Release Date: July 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record sales, adjusted EBITDA, and adjusted EPS in Q2 2026, with sales up 13% and EBITDA up 24%.
- Broad-based growth across all three business units (CSS, EES, UBS), with mid-single-digit sales growth excluding data centers.
- Record backlog up 60% year-over-year, driven by multi-year customer commitments and strong double-digit growth across all segments.
- Significant margin expansion: CSS achieved a record 10.2% EBITDA margin, EES expanded to 9.2%, and UBS returned to 10%.
- Major multiyear grid services award from a hyperscale data center customer, diversifying UBS customer base and expanding data center power solutions.
Negative Points
- Public power competitive dynamics remain a margin headwind for UBS, though stabilizing.
- Third-quarter EBITDA margin expected to be slightly lower sequentially due to anticipated project mix.
- Free cash flow guidance lowered to $300-$600 million due to working capital needs for double-digit sales growth.
- SG&A expense increased slightly as a percentage of sales due to higher incentive compensation.
- Data center growth may strain construction labor and power supply, potentially impacting project timing.
Q & A Highlights
Here are the key highlights from the WESCO International Inc WCC Q2 2026 earnings call, focusing on the most significant Q&A exchanges.Q: Your growth this quarter is so much more broad-based. What do you see as the drivers here, and what is the sustainability and visibility of this growth rate?
A: (John Engel, Chairman, President, and CEO) We feel terrific about our positioning for AI-driven data centers, but we are not a one-trick pony. Our non-data center sales were up mid-single digits, benefiting from multiple secular trends like the infrastructure build-out, reshoring, and what we believe is an early-stage industrial super cycle. Our record backlog growth across all three business units provides strong visibility and confidence, reflected in our raised guidance for 2026 and setting the table for a strong 2027.
Q: Can you talk about the strategic rationale for the Newark Engineering acquisition and what it means for your international data center aspirations?
A: (John Engel, Chairman, President, and CEO) This acquisition is part of a continuum of expanding our end-to-end solutions for data center customers across the full life cycle, following Rahi and others. Newark adds mission-critical cooling and thermal management expertise, which we did not have, and allows us to engage customers earlier. It also dramatically strengthens our presence in the fast-growing Southeast Asia market, and we have the opportunity to expand Newark's capabilities globally through our One WESCO model.
Q: Gross margins were up materially year-on-year. Has the data center gross margin dynamic switched? And can you address the gross margin for the grid services award versus your overall UBS gross margins?
A: (John Engel, Chairman, President, and CEO) For CSS, we are now seeing the results of our strategy from six to seven quarters ago. As we execute projects, we add more products and services, becoming a one-stop shop and driving a richer margin mix. For EES, we are seeing broad-based gross margin momentum, partly due to a "new leader effect." For UBS, margins for grid services are accretive at the operating margin line, and as that business accelerates, it will be a positive driver. Public power margins are stabilizing and improving.
Q: On grid services, who is the buyer? Do you sell this direct to customers? And how was this type of grid-to-data-center connection purchased in the past?
A: (John Engel, Chairman, President, and CEO) This is a direct relationship with a very large hyperscaler end-user customer, not through an integrator. Historically, these solutions were sold by manufacturers directly to the end user. We organically built this grid services business over the last five to six years, and this landmark win with a data center customer is a significant milestone, diversifying our customer base beyond traditional utilities. The margins are accretive to UBS, and this long-cycle business will ship over multiple years.
Q: On the core EES trends ex-data centers, you are growing high single digits outside of that vertical. Where are you seeing acceleration, and are there any markets yet to inflect?
A: (John Engel, Chairman, President, and CEO) EES had 11% sales growth, and even excluding data centers, it was over 8%. OEM was up over 20%, which is a leading indicator for the industrial market and the beginning of a broader industrial super cycle. Industrial was only up low single digits, so the future is very bright as that improves. Construction was up high single digits, driven by broader infrastructure investments. The backlog growth for industrial, OEM, and construction is all at double-digit rates, signaling strong future momentum.
Q: Has there been any sign of your end markets being crowded out by data center AI spend? For example, security and enterprise network infrastructure only grew low single digits.
A: (John Engel, Chairman, President, and CEO) I wouldn't call that out as a WESCO-specific issue. The industry-wide constraints are power and construction labor. While data center demand can consume labor, we are not seeing it negatively impact our business, as our non-resi construction grew high single digits. Overall, demand is outstripping supply across the value chain, starting with power, followed by labor.
Q: Can you expand on the initiatives to improve DSOs and inventory turns? Is there a target for working capital to sales?
A: (Indraneel Dev, CFO) We have a series of initiatives, starting with the commercial front end, where we are being more diligent on payment terms and inventory holding periods. We have also made organizational changes to focus on the collections engine, compressing timelines and resolving disputes faster. On the inventory side, we are investing in digital transformation and AI tools to analyze our data lake and compress cycles. This is one of my top personal priorities.
Q: You mentioned a mix impact on margins in Q3. Any words of wisdom on how to think about the different segments?
A: (Indraneel Dev, CFO) The sequential margin decline is largely due to the anticipated mix of business expected in the quarter, particularly the timing of large projects. There is some variability, but that is our best estimate at this point.
Q: How do you think about the competitive dynamics in grid services? Is it the same competitor group as your standard distribution business?
A: (John Engel, Chairman, President, and CEO) There is no one we are competing with directly one-for-one for what we do in grid services. Different companies do different pieces, but none are our traditional competitors. Because it is a long-cycle business, we have a very robust and large pipeline of opportunities. This win is just one example, and the future is very bright for this positive momentum vector.
Q: Were there any price inflation benefits coming through on gross margins? And can you double-click on the data center business, as we have been trained to believe it is gross margin dilutive?
A: (John Engel, Chairman, President, and CEO) On price, there was about a 3% overall benefit, which we would characterize as back to business as usual. On data center margins, the improvement is driven by two factors: a "new leader effect" driving margin initiatives, and our strategy of becoming a one-stop shop. As we execute initial awards, we add additional products and services, including post-construction services, which drives a richer margin mix over the life of the project.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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