpful. But the other question I had is, are you assuming -- or should we assume any synergies from TVC as you integrate that business?

I'll take the second question first. Yes, we are -- we do expect some modest synergies. The TVC acquisition was really primarily to gain -- to increase the critical mass we have in our communications product and gain access to some really nice customers and markets. So it wasn't a synergy-driven acquisition. But we expect to see some cost reductions -- in the back office. Those are pretty normal.

As far as our SGA, again I think like our rebate rates and the inventories, the best way is really to look at the full-year rate and our full-year pull-through. We reached our target. Again, we had just such strong growth in the fourth quarter that it drove some strong commissions. But overall -- .

And incentives.

And incentives. Overall, we had a solid year -- solid pull-through, and we're going to focus on maintaining that type of pull-through in 2011.

Okay. Thank you. Then maybe Steve, I think you've addressed this in the past. CSC branch count now and with the growth in the branch within a branch. Can you give us an update on the progress there? The growth of those branches? How quickly they are ramping? And how that initiative's going?

Yes, it's maintaining good pace. [Paulson Edge] -- we opened ten or so this year. As we look at the '09 and 2010 openings, the '09s have progressed nicely into a solid profit position. The ones opened in 2010 throughout the year on balance, in total, were positive contributors. Not the same rate but making money the first year. We're looking for a similar number in 2011, so take a step back. We had about 32 locations when we bought the communications line, it's approaching 60 at this point in time. We see continued good growth in that.

You'll recall we mentioned in our Investor Day when we did a spike out and a drill down on Data Com, that by 2012, we will essentially have more than doubled our footprint of our Data Com business -- CSC Data Com business. And we're well on track for that. From the time of acquisition.

And then, are there adjustments we should make? I'm assuming that -- I think the comment in the past has been that, yes, the branch count has doubled but maybe the sales force is not double and just simply taking the previous peak revenue and doubling it is not the way to look at that. So can you refresh my memory on the adjustments I need to make in looking at the opportunity maybe peak of the next cycle?

It would not be a doubling by any matter. If you think about the locations, these are small locations. They start up. You have got one or two [sales force]. The person uses super structure of the WESCO facilities putting inventory in there. That's also -- so it's probably a quarter of the sales if you relate to a typical branch to start with. The other thing to think about as you've been bouncing around some of these SG&A questions. When you start up a new facility on there, you've got a little bit heavier SG&A as they grow into the size of that. We'll see that as we continue to make these investments. We will front end load the investment. Turn profit within the first year, and then grow it into the normal structure of SG&A and gross margin relationship.

Okay. Thank you all.

Our next question will come from Ajay Kejriwal from FBR Capital Markets. Please go ahead.

Thank you, good morning. Just a question on the first quarter gross margins. You are guiding for sequentially -- excuse me, year-on-year declines. And I hear you on the one-timers that hit the SG&A. But wondering what's in that gross margin? Is that just conservatism? Or is there something else going on?

I think here we guided to the mid-[19s], Last year first quarter, we were at 19.8%. So similar to last year's first quarter. We said at least 19% -- at or above 19.6% in the supplemental. So nothing real -- no material change year-over-year in gross margins. As we said, we have initiatives that we're targeting for modest gross margin expansion in 2011.

Okay. So first quarter -- so that 19.6% is just a ballpark? Got it.

It's an at or above-type figure.

Good. Then just on the Data Com piece, it's a sizable piece of your business now. Maybe talk about expectations? As you look to build that business, will you be looking to add through acquisitions? What are your growth expectations internally as well?

Excellent question. If you look at our portfolio back in 2005 -- the total WESCO portfolio -- Data Com and Data Com-related product sales were 2% of our overall product mix for the entire corporation. And now with the successful acquisition and closing of TVC in December, we expect approximately Data Com to be -- and Data Com-related -- broader communications product category to be upwards of 20% of our total product mix. So through organic growth plus acquisition, we have fundamentally shifted the portfolio from a product category standpoint. The attractiveness of communications in the broad market is very attractive to us. So I think the inherent growth characteristics we like a lot.

We're going to continue to invest. The strategy is what we have across the whole Company -- to outperform the market organically and to do that with superior execution as well as investing with our branch within a branch strategy. Again, outperforming the core market growth and taking share over time. Supplemented and supported by acquisitions. And that allows us to take that value proposition we have which we think is terrific for customers. And has some unique advantages versus competitive offerings and extend it geographically. That TVC gives us additional market capability in Latin and South America, for example. We're very excited and bullish on communications as a broader product category.

Is it fair to assume as I'm thinking about 2011 that organic growth in that business is higher than average for the Company?

Yes. I would say, yes. The way to think about it is over the mid- to long-term. The inherent growth characteristics of that category and end markets are higher than, let's call it, core electrical. In any given year, depending on the cycle, and electrical could be extraordinarily stronger, even be a little higher. But yes, you are -- we share the view that you just espoused.

Good. Thank you.

Our next question comes from David Manthey from Robert W. Baird. Please go ahead. Pardon me, our next question will come from David Manthey from Robert W. Baird. Please go ahead.

Thanks, can you hear me?

Good morning, Dave.

Good morning. Is it correct to think about the guidance in terms of if TVC is somewhere in the $75 million range that you're looking for organic average daily sales to be down about 5% sequentially? Is that true? And are there the same number of days in the first quarter as there were in the fourth?

