WCC Q1 Earnings Call: Data Center Growth Offsets Utility Weakness as Tariff Uncertainty Looms

Electrical supply company WESCO (NYSE: WCC) announced better-than-expected revenue in Q1 CY2025, but sales were flat year on year at $5.34 billion. Its non-GAAP profit of $2.21 per share was 4.7% below analysts’ consensus estimates.

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StockStory’s Take

WESCO’s first quarter results were shaped by significant growth in its data center and broadband segments, partially offset by continued weakness in utility markets. Management highlighted that organic sales rose 6%, driven by a 70% surge in data center business and high single-digit increases in both OEM and broadband. CEO John Engel attributed this performance to expanding customer partnerships and successful execution of cross-sell initiatives. He emphasized, "Our data center solutions now encompass everything from electrical distribution to advanced IT infrastructure, allowing us to meet evolving customer needs across all phases of the data center lifecycle."

Looking ahead, management reaffirmed its full-year outlook, despite acknowledging uncertainty from recently announced global tariffs. CFO Dave Schulz noted that WESCO’s guidance does not incorporate potential pricing actions related to tariffs, citing a typical two-quarter lag between supplier price increases and revenue impact. The company is focused on passing through supplier increases, optimizing its supply chain, and leveraging inventory to cushion against cost volatility. Engel stated, "We remain focused on what we can control—gross margin expansion, operational improvements, and managing supply chain risks."

Key Insights from Management’s Remarks

WESCO’s Q1 performance was driven by strong momentum in key growth areas, while management addressed ongoing challenges in utility markets and supply chain volatility. The company’s leadership detailed several business dynamics influencing the quarter’s results and shared insights into strategic initiatives for the remainder of the year.

• Data Center Expansion: The data center business grew approximately 70%, with hyperscale customers increasing their scope of supply. Management highlighted the benefit of acquisitions like Rahi and entroCIM, which expanded WESCO’s offerings across the data center lifecycle.
• Utility Market Headwinds: Continued softness in the utility segment was attributed to customer inventory destocking and lower project activity, linked to interest rates and regulatory delays. Management maintained confidence in a second-half recovery, citing secular trends in electrification and grid modernization.
• Tariff and Supply Chain Response: The company is experiencing a sharp increase in supplier price notifications due to new tariffs, particularly in the electrical and utility business units. Leadership outlined a playbook involving passing through price increases, sourcing locally, and optimizing logistics to mitigate margin risk.
• Product and Project Mix Impact: Lower gross margins were attributed to a higher mix of large, lower-margin projects, especially in EES and CSS business units. Management expects margin improvement as the mix normalizes and service-related revenues grow.
• Financial Flexibility Increased: WESCO issued $800 million in new senior notes to redeem preferred stock, extend debt maturities, and improve financial flexibility. This move is expected to lower annual financing costs and provide greater capital allocation optionality.

Drivers of Future Performance

Management expects the next few quarters to be shaped by the interplay of supply chain adjustments, end-market recoveries, and ongoing data center demand. The company’s outlook focuses on margin management, tariff mitigation strategies, and continued investment in digital transformation.

• Tariff-Driven Pricing Actions: Management anticipates further supplier price increases as a result of tariffs, with plans to pass these through to customers. However, any benefit to revenue or margin is expected to lag by two quarters due to project-based pricing structures.
• Utility and Industrial Recovery: The company expects utility market conditions to improve in the second half of the year, supported by regulatory approvals and grid modernization initiatives. Industrial and OEM businesses are also projected to see incremental gains.
• Data Center and Broadband Momentum: WESCO believes sustained demand for data center and broadband infrastructure will remain a primary growth engine, as customers prioritize cloud, AI, and connectivity investments. The company’s expanded offerings position it to capture a greater share of this market.

Top Analyst Questions

• Stephen Volkmann (Jefferies): Asked if tariff-related price increases were included in guidance. CFO Dave Schulz clarified that the outlook excludes announced and anticipated price increases, due to a typical two-quarter lag before they affect revenue.
• Nigel Coe (Wolfe Research): Inquired about the scale and timing of supplier price increases linked to tariffs. Management explained that Q2 has seen a 150% rise in the number of price increase notifications, with most impact concentrated in the electrical and utility segments.
• Deane Dray (RBC Capital Markets): Sought details on the drivers of rapid data center growth and the mix of products versus services. CEO John Engel cited expanded customer relationships, increased scope of supply, and recent acquisitions as factors fueling momentum.
• Sam Darkatsh (Raymond James): Queried whether pricing actions are uniform across verticals and how contracts manage tariff risk. Management said price increases are more pronounced in electrical and utility units; project contracts typically include cost escalators to address tariff-related changes.
• David Manthey (Baird): Asked about gross margin guidance components and SG&A cost drivers. CFO Dave Schulz noted gross margin is expected to be down versus last year due to project mix, while SG&A will see sequential increases from merit raises and higher sales volume.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace and effectiveness of tariff-related pricing pass-throughs and their impact on margins, (2) signs of recovery in the utility segment as customer destocking abates and project activity resumes, and (3) sustained momentum in data center and broadband solutions, particularly as new customer wins and backlog trends develop. Execution on supply chain optimization and capital allocation will also be important markers.

WESCO currently trades at a forward P/E ratio of 12.2×. In the wake of earnings, is it a buy or sell? The answer lies in our free research report.

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