Mary Ann Bell - Vice President-Investor Relations John Engel - Chairman, President and Chief Executive Officer Dave Schulz - Senior Vice President and Chief Financial Officer.

Matt Duncan - Stephens Andrew Buscaglia - Credit Suisse Andrew Krill - RBC Christopher Glynn - Oppenheimer David Manthey - Baird Ryan Merkel - William Blair Hamzah Mazari - Macquarie Chris Belfiore - UBS.

Good morning, and welcome to the WESCO First Quarter 2017 Earnings Call. All participants will be in a 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 Mary Ann Bell, Vice President of Investor Relations. Please go ahead, ma'am..

Thank you, Dennise, and good morning, ladies and gentlemen. Thank you for joining us for WESCO International's Conference Call to review our first quarter financial results. Joining me on today's call are John Engel, Chairman, President and CEO; and Dave Schulz, Senior Vice President and Chief Financial Officer.

This conference call includes 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 includes the discussion of certain non-GAAP financial measures. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures can be obtained via WESCO's website at wesco.com.

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 the next seven days. I would now like to turn the call over to John Engel..

Thank you, Mary Ann. Good morning, everyone, and thank you for joining us today. Our first quarter results are in line with our expectations and the outlook we provided in January. We have improving momentum in our business, driven by return to sales growth in industrial and in Canada, along with solid backlog growth to start the year.

April sales are down low single-digits versus prior year, driven by the timing of the Easter holiday with a few days left in the month. On an organic basis and adjusted for Easter, April month-to-date sales are flat versus prior year.

Operating margin was also in line with our expectations and free cash flow generation remains strong, enabling us to further reduce our debt and our financial leverage ratio in the quarter. Now let's turn our end markets, starting on page four.

We're encouraged with our return to growth in Industrial after experiencing eight consecutive quarters of sales decline. Also of note, organic sales were up 2% versus the fourth quarter, reflecting our second consecutive quarter of sequential improvement. Our positive momentum in industrial is driven by 3% sales growth in the U. S.

versus prior year and sequential sales growth with our oil and gas, metals and mining and OEM customers.

Our global accounts and integrated supply opportunity pipeline is also very healthy and I'm happy to report that our bidding activity levels have also increased to record levels, successive record levels in March and April, providing a positive set up for 2017.

While our Industrial customers remained focused on tightly managing their cost until demand picks up, they are cautiously optimistic about their future growth prospects and increased capital investment plans.

With our extensive portfolio of supply chain solutions, we are focused on helping our industrial customers reduce their cost, operate more efficiently and better plan and manage their project. Now turning to Page five. As expected, construction sales declined in the first quarter, driven by the U.S.

which was down 6%, but was partially offset by Canada which grew 3% in local currency. Overall construction sales were in line with normal seasonality on a sequential basis.

In the U.S., sales growth of commercial contractors again partially offset weakness with industrial-oriented contractors, whose customers have been deferring capital investments in response to lackluster demand and ample capacity.

Overall backlog grew sequentially and year-over-year, marking the first quarter of year-over-year backlog growth since the first half of 2014. Our outlook for non-residential construction sales remains modestly positive for 2017 with support of forward-looking indicators in an overall market that is still below its prior peak.

During the quarter, we're pleased that we're awarded business by a Canadian oil company that supply electric materials for their expansion of multiple facilities located across the oil sands.

This is a testament to our deep experience in project management, cost control and risk mitigation, which helps our customers complete their project on time and under budget. Now moving to Page six. We posted a strong start to the year in Utility.

As previously reported late last year, we walked away from an opportunity to renew a contract with a large utility customer in the United States, which was an unacceptable margin levels. Excluding this customer, overall utility sales grew 6% versus prior year, with the U.S. up 10%. And secondly, Canada was up - or U.S. up 5%.

And secondly, Canada was up 10% in local currency. A really strong start. Through 2016, WESCO has achieved five years of sales growth from scope expansion and value creation with utility customers including integrated supply solutions.

This quarter, we were awarded a multiyear contract to provide power delivery materials and project management services for a series of transmission and distribution infrastructure upgrade projects at a current investor-owned utility customer.

The utility industry is ongoing continued consolidation, demand for renewable energy is growing and customers are seeking operational and supply chain savings. With our capital projects and supply chain solutions, WESCO is well positioned to benefit from these trends and remain valued long-term partners to our customers.

Finally, turning to CIG on Page seven. Sales declined in the U.S. but were up double digits in Canada. Growth in broadband communications, security and government did not fully offset lower datacom sales, which were primarily the result of a large customer project timing versus prior year.

We continue to expect low to mid-single-digit growth in this end market this year, driven by growth with government customers and in Fiber-to-the-X deployments, data canters, cloud technology projects and cyber and physical security for critical infrastructure protection. With that, I would now like to turn the call over to Dave Schulz.

He will provide further details on our first quarter as well as an outlook for the second quarter.

Dave?.