I think there is some seasonality. I think the fourth and first quarter days are about the same. I don't think there's any difference for the holidays. Overall, we're looking for the first quarter to be at least 16% year-over-year.

Okay.

Without as I mentioned earlier -- without any pricing or FX effect.

Okay. So sequentially that makes sense. Year-over-year, you are already getting the [three] so it would have to go the other way to be zero, right?

Sequentially, again TVC [connects] $75 million, so we're relatively last sequentially.

Okay.

Core business would be traditional seasonality with the weather and everything. Work days will be the same. We would -- typically, we see anywhere from 4% to 6% just from the move into the first quarter. When you look at the impact of weather, primarily on construction.

Okay. Second, getting at this SG&A question. Your revenues -- if you look third quarter to fourth quarter, they were basically flat, and the SG&A jumped by $13.5 million. Just trying to get a handle on that. I know you are not going into specifics in terms of the acquisition-related expenses and things like that. Can you just give us an idea as we're looking forward? Is there any reason the run rate that you saw in the fourth quarter before TVC would fall dramatically? Or is this sort of a level we should be looking at for the first quarter as well?

I think as far as absolute dollars -- again, there were some specific items in the fourth quarter. And no, first quarter once we get out TVC and the run rate should be somewhat improved.

But the core -- before TVC, the core WESCO SG&A -- no reason that number should vary materially?

Yes. First quarter, we typically have some extra benefits and things that happen at the beginning of the year. That's usually our heaviest SGA quarter. The fourth quarter we had some one-time expenses related to TVC and strong sales drove commissions and incentives to net-net. I would say those two effects will probably offset each other. We won't have the strong incentive and commissions in the first quarter or TVC-related acquisition expenses. But we have the typical seasonal higher benefits.

So Richard, you are saying those are annual incentives that will reset at first quarter?

Correct. And [reductions].

Got it. All right. Thanks very much.

Sir, can you hear me now?

We can hear you.

My apologies. Our next question will come from Joseph Gardner. He actually just left the queue. One moment, sir. Our next question will then come from Brent Rakers from Morgan Keegan. Please go ahead.

Good morning. I'm going to take another shot. You have, I guess, committed to not disclose any information on the TVC acquisition costs in the fourth quarter?

Again, we haven't broken it out. There's a couple of million dollars, but we haven't gone through as far as breaking it out and calling it out specifically.

Okay. That's even helpful. I guess in terms of the SG&A related to the increased commission rate. Presumably had the Company estimated correctly the revenue for the year, some of that may have been proportionally allocated in previous periods. Is that correct?

Correct. If you -- we had an excellent fourth quarter. As John mentioned, instead of the normal seasonality you see in the fourth quarter, sales stayed strong through November and December. So that resulted in strong -- we have commission targets, incentive targets that have -- just like our rebate plans some growth element to them. That resulted in some fairly -- some targets being achieved and increased accruals.

And then just the final one. Again, just to clarify the first quarter guidance and then reconciling that. I think John made some comment about very good momentum thus far in January. Any sense of what the January trends are? Because again, it looks like you're historically at flat revenues organically Q4 to Q1. Yet you are modeling the organic down [five]. I didn't know if there was an indication in January pushing you in that direction?

Yes, so far in January, we're consistent with historical trends on a sequential basis.

Okay. John, roughly what are those historical trends?

Historical trends are -- I'll just share the numbers. Historical trends we say are 5% to 6% down sequentially. On a full quarter basis, we never get in them kind of month to month as you know. But so far through January, we're down roughly 6% sequentially, which is very nice double digit growth rate year-over-year. I'll share that -- which is 17% year-over-year on the core.

Great. Thank you very much.

We had this question two or three times. So if you look at the core, the core is behaving so far consistent with normal seasonality. And I think the question is -- and that's without TVC. The question is -- December was very strong for us. So we have to see how the shape of this quarter works and weather impacts, et cetera, et cetera.

I would add to that we -- early January had severe weather. So, yes.

John, just to clarify -- that plus 17% was without TVC, you said?

Right.

Thank you very much.

I want to use this to make a point which I didn't make yet. When you look at our profile sales in 2010 by month, you'll recall that January and February of 2010 our sales results were down versus 2009. It wasn't until March of 2010 that we experienced growth in a given month. And so that was the first month we had grown since October 2008.

We started to see the downturn in November 2008. Every month we were down until March 2010 we grew. Then we grew year-over-year on a monthly comparison basis every month in 2010 thereafter.

So when you look at our comp in January -- on a year-over-year basis, it's our easiest comp of the year, okay? And we're growing 17% with the core, and we're down consistent with historical seasonality. As we move through the year -- as we move through the quarter and as we move through the year, our comps are going to get tougher. We grew 9% in Q2 in 2010, 15% in Q3, and now 18% in Q4.

John, thank you. That's very helpful.

This concludes our question-and-answer session. I would like to turn the conference back over to John Engel for any closing remarks.

Thank you for your time today and your continued support. We had a terrific year. We've got very good momentum as we enter 2011. We're continuing to invest in our business and our people, and we're remaining completely focused on providing superior customer service, maintaining our efficient cost structure, strengthening our organization, and producing improved shareholder returns. We look forward to delivering another strong year in 2011. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.