Wesco International Inc (WCC) 2011 Q4 法說會逐字稿

Good morning, and welcome to the WESCO fourth-quarter and full-year 2011 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.

(Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Dan Brailer, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Denise. Good morning, ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review our fourth-quarter and full-year financial results. Participating in the earnings conference call this morning are the following officers -- Mr. John Engel, Chairman, President, Chief Executive Officer, and Mr. Richard Heyse, Vice President and Chief Financial 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. A supplemental financial presentation has been produced, which provides a summary of certain financial and end market information to be reviewed in today's commentary by Management.

We have posted this presentation on our corporate website 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 website. I would now like to turn the conference call over to John Engel.

Thank you, Dan. Good morning, everyone. Our fourth-quarter results are strong and close out an excellent year. Organic sales net of acquisitions and foreign exchange grew 15% in the fourth quarter, marking the sixth consecutive quarter of double-digit organic sales growth. Notably, organic sales to customers in each of our industrial, construction, utility and CIG end markets grew double digits versus prior year. Construction sales in the United States were also up double digits and grew approximately 16%, despite continuing weak construction end markets. Sales of our communication products grew approximately 8% in the quarter versus prior year. For the full year, we delivered record sales of over $6.1 billion, which were up 21%, driven by organic sales growth of 14%, plus contributions from our Protelcom, TVC, RECO and Brews acquisitions.

In addition we delivered double-digit organic sales results for the full year in each of our three largest end markets; industrial, construction and utility. Our first quarter of 2012 is off to a solid start with double-digit organic sales growth continuing in January. Consistent execution of our sales growth and margin improvement initiative have translated into strong financial results. For 2011, operating margins were 5.4% and EPS was $3.96, up 120 basis points and 58% respectively versus prior year. The operating margin expansion was driven by a balanced contribution of gross margin expansion and operating cost leverage. Gross margins were at or above 20% in all four quarters of 2011, highlighting the continued effectiveness of our sales and marketing programs and the positive impact of our margin improvement initiatives. These results exceed the targets we outlined in our investor day in August of last year. Our investments are clearly paying off.

Effective execution of our growth strategy continues, and we are pleased with the positive momentum and improved profitability of our business in 2011. I am very proud of the extra effort and results delivered by our One WESCO team of associates around the world, and I would like to thank them for their dedication and commitment in serving our customers. On January 4, we completed the acquisition of RS Electronics, our fifth acquisition over the last 18 months. These five acquired companies had annualized sales of approximately $460 million, as of their respective closing dates. With liquidity increasing to over $500 million and leverage dropping to 2.3 to start the year, we have the capacity and financial flexibility to continue to fund our strategy of above-market organic growth, plus accretive acquisitions. Our acquisition pipeline remains robust, and we see excellent opportunities for acquisitions to further strengthen our portfolio.

In summary, we enter 2012 with a stronger and more diverse business with respect to customers in end markets, products and suppliers and geographies. The strength, diversity and operating leverage of our enterprise, position us well in our global markets. We are continuing to invest in our eight growth engines and our six margin and productivity initiatives. Our long-term outlook remains unchanged. We expect the economy to continue to recover slowly over the next several years. Our 2012 targets of 7% to 11% top-line growth -- sales growth, including a 2 to 3 percentage point contribution from acquisitions, and 20% to 25% annual net income growth, remain intact. We are focused on building on the positive momentum across WESCO as we continue to execute our One WESCO growth strategy in 2012, and I'm very confident in our team's ability to produce excellent results again this year.

Now, Richard Heyse, our CFO, will provide details on our fourth-quarter and full-year 2011 results, as well as our outlook for 2012. Richard?

Thank you, John. Good morning. First I will discuss our fourth-quarter and full-year results. Then I will discuss Q1 2012 and full-year 2012 outlooks. We are very pleased with our fourth-quarter and full-year results, and we expect 2012 to be another solid year for WESCO. Our fourth quarter sales increased 19.4% compared to last year, including a 6.2% positive impact from acquisitions.

In addition to the impact from acquisitions, we had one less work day in fourth quarter, which negatively impacted sales by 1.6%. There was no material foreign exchange impact on sales in the quarter. Our normalized organic year-over-year sales growth rate for the quarter was, therefore, 14.8%. As John noted, we saw strength in all four of our end markets, and this is our sixth consecutive quarter of double-digit, year-over-year organic sales growth.

Year-over-year price increases for the quarter had an estimated positive impact of approximately 2%, an estimated positive impact of approximately 3% for the full year. The growth from acquisitions was driven by three acquisitions, RECO with sales of approximately $25 million was acquired on March 15, 2011, and Brews Supply with annual sales of approximately $50 million was acquired on October 3, 2011. TVC, with sales of approximately $300 million was acquired on December 16, 2010. Sequential sales for the fourth quarter increased approximately $9 million or 0.6%, and were up 2.2% after adjusting for the one less workday in the fourth quarter.

Our sequential sales growth rate was above the top end of our historical range. In addition to the favorable impact of Brews Supply, we believe this growth was due to market share gains, and generally favorable weather conditions across North America in the fourth quarter. For the full year, sales were a record at $6.13 billion, a 21% increase over last year, which includes a 6.8% increase from acquisitions and a 0.8% increase from foreign exchange.

One less workday in 2011 reduced full-year sales by 0.4%. Normalized organic sales growth for 2011 was, therefore, 13.8%. Our fourth-quarter gross margin was 20.6%, an increase of 30 basis points year over year, due to a favorable mix and the favorable impact sales growth had on our supplier volume rebates. This marks our fifth consecutive quarter with gross margins at or above 20%. For the full year, gross margins were 20.2% an increase of 50 basis point over last year and 70 basis points over 2009 levels.

We are pleased with the progress we have made on our margin expansion initiatives in a very competitive pricing environment, including the favorable impact driven by our acquisition strategy of pursuing higher-margin businesses. SG&A expenses for the quarter were $228 million or 14.3% of sales, compared to $204 million or 15.3% of sales in the prior-year quarter. Approximately $11 million, or 46% of the year-over-year SG&A increase, was related to our TVC, RECO and Brews Supply acquisitions. For the full year, SG&A expenses were $872 million, or 14.2% of sales, versus $764 million, or 15.1% of sales in 2010. Approximately $47 million, or 44% of the full-year SG&A expense increase, was related to the acquired businesses.

In 2011, as our results demonstrate, we have been judicious in our SG&A investments and have maintained overall cost discipline, while simultaneously investing in our growth engines and productivity initiatives. Operating profit for the fourth quarter was $91.5 million, or 5.8% of sales, up 52% or 130 basis points over last year's operating profit of $60 million or 4.5% of sales. For the full year, operating profit was $333 million, or 5.4% of sales, up 58%, or 120 basis points, compared to $211 million or 4.2% of sales in 2010. Our goal for 2011 was to increase operating margin by at least 40 to 60 basis points through a combination of gross margin expansion and fixed cost leverage.

Our 2011 results were significantly above those target levels. Operating profit pull-through, measured by year-over-year incremental operating profit dollars divided by year-over-year incremental gross profit dollars, is a financial metric WESCO uses to gauge the effectiveness of our operating disciplines. Our reported fourth quarter operating profit pull-through rate was 51%, and our full-year operating profit pull-through rate was 50%. After adjusting for the unfavorable impact of acquisitions on pull-through, we surpassed our 2011 goal of a 50% or greater pull-through by a comfortable margin.

WESCO has two primary ways to invest in our business. In addition to investments that expand and strengthen our organization, we are also increasing our fixed asset investment rate. Specifically, 2011 saw increased investments focusing on establishing new branches, expanding existing branches and improving our information systems. In 2011, our capital expenditures were $33 million, up $18 million over prior year, reflecting the impact of these growth expenditures. We firmly believe our investments in people, technology and facilities are paying off, and we expect to continue these internal investments to support the growth of both our sales and profitability.

Our fourth-quarter effective income tax rate was 31.1%, compared to the 21.1% rate in the fourth quarter of 2010. For the full year 2011, our effective tax rate was 29.8%. Net income for the fourth quarter increased 57.5% to $54.8 million and resulted in an EPS of $1.12 per share on 49 million fully diluted shares outstanding. This compares to reported net income of $34.8 million and an EPS of $0.72 per share on 48.3 million fully diluted shares outstanding in the fourth quarter of 2010.

For the full year, net income was $196.3 million, up 69.9% from last year's net income of $115.5 million. EPS for 2011 was $3.96 per share on 49.6 million shares, compared to $2.50 per share on 46.1 million shares in 2010. The net income increases for the quarter and full year are well above our goal of increasing net income by 20% to 25% per year. Free cash flow for the fourth quarter was $86.4 million, compared to $46.8 million in last year's comparable quarter. For the full year, we have generated free cash flow of $134.2 million, or 68% of net income, compared to $112.2 million in 2010.

During 2011, we made improvements in our inventory management that increased inventory turns and focused our working capital investments to support the strong double-digit sales growth we delivered in all four quarters of 2011. Our average all in cash borrowing costs, including commitment fees, for the fourth quarter was under 4.4%. Liquidity, defined as invested cash plus committed borrowing capacity, was $511 million at the end of the year, compared to $338 million at 2010 year end. This increase in liquidity was primarily due to a reduction in debt using our free cash flow and the impact of more favorable terms in our new inventory revolver. Our financial leverage ratio at year end was 2.3 times total par value debt to EBITDA, which compares very favorably to last year's ratio of 3.9. This result reflects our second lowest reported leverage ratio in our history as a public company. We are well within our targeted leverage range of 2.0 times to 3.5 times par debt to EBITDA.

I would now like to turn to our outlook. Our current view is that our first quarter organic sales growth will somewhat exceed our full-year expectation of 5% to 8%, set in our August investor day. We currently anticipate first quarter organic sales growth of 6% to 9% over last year's first quarter and [SAFTA] down 3% sequentially. In addition, we expect a 1.9% positive impact from acquired sales.

Our sales forecast assumes stable sequential prices in foreign exchange rates versus comparable periods. Gross margin expansion will continue to be a priority, however we expect to see first quarter gross margin at a level more consistent with our gross margin realized in the first quarter of 2010. And so we expect first quarter gross margin to be at or above 20.0%. We expect operating margin to be at or above 5.0%, and an effective tax rate in the range of 30% to 32%. For our full year we continue to believe that the pace of economic recovery will be slow, extending over the next several years. We are well positioned to grow in a slow growth market, and our outlook is positive as we enter 2012 with good overall momentum.

We outlined our 2012 outlook in our August investor day, and we are maintaining that position. We expect 2012 sales growth to be in the range of 7% to 11% and are targeting for at least 2 points of this growth to come from acquisitions. Consistent with our Q1 forecast, we are targeting a combination of gross margin expansion and operating cost leverage to expand operating margin by approximately 40 to 60 basis points above our 2011 levels, but currently anticipate being at the low end of this range in 2012. Our 2012 effective tax rate is expected to be in the range of 30% to 32%. Investments in fixed assets are expected to be at levels similar to 2011. We have historically been a very strong free cash flow generation business. Based on our current sales growth and investment outlook, free cash flow and net income is expected to be at or above 80% of net income for the year.

I would now like to open up the conference calls for your questions. Operator?

We will begin the question-and-answer session now.

(Operator instructions) David Manthey, Robert W. Baird.

First off, and I got on here a little bit late. I apologize. I was on hold for awhile. But the gross margin upside -- I was wondering if you could talk about the components there. And I apologize if you already did, but can you just break out what the mechanics of that 20.6% gross margin was? Where was the surprise concentrated?

Sure, Dave. Again we had great execution from our teams in the fourth quarter, and as I noted in the script, that execution drove very strong supplier rebate rates as we achieved growth targets. And also the mix of orders that we had were really strong. And overall I think the real drivers for the 20.6% were solid execution across the business.

Okay. And were there any unusual reversals or inventory adjustments, anything else that impacted the number? Was it pure just operations and rebate experience?

If there were any adjustments we would have called them out. It was pure operations.

Good. Okay. And second, a real nice recovery in Utility, and the Utility segment but I'm wondering, in terms of the breakdown there, can you talk about how much of that is a general increase in investment that you're seeing versus any impact from weather recently or are there any other new contract wins in there where you've taken business from another distributor?

Dave, yes, good morning. First off we'll say we're encouraged with how Utility performed in the second half of 2011. You know, we went into the year thinking it would improve, and it's good to see it growing and returning back to double digit growth in the third quarter and very strong results in the fourth quarter. The results were balanced. You'll recall that we take our customer segments and we break them into three groupings, investor owned utilities is one, public power is another, and what we call utility contractor or specialized contractors that serve the utility market, and we had growth in all of those. It was nice -- good to see the nice balanced growth that across all three contributions. So that was encouraging to us, and I'd say that it also -- we had nice projects; but we also saw some increase in spending in just maintenance.

You know, what's occurred is 2011, we have energy demand now increasing again after it being down two years in a row, in 2009 and 2010 that is. And so I think that just created -- that was our outlook as we kind of went through 2011, and I think it's kind of manifesting itself in increased spending. Fundamentally, we see the Utility market kind of the shape of this recovery being transmission led ultimately flows through in the substations and distribution. We're more biased toward distribution in terms of our mix; but -- and so that's fine. But I think we're encouraged with the results we're seeing. In terms of wins, we're not going to call out any specifically, but we feel very good about how we're performing on competitive bids in the market in the second half of 2011.

Great. And just lastly, quickly, on -- sound like trends are pretty good, and that's what we've been hearing, but some comments out of Eaton this morning talking about delays from US customers seemed a little like an outlier to me. Is there anything in your order trends backlog that would indicate that that is an emerging trend?

We didn't see that in our performance or execution of the fourth quarter. No. Backlog -- we did ship some orders out of backlog, and so our backlog at the end of 2011 is up 7% over the end of 2010. But we did -- backlog came down a bit in the quarter. That's more our typical pattern, Dave, if you go back, not the last few years, but before that. But we didn't see any effect like that. In fact, as we went through the quarter, we had very strong results through the entire quarter in and through December, and that's what really drove our out-performance versus what our expectation was on the top line in the quarter.

Makes sense. John, thank you.

Deane Dray, City Investment Research. Please go ahead.

Thank you. The first question relates to the comments that you made around leverage and where you stand at the low end of the range, and what this implies on the M&A outlook. I just would point out you've done five deals in 18 months, and you're still at the low end of leverage, and you've actually increased the liquidity. So it begs the question, from our understanding of the market, it is still highly fragmented, and you've got lots of choices about how you want to proceed in terms of geographic expansion or product mix. Just kind of rank for us where the priorities are, because you certainly have the balance sheet flexibility. And remind us of what the management capacity is to integrate more transactions.

Thank you, Deane. That is a great summary. Two years ago in our first investor day we framed up top line growth targets for three years and we broke it up into organic piece and acquisitions. We had outlined two to three points of growth per year due to acquisitions, and we've maintained that as a notional target in our 2011 investor day, and we're well in excess of that. To your point, over the last 18 months we've done five acquisitions over the last 18 months; it's roughly $460 million in sales. You look at that on a percentage basis, it's well north of the number that we targeted. And the market as you've outlined, clearly we continue to see a very fragmented market. I think what's different for us today is we added resources, dedicated resources. We did that 18 plus months ago. We've got a rigorous process. We've always been a good acquirer, but these resources -- dedicated resources are remaining in place as we move through the 2012 plan. The pipeline is robust.

The fact that our leverage ratio is at the low end of our band of 2% to 3.5% -- we're encouraged by that. And the fact that it's there after five acquisitions -- what really drives that is the EBITDA growth, and so I think we're -- the strategy is working. The execution -- we're pleased with it at the end of 2011, and we enter 2012 with the market very fragmented. We have the dedicated resources in place. To your point, we have good flexibility, a very robust pipeline, and we're going to continue to look at acquisitions for far out in our strategic planning horizon to add value to the company. In terms of the last part of your question, which is what types of acquisitions, I would say more of the same. You know, when you look at those five acquisitions we did, we feel very good about them. By and large, they're not electrical pure-play distribution companies that were just kind of rolling up. In virtually all cases they kind of expanded our product and service portfolio or expanded supply relationships, and in the case of Brews Supply, gave us some real nice strength in Canada in some end markets that we were not as strong in, i.e., particularly utilities. And the TVC acquisition I think was very strategic in terms of building up a $1 billion plus communications run rate for data and broadband. So that -- you know, I think as we enter 2012, we remain as bullish as we have been on the acquisition opportunities.

And then just within those deals that have been done, and I'm not sure Richard has this precise number, but what's been the organic growth characteristics of the deals this year? And then on TVC, we're anniversaried, and how did that stand up to the original $0.30 accretion target?

If you look at the acquisitions in combination, they are meeting or exceeding the targets we set out for them in our acquisition models. As far as -- we're not going to break out the exact EPS impact; but again, on the EPS impact we announced in each of the press releases, we're trending at or above that combined impact.

Great, and my last question relates to the commentary -- the guidance commentary regarding 2012. It was extraordinary that you gave 2012 guidance in August of last year during what had to be the real peak of the market uncertainty with the macro issues in Europe. So now we're looking more specifically at 2012. If we take the mid point of sales guidance and tax and then the low end of operating margin guidance, we can get to $4.70 pretty easily. I just want to make sure that, even though you have not given an EPS data point, does that put us on the right planet?

Good summary. Here is the way we look at it. You know, when we had our investor day in August of 2011, we did outline what our targets were for 2012. We're very encouraged that we out performed our expectation for the balance of the year post-investor day. What we wanted to signal very clearly here in our Q4 earnings release as we enter 2012 is the incrementals that we laid out, kind of the value creation growth thesis, the 7% to 11% with the margin expansion. You know, that work is remaining intact in place off the 2011 base. The 2011 base -- we out-performed what we thought in the August investor day.

That's real helpful. Thank you.

Adam Uhlman, Cleveland Research

I guess first with a question on the gross margin -- I guess why would -- in the guidance for 2012, rebates are expected to be a headwind to the margin rate even though we had a benefit this year, and the volume outlook is good for next year. Richard, could you just walk through that quickly?

Okay. I think we touched on before in previous calls that just to achieve our nominal rebate rate, which is about 1%, we have to have mid single digits growth rate. What happened in both this year and last year and particularly the fourth quarter was a number of our rebate programs have growth kickers that if we reach a certain growth threshold -- often in the teens -- then the rebate rate goes up and applies backwards to all purchases in the year. So again, as John mentioned, we had a very strong December this year similar to last year with increasing momentum in November and December. And so that resulted in recognizing much stronger rebates for the year. But again, with the sales outlook we have this year, that 7% to 11% total, that would drive our rebate rate more consistent with the norms, which is about 1%.

And the 7% to 11% includes 5% to 8% organic.

Yes. And the 7% to 11% is including a 5% to 8% organic. So the rebates we're expecting to revert back to more traditional levels in 2012.

Okay. Got it. Understood. And then, capital spending is pretty low for you guys, but it was up quite a bit this year, and I think you mentioned that it's supposed to be similar to what we saw in 2011 in 2012. Conceptually can you talk through the investments that are being made? Obviously some more branch build-out that is expected to happen; but is there more distribution investments that need to be made or just some more color commentary there would be great?

You'll recall that in our last investor day, Steve Van Oss in his presentation had a slide that talked about investing in capacity and capability, and it talked about sales force. It also talked about locations. And so, again, part of our growth strategy and integral to it in this recovery and in this period that we've articulated over the last two years is we are expanding and investing in facilities and footprint and points of presence. We have a couple of new facilities in the US and major metro markets; Dallas and Chicago namely. And also a very large new distribution center that, in fact, will be WESCO's largest distribution center of our entire network, and it's in Toronto that essentially is going live in this quarter and will be operational. So that will be a third major distribution center that's added to our DC network in Canada. And we've got essentially a 2 DC model now -- Toronto -- again, in terms of square footage and capability, it will be our largest. So that's an example, Adam, of some of the investments we've made.

All right. Thank you.

Ajay Kejriwal, FBR Capital Markets.

Very strong organic sales performance -- nearly 15%. Could you maybe parse this out in terms of how much of that is from just lift in the market. I guess not much, but it would be helpful to get some color on that versus the work that you're doing on account penetration, et cetera.

There's no single precise source of what the market -- there is not one single source of truth of here is what the market results are, and I think a good way to look at it and the way we look at it -- we look at a variety of sources. We look at disk data, we look at the McGraw-Hill Dodge on construction. We look at our major suppliers and then we look at a number of different investor peers that we may or may not compete with directly. You know, we'll look at Grainger for industrial. We're looking at Anixter for Datacom. We'll look at Graybar and Rexel as kind of as broad-based electrical, et cetera. So that's how we look at it. You know, you've seen Grainger's numbers. You've seen a number of our supplier partner numbers, Coopers, Thomas -- I don't know if Thomas & Betts is out, but Cooper is out. Eaton is out. I know Hubbell is out and has released. Anixter's not out yet. And we will get numbers on Rexel and Graybar shortly. So I think that is how we look at it. I think when you look at these numbers for Q4 and even if you look on a full-year basis, we feel very, very good about our performance versus the market. It's very strong.

And what we even feel better about, I would say, is the balance on it. Because, when you look at the fourth quarter, it wasn't one major end market carrying the day. We had double-digit growth in Industrial. We had double-digit growth in Construction. We had double-digit growth in Utility. And we had the double-digit growth in CIG. And for Construction, using McGraw Hill start data, in the aggregate -- and we're talking essentially, I am going to round it, but essentially $400 billion plus of spend in the US that's non-resi and resi in 2011. Resi is about $120 billion of it. So let's say $300 billion of the $420 billion in starts in the US in 2011 is nonresidential and kind of what they call non-building. That's down mid-single digits in 2011 based upon McGraw-Hill's latest report. And we're done double-digits in 2009 and '10. So we feel good about our performance against the end market using these variety of sources.

Good. And then, just in that EBIT pull-through obviously. You've done a great job in this and '11. But as you look to make these growth investments, new branches, distribution center, et cetera -- maybe talk about growth investments versus what could be the potential impact on the pull-through and on your SG&A.

I'll tell you how we think about it. So far it's working. But we think you need to kind of earn the right to invest. And then if you invest and you execute well, you kind of earn the right to invest and grow. So, to the extent we can deliver very strong top-line growth, it positions us to even increase our investments if we're confident that we're executing well and we're getting a good return on that investment. So our operating profit pull-through construct is kind of a control variable, and we look at it on a core basis, right? Of incremental gross margin pull-through to operating margin being approximately 50% or greater is the target over the mid to long-term is what our planning construct is and kind of our control algorithm. And so if we grow faster we're going to get better pull-through. It enables us and puts us in a position in the next couple of quarters, if we're confident we have good returns, to even increase our investment further.

And I think what you're seeing, we would argue, when you take 2009 as a base to 2010 by quarter to 2011, you're seeing that manifest itself in our results. We've maintained the 50% pull-through as the target, and then you see the strong execution top-line growth. Gross margins are expanding incrementally, and we get very good pull-through and then operating income and net income and EPS expand very strongly. So the investment takes the form of, to your question, sales force, new locations, and it's not just head count. It's some incremental CapEx, but we're still not CapEx intensive. I mean, in Richard's script, his numbers were that we went from a little under $20 million a year in CapEx in 2010 to $33 million in 2011. That's a significant increase, but versus our long-run historical norm, we've typically been around $25 million. It's within $6 million, $7 million, $8 million above what our maximum CapEx was in a given year. We're very confident that we're getting a great return on that. This new distribution center in Toronto we're very bullish on, and our Canadian business is performing well. So, hopefully, that gives some insight.

Absolutely. Good job. Thank you.

Steve Tusa, JPMorgan.

How fast did your Lighting business grow in the quarter? Did you guys already disclose that?

We did not talk at that yet, but what we did put in our supplemental was the mix of our by end market products at the end of 2011 versus 2010. But I will share that with you. Lighting we had very nice growth. It was approximately 9% growth in the quarter and on a full-year basis it was nicely double-digit in the approximately 13%, 14% range. So, I didn't mention it; but since you asked, we're seeing -- we're seeing nice traction with a series of lighting retrofit projects.

In the industrial business, I know this is kind of a very run-of-the-mill question, but how did the quarter sequence for you guys? I mean, were there any periods of slowing, and was there any modulation in kind of the growth rate, October, November, December, and January.

No, what I'd say is that October, November, December in the quarter we exceeded our expectations. We did not see the normal seasonality which is what we had expected, quite frankly, going into the quarter. What we've talked about in our last earnings call. We did not see the normal seasonality in December. We had very strong results through the quarter -- including through the end of December.

Is that a reflection on the macro? You guys are always taking share, but I -- what's the --

I wouldn't -- I don't know how -- I wouldn't want to make a macro call on that necessarily. We can share our results. That's our results. We're encouraged by it. I don't personally -- I don't think we personally have a good feel -- did the macro really do that? We know what we're doing with our Industrial customer base. We see the sales as we -- by day by week. It was strong. I can tell you this which is -- it isn't a December trend, and it isn't a Q4 trend. It's what we're seeing in general in 2011 as we move into 2012 on the Industrial front. Notable trends are outsourcing. And customers -- they're spending CapEx as opposed to adding head count by and large. And they have much higher expectations. This is really focused on Industrial for process improvements for the supply chain and savings. So our One WESCO and our LEAN Value Creation is increasingly getting traction because of the value adds that we can bring to them.

Right. Okay. Great. Thanks a lot.

Matt McCall, of BB&T Capital Markets.

Looking at the organic growth outlook a little bit, and you've given detail about kind of market share versus market growth. Talk about maybe by segment what the market growth assumptions are in the guidance from the organic growth perspective.

Yes. So we typically don't put ranges of numbers on, but I'll give you how we're thinking about it if that makes sense. We think the Industrial end market continues to grow in 2012, albeit at a slower rate, in terms of end market versus what we experienced in 2010 and 2011. But we think it still continues to grow; and obviously it's our goal and objective to try to out perform that. For Construction for non -- and we're obviously nonresidential construction driven. For Construction, we think we're in the bottoming process. But our view overall is this is going to be a long protracted recovery, so we do not expect significant tail wind by any stretch in the Construction end markets in 2012. We're hopeful -- and it is our view -- we're hopeful that the headwind that we've been facing turns into no wind and maybe it's a slight breeze of a tail wind as we move through 2012 into 2013. But we think if it grows it will be slow digit growth in terms of the market in 2012 and maybe starting to pick up some steam in 2013.

We think Utility will continues to start to perform, continues to start -- continue the recovery, let's say. We thought it would start in the second half of 2011. We think that continues, but it will be transmission-led, clearly. So we don't expect that the distribution part of the spend is going to see significant growth end marketwise in 2012 or even the early part of 2013. Now it's again our goal to out-perform both on the Construction and Utility. And then for CIG, it's number of different segments -- but for government -- look, there's still some significant amount of stimulus funds left. And we're still focused on that. So of our targeted areas that are ARRA funded, and the targeted areas are roughly $70 billion of spending, the remaining amount to be spent is still a little over 30% of that $70 billion. And for the DOE Smart Grid Programs, the amount of the total that was allocated -- we're just north of the 50% mark that's been spent to date. So I think CSC plus TVC and our One WESCO initiatives are positioned well to continue to participate in stimulus driven projects. And we talked about that in the last couple of quarters.

And, so on that note, John, I think you have spoken in the past about rotating resources to address the growth. Is there an effort that you're thinking about or you're pursuing now that there's still growth left but, obviously, some of that stimulus dollars -- I know you've thrown a lot of resources at it. Have you started to rotate some of those resources toward whatever the next growth category is going to be?

The resources that we hired to support our government and stimulus efforts were very -- let's call them --had domain knowledge, had some specialization, and we still see our opportunity to take significant growth in government because of our small share position. And so we all think the US government is going to cut spending to some degree. How big is that number. Even if it were 10%, which if you do the math on it is a huge number. Is that possible? Look at how much non-resi construction has been dropping in the last 2.5 to three years, and look at what we've been able to do in terms of performance. We haven't -- we've got our government team. It's intact. It's all about execution -- large fragmented market -- lot of opportunity -- still a lot of spend. We're going after it.

Got it. Thank you.

Matt Duncan, Stephens.

The first question I've got is really with regard to the sort of the tone of conversations you've been having with your customers recently. Have you noticed any change in the outlook from your customers for their businesses in 2012, either for the better or worse, or is it pretty consistent here.

I would say it's consistent. The only comment we would make is the customer trends that we mentioned. I think they're there. They're alive and well, and with some customers, they're kind of increasing a bit. Selectively, a few customers -- we won't call out any specific industries -- have -- are seriously considering some re-shoring activity, and they're making decisions about where they increase their manufacturing. Can you call it re-shoring? I mean, they're seriously looking at does that occur in North America versus outside North America. I wouldn't call that a major trend yet, but with a number of number of customers, we're seeing some potential indication of that. That could be potentially be a positive. We'll see how that plays out.

Okay. And then secondly looking at your guidance for the first quarter, you're guiding to 6% to 9% organic growth. January is up double digits so far. One -- how much is price helping in January, because I know your guidance doesn't include any benefit from price. Then also you have an extra selling day in the quarter versus the fourth quarter. Historically fourth quarter to first quarter is pretty flat, but with the extra selling day, I'm just curious maybe why the growth rate -- why the number wouldn't be up sequentially. I think the guidance is flat to down 3%.

First, typically January, February are the slowest months of the year. That's when the weather is the most severe and it slows construction down, and then March picks up very strongly. We had a really strong March in 2011. So if you look at the comps in the first quarter, the March one particularly is a strong comp to beat. So I think overall our guidance takes that into account, and there is one different workday in the quarter, and that's something you need to take into account when you look at our organic growth rate.

Okay. And then the last thing I've got is on your leverage ratio. It's now fallen to 2.3 times. I think you guys have said when it falls below the 2.0 times watermark, that you might look at how you return cash to shareholders. Sort of update us on where your thoughts are with regard to the mix of how you might approach that if and when it does fall below 2 times. Obviously, I appreciate you're going to be making acquisitions, but, even though you've been making them, this leverage ratio's still been falling. So, I'm hoping you can maybe give us a bit of an update about --

Look -- we've given the framework 2 to 3.5; we're trending down to the low end. It's moving a little faster than we thought. We're encouraged by that. If and when we tick below 2, because it's going to be a function of how we perform and any additional acquisitions that we do, per your earlier conversation. We have to be under two for some material period of time, and we have to continue to be trending stronger down under 2, staying there, and then what's our acquisition pipeline look like? So we trend under 2 for a quarter, we're not going to say immediately we're going to take this action. We're much more thoughtful taking a more mid- to long-rage view of the business. So we'll keep you apprised of that. We're encouraged we're at 2.3. You know, the acquisition pipeline is robust. We're working it hard. If we fall under 2, and the acquisitions don't materialize and we're there for some sustained period of time, we'll be thoughtful about how to best return capital to shareholders.

Do you have any thoughts, John, on maybe a preference between a buy-back or a dividend or have you not gotten there yet --?

I wouldn't want to even give any indication on that yet, because I think we've been very clear about what our value creation priorities are, which is driving organic growth above market plus accretive acquisitions, number one. Number two -- very large, still very fragmented market. Given those two points, I don't want to comment about hypothetically if we fall under 2 and stay under 2 as of yet because that's not consistent -- falling under 2 and staying under 2 -- is not consistent with how we have executed the last couple of years. It's not consistent with how we're trying to strengthen the franchise.