Thank you, John, and good morning, everyone. Moving to Page eight, our first quarter outlook was for sales to be flat to down 3%. Actual reported sales were flat with an organic sales decline of 1.7%, largely offset by favourable impacts from the AED acquisition and foreign exchange. Pricing has minimal impact on revenue in the quarter.

Our backlog increased 11% from Q4 to Q1, better than typical seasonality and was up 1% versus last year on a constant-currency basis, gross margin was 19. 7% in the quarter down 30 basis points versus the prior year and up 30 basis points sequentially. The change versus prior year is primarily the result of lower billing margin in the quarter.

As John discussed on the last earnings call, the number of price increases from our suppliers is typically much higher in the first quarter as many of them set their pricing strategies for the year. With the first quarter having the seasonally lowest level of capital projects activity, customers competitively bid more of their work.

We've also seen construction contractors being especially price competitive in an effort to get projects started earlier in the year. We expect this pricing pressure to lessen as we move through the year, driven by overall inflation and an increase in customer activity levels.

SG&A expenses for the first quarter were $267 million including the AED acquisition, which added approximately $4 million of incremental SG&A. Excluding the acquisition, core SG&A decreased by $6 million compared to last year.

This reflects the savings for more than 500 fewer positions versus this time last year, part of our two-year cost reduction program from 2015 through 2016 that eliminated a total of nearly 1,000 positions and consolidated or exceeded 40 branches. We also benefited from more favourable foreign exchange in the quarter.

Operating margin was 3.8%, within our outlook range of 3.8% to 4.1% and down 10 basis points from last year. This reflects 30 basis points of lower gross margin, partially offset by lower SG&A. The effective tax rate was 25% in the quarter, down nearly 700 basis points from the prior year and below our outlook of approximately 30%.

Versus prior year, the settlement of an outstanding tax matter in the first quarter of 2016 increased last year's effective rate by 340 basis points. In addition, this year's effective rate was decreased by 310 basis points in the quarter as a result of applying the new accounting standard addressing stock-based awards.

The effective tax rate was lower than expected as a result of applying the new accounting standards update, which was not contemplated in our outlook as the timing and magnitude of the tax impact on stock-based awards, is difficult to determine.

Additionally, the tax rate was lower due to the favourable mix of income before tax by country, reflecting relatively stronger performance in Canada. Moving to the diluted EPS walk on page nine, we reported net income of $0.76 per diluted share.

Versus prior year, core operations unfavourably impacted EPS by $0.10, largely the result of lower gross margin. SG&A savings from headcount and branch reductions as well as favourable foreign exchange were partially offset by increased insurance and healthcare costs and the impact of a customer bankruptcy.

Tax expense was favourable by a total of $0.07, including $0.03 from applying the new accounting standard on equity awards. A higher fully diluted share count decreased EPS by $0.04. Moving to page 10, first quarter free cash flow was $43 million or 114% of net income.

The strong cash flow performance enabled us to pay down $46 million of debt during the quarter, further reducing our debt leverage ratio to 3.4 times trailing 12 months EBITDA. Leverage net of cash was 3.2 time EBITDA. Liquidity, defined as available cash plus committed borrowing capacity, was $727 million at the end of the quarter.

Interest expense in the first quarter was $17 million and our weighted average borrowing rate for the quarter was 4.1%, consistent with historical averages. We believe our debt is appropriately balanced between fixed and variable-rate instruments. Capital expenditures were $5 million in the first quarter.

We continue to invest in our people, technology and facilities through both capital expenditures and operating expenses. WESCO has a history of generating strong free cash flow throughout the entire business cycle and we expect this to continue. Our capital allocation priorities remain the same.

The first priority is to invest cash in organic growth initiatives and accretive acquisitions to strengthen and profitably grow our business. Second, we target a financial leverage ratio of between 2.0 times to 3.5 times EBITDA.

Third, we return cash to shareholders through share repurchase and currently have $115 million remaining in our existing share buyback authorization to do so. Now let's turn to our outlook for the second quarter and full year 2017 on slide 11.

For the full year, we reaffirmed the expectations that we first provided in our 2017 outlook call on December 13th. We expect sales to be flat to up 4% and operating margin in the range of 4.4% to 4.6%. We anticipate delivering EPS in the range of $3.60 to $4 on an effective tax rate of approximately 30% and 49 million shares outstanding.

Note that we will have one fewer workday in 2017 which occurs in Q3. We also expect free cash flow of at least 90% of net income. For the second quarter, we expect sales to be down 2% to up 1% and operating margin up 4.2% to 4.6%.

This reflects our expectation of improvement in our end markets as we move through 2017 and continued execution of our sales growth, margin and cost initiatives. We expect this quarter's effective tax rate to be approximately 29%. With that, we'll open the call to your questions..

We will now begin the question-and-answer session. [Operator Instructions] We have a question from Matt Duncan from Stephens. Please go ahead..

Hey, Good morning guys..

Good morning, Matt..

Hi, Matt..

So John, first just on the sales trend, trying to make sure we understand the drop back down a little bit here in April.

Was it simply the shift in Easter timing and selling days and really comparable to March when you back those out is what it sounds like you're saying there, correct?.

Actually, when you, