Wesco Earnings: Our Long-Term View Remains Intact Despite Near-Term Free Cash Flow Challenges

The key story exiting Wesco’s first-quarter earnings was continued free cash flow challenges. As a result, the market sent the company’s shares down approximately 14% in intraday trading. Free cash flow was negative $266 million. Some customers pushed payments into the second quarter, which was a drag on free cash flow. In addition, Wesco continues to hold higher-than-normal inventory to meet strong customer demand. On the bright side, the company noted that supply chains gradually improved throughout the quarter, showing that future inventory will likely be a lot lower than current levels. In the second quarter, we expect both accounts receivable and inventory to be less of a headwind to free cash flow, leading us to believe the company will be free cash flow positive. In our view, this sets up a pathway to strong free cash flow generation in the second half of 2023. Currently, we forecast Wesco to post nearly $800 million in free cash flow in 2023, a historic figure.