Fair enough. Thank you.

Josh Pokrzywinski, MKM Partners.

Just trying to calibrate some of the margin color for 2012. Should Construction prove to be a bit more of a tail wind than a light breeze, how should we think about that from a mix perspective? I would imagine that the supplier volume rebates maybe have a lower watermark there than some of your other end markets which have a bit healthier recovery to date.

You're correct, Josh. If you look within our Construction segment, the products that we sell and the shipment type, the overall rebate rates are lower. And we also discuss in our filings, our rebate has ranged plus or minus 15 basis points around 1%. I think overall if Construction becomes a tail wind, also the overall economy would be improving so we'd be expecting see more tail wind in the other segments also.

That's fair. And then one more on the January update. Any specific end markets or product lines that have been near-term out-performers relative to your expectations? I know that's only one month, but just any kind of segmentation there would be helpful.

It's so far in January and so you have to take -- it's X couple of days ago. We're not closed January yet. We're never linear. We're encouraged by the start. We don't want to give any color about end market or product category at this point. Because, again, we're non-linear in any given month, and we'll see how the month ends. In our next call we'll give that color.

I can appreciate that. Thanks, guys.

Steven Fisher, UBS.

This is Brandon Verblow in for Steven. My first question relates to the Utility Segment. You mentioned in the presentation that you expect distribution spending to grow. I know that's a smaller part of the Utility business. But just curious about what gives you visibility that distribution spending is going to grow? What sort of indicators you might have to support that outlook?

The fundamental -- when we talk about Utility, we talk about is energy demand up overall a macro indicator, and then we look at what our suppliers are seeing in conjunction with us and what our customers are seeing. We have a very nice position in the Utility market with our investor-owned customers we serve and public power, and it's broadly distributed across the US. We've got this nice distributed Utility business that's not centered in any one particular region in the US, and then serve the market through the specialized utility contractor channel. So there are a whole variety of signals that we get. We have unique insight into based on the breadth and depth of our business. I want to be clear, though. I think energy demand was up in 2011 after being down in 2009 and 2010. We're not signaling that we see distribution spend -- grid spending spiking up dramatically. We do think it's going to grow low single digits end market -- end market. Low single digits in 2012, and it would be our expectation that we try to substantially out-perform that.

Okay. And my second question related to pricing form some of the locally limited competitors -- the mom and pops. What does the pricing look like? Has it become more aggressive? Or has there been some easing -- if there's enough work to go around?

We haven't had this question today yet. I'm glad you raised it. Look, I would say we aren't seeing any heaving in pricing. We've talked for literally the last two years. In this recovery cycle, it's not residential construction led, number one. Number two -- there's still too much capacity versus demand. What do I mean by that? There are still many, many contractors and distributors in the market that are kind of just hanging on to various degrees of strength, and because it's not a resi led recovery, they're trying to bid on projects in commercial and non-resi and other areas where they haven't necessarily played in the past. That spikes up the competitive intensity. That spikes up the pricing intensity. It's been as tough an environment as we've ever seen in our history as a company in the last two years, and that hasn't changed. That's what we're still seeing current state, as we went through Q4 and entered 2012.

That's helpful. Thank you.

Christopher Glynn, Oppenheimer.

Thanks. John, I was wondering if you can give some color on how you look at Utility's share gain. I think in the Construction you've talked about you guys are ramping up your bid rates in the marketplace -- Industrial, kind of filling in the checker border around the national accounts. The Utility is a little more nebulous to me how that's working for you. But you talk about it with similar expectations for some up-performances those other verticals.

Yes. As tough as it is to get one source of truth over what the end market data is, and using a variety of sources as we described earlier today and previously, I would say Utility is one of the toughest, to your point. So the way we think about it and look at it is, you know, feedback from suppliers and feedback from customers. We don't -- there is some organizations and institutes out there that will give general macro trends over the longer run, but that's not all that helpful to translate into how we really are performing in a region with those customers. That's the best way we go about -- so we don't have a really good way to accurately assess that. We get a general indication based upon, again, our relationships to suppliers -- what they're willing to share with us. And keep in mind, a piece of that business is served direct. So we are always try to triangulate, a particular supplier -- what are they serving direct through distribution, how we're performing with us, through us, versus the rest of their channel partners, and we try to triangulate on that over time.

And then a question on SG&A. Seems like the core growth relative to top line has throttled back a little this year -- maybe just grew in a variable sense. But do you need to re-accelerate in order to sustain the share gain momentum there at all? Or are you kind of set for a little while?

No, as I mentioned in my script, we're spending, and we're being a prudent investor when it comes to SG&A and building up our organization and talent. I wouldn't say we're throttling anything back. We're just --WESCO is known as being very disciplined financially. We're applying that discipline to our investment decisions. And I think if you look at our results, those investment decisions are having a solid impact. And we're going to continue, as John noted, to keeping the same recipe we've been using since -- we've put in place since 2009. That recipe is clearly driving solid results.

Just to clarify, so 2011 organic SG&A growth that was above and beyond just variable?

Yes. We clearly made decisions to invest in certain areas and drive our growth initiatives as we've touched on. We have our growth engines that we're focusing on and our productivity initiatives, and we -- each of those growth engines and each of those productivity initiatives have a plan, and we're executing the plan for each area.

Okay. Thanks a lot.

Ryan Merkel, William Blair

Just one question. Can you talk about the Datacom business in the quarter? How much did it grow? And then, with the system conversion behind you, did that help?

Okay. Datacom grew 8% in the quarter for Q4. On a full-year basis it grew 8%. So it was nice to see the return to growth in Q4. I will tell you that the conversion was completed at the very end of Q3, and we're not back to a post-conversion, no-impact operating mode as of yet. I will tell you that. We're encouraged with how Q4 kind of unfolded, but we're not there yet. I think for some of the branches, it takes more than two or three months. It may take four or five or six months. So I would suspect that we'll continue to kind of work down that learning curve in the front part of 2012. I will share with you that Datacom is off to a slow start so far in 2012.

Okay. Thanks for the color. I appreciate it.

Anthony Kure, KeyBanc.

Just a couple of quick ones. On the pricing front, again -- saw the 2% price in the fourth quarter versus about 3.5% the first three quarters. Anything to look into what drove that, and, I guess, from the guidance perspective, you're looking for about 3% full-year. How does that rebound -- just maybe talk about that fourth quarter pricing impact.

Pricing in the fourth quarter there was less pressure from commodities, but we continue to see some price increases relative to engineered products. And as we said in our guidance, we typically don't attempt to try to forecast in the market because you end up having to try to forecast commodity price.

The only comment I would add is that we don't forecast the price increases. That's been our practice. But I will say what we see stacked up in terms of already-announced or pre-announced supplier price increases for Q1, which by the way, that won't represent entirely what's done, because not everything is always telegraphed this far ahead of time. But what see lined up is more of a general price increase kind of approach, I would say, is what we are seeing in the front end of 2012 to start the year. Now that could change in a given week, literally. But what we're facing into now, that's what we are seeing.

And then just for some context, John, you mentioned the backlog in the fourth quarter. It was only 7% up versus mid teens throughout 2011. You mentioned that the last couple of years, the fourth quarter has been an anomaly. What would be the normalized fourth quarter backlog percentage growth relative to this year?

I don't have a good number for that. I think Richard and Dan, that's something we probably ought to go

We could look into that

Let us look into that. I could say that in general -- if you're looking at general trending -- down single digits at some point. I don't know if it's high, mid or low single digits. It's not double digits. Kind of like that. Last two years, though, we're building backlog that exit the year, which is not something we had ever really done. It was unique.

A more typical pattern -- as the weather kicks in, the backlog would start to decrease in November, December, as people wrap projects up and through the wintertime, and then the backlog starts building in early spring. (Multiple speakers)

That's the historical seasonality -- the backlog again in winter and then the spring and summer builds. Declines in winter, in spring and summer builds.

Noelle Dilts, Stifel Nicolaus

Congratulations on another impressive quarter. Just building on the Datacom question we had earlier, could you give us thoughts on your Datacom footprint? As it currently stands, you've been executing on the branch within a branch strategy. Are you content now with your Datacom footprint, or are you still looking to expand that through additional branch openings?

We're never content, Noelle. (laughter) If you'll recall Steve Van Oss again back in the investor day. He laid out a page that showed the locations we added, and for Datacom he laid out 2009, 2010 and 2011. For '11 it was anticipated or expected. And we did that. We expected that we'd open up four additional locations in 2011. We did that for Datacom to the branch within a branch -- they say Datacom, overall communications So we're not stopping. We typically don't talk about what we're going to do prospectively. Our communications team is still charged with expanding the footprint. I think we still have a lot of opportunities to do that. We're in a position now, which is -- we've never been in. We acquired TVC a year ago. Have a $1 billion plus total communications position -- portfolio position -- data and broadband. We feel great about our portfolio, and we continue to work the One WESCO initiative, which part of that is this branch within a branch strategy. But when you look at our footprint versus the market opportunity and, let's just the say, the other two large competitors, we still have significant opportunity to fill in white space. This is -- and we will for the next couple of years.

Okay. Great. And then can give us an update -- or more detail on what you're seeing in terms of growth by geography -- maybe a sense of fourth quarter growth in Canada versus the US and then some of the other geographic markets.

I'll give this data point -- US Construction sales were up nicely double digits for the full year, so we were up approximately 13%. Canada on a full-year basis -- and this is on a local currency basis -- again approximately, is up a couple points higher than that. So our Canadian business is very strong. It's been performing very well for a number of years, and consequently, that's why we're looking at continuing to invest in it -- both organically, like the DC in Toronto that I mentioned, plus acquisitions, the recent one of Brews. So geographically, when you look at our balance, we feel very good about it. It's not a one-country or one-region driven set of results.

Okay. Great. And then what share base are you assuming for 2012?

As far as the share count, because it's affected by the stock price and the converts, we don't project it, because that would force us to try to project what our share price is going to be through the year.

Okay. Makes sense. Thanks a lot.

Hamzah Mazari

Hi, guys. Most all my questions have been answered. Thank you.

And showing no further questions in the queue, I would like to turn the conference back over to Mr. Engel for any closing remarks.

Thank you all today for your time and your continued support. I know we went a little bit over, but we really wanted to make sure we got to everyone in the queue, and I know that Dan and Richard are standing at the ready to have additional calls today, tonight and into tomorrow. We're very encouraged by our positive momentum and our strong results last year, and we are continuing to invest in our people and our business. And we remain focused on producing improved shareholder returns. Thanks again for all of your support, and we look forward to delivering another very strong year of results in 2012. Have a great day.

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