Wesco International Rides Data Center Wave Higher

Wesco International ((WCC)) has held its Q1 earnings call. Read on for the main highlights of the call.

Wesco International’s latest earnings call struck an upbeat tone, spotlighting record sales, powerful data center momentum, widening margins, and strong cash generation. Management acknowledged pockets of pressure in certain businesses and near-term project volatility, but emphasized that rising guidance, record backlog, and robust balance sheet actions leave the company well positioned for the next leg of growth.

Record Sales Momentum in Q1

Wesco reported first-quarter sales of $6.1 billion, up 14% year over year and 12% on an organic basis, marking its third straight quarter of double-digit growth. Management framed this performance as evidence that the company’s scale and portfolio are gaining traction across key end markets despite mixed macro signals.

Data Center Boom Drives Growth

Data center revenue reached about $1.4 billion, soaring roughly 70% from a year earlier and accounting for 24% of total sales in the quarter. On a trailing twelve-month basis, data center revenue is now approximately $4.8 billion, or about 20% of company sales, underscoring Wesco’s growing role in digital infrastructure build-outs.

Record Backlog Underpins Visibility

The company’s backlog climbed to a new high, up 22% year over year and providing multi-quarter visibility into demand. CSS backlog rose around 40%, EES about 14%, and UBS about 16%, giving management confidence that current strength is not a one-quarter phenomenon.

Profitability and Margins Move Higher

Adjusted EBITDA increased 25% to $389 million, with adjusted EBITDA margin expanding 60 basis points to 6.4%. Management attributed the improvement to better gross margins and operating leverage, showing Wesco is converting top-line growth into stronger profitability.

EPS Surges and Outlook Improves

Adjusted diluted EPS jumped 52% to $3.37 in the first quarter, reflecting both revenue growth and margin gains. On the back of this performance, Wesco raised its full-year adjusted diluted EPS guidance to a range of $15 to $17 per share, signaling confidence in sustained earnings power.

Free Cash Flow Delivers Upside

The company generated $213 million of free cash flow in Q1, equal to 128% of adjusted net income, highlighting strong cash conversion. Wesco reaffirmed or increased its full-year free cash flow outlook to $500 million to $800 million, reinforcing flexibility for debt reduction and shareholder returns.

Segment Strength in CSS and EES

The Communications and Security Solutions segment posted 24% reported growth and 22% organic, with adjusted EBITDA up 41% and margin improving 110 basis points to 9%. The Electrical and Electronic Solutions segment delivered 9% reported and 7% organic growth, while boosting adjusted EBITDA 30% and lifting margins 130 basis points to 8.2%.

Balance Sheet and Capital Actions Pay Off

Wesco completed a $1.5 billion upsized bond refinancing at its lowest-ever coupon for senior notes, which is expected to save more than $20 million annually in interest. The company also repurchased $25 million of shares and ended the quarter with net debt at 3.2 times adjusted EBITDA, maintaining leverage on a downward trajectory.

Raised Revenue and EBITDA Targets

Management increased its full-year sales growth outlook to 6% to 9% reported, or 5% to 8% organically, implying revenue of roughly $24.9 billion to $25.6 billion. Adjusted EBITDA margin is now expected to land in the 6.6% to 7.0% range, reflecting both higher volume and improving efficiency.

UBS Faces Profitability Pressure

Within the Utility and Broadband Solutions segment, adjusted EBITDA declined 5% to $131 million and margin fell 120 basis points to 9.6%. The shortfall was tied to gross margin compression and higher SG&A as a percentage of sales, with particular weakness in transformers and wire and cable.

Project Timing Creates Industrial Volatility

Industrial markets showed mixed performance, with short-cycle stock-and-flow activity up mid-single digits in the quarter. However, project timing issues caused overall industrial results to edge down, reminding investors that Wesco’s project-driven revenues can be lumpy from one quarter to the next.

Data Center Margins Feel Select Pressure

Management noted modest gross margin pressure on certain large-scale data center projects even as overall economics remain attractive. They emphasized that these projects still generate healthy and accretive EBITDA margins, but competitive dynamics and scale can compress gross margins on flagship deals.

Incentive Compensation Weighs on Near-Term Margins

Higher incentive compensation, reflecting strong performance, is expected to trim roughly 25 basis points from second-quarter enterprise EBITDA margin. While a near-term headwind, management presented this as a sign of outperformance and alignment between employee rewards and shareholder outcomes.

ERP and Digital Investments Still in Build Phase

Wesco continues to roll out its ERP and digital transformation program, with associated costs partially excluded from adjusted EBITDA. Only a small number of locations are live, and management stressed that the operational and financial benefits will unfold over multiple quarters and years rather than appearing immediately in the P&L.

Supply Chain and Labor Remain Bottlenecks

Extended lead times for critical components, such as switchgear with waits of 40 to 60 weeks, are constraining the pace of some infrastructure projects. Skilled labor shortages also continue to act as a throttle, limiting how quickly customers can execute large builds even when funding and demand are in place.

Data Center Growth May Normalize After Spike

While Q1 data center sales grew about 70% year over year, management cautioned that this pace is unlikely to persist each quarter. The company now expects data center revenue to be up more than 20% for 2026, implying potential step-downs in growth driven by project timing and inherently lumpy order flows.

Guidance and Outlook Signal Confidence

Looking ahead, Wesco’s raised outlook calls for 6% to 9% reported sales growth, 6.6% to 7.0% adjusted EBITDA margins, and adjusted EPS of $15 to $17. Free cash flow is projected at $500 million to $800 million, with management assuming no rate cuts and expecting roughly 70% of annual cash flow to arrive in the second half as seasonal patterns play out.

Wesco’s earnings call painted the picture of a company riding powerful secular tailwinds in data centers and electrification, while steadily improving its margin structure and balance sheet. Investors will need to watch UBS profitability, project timing swings, and data center normalization, but for now, raised guidance and strong cash generation suggest the growth story remains very much intact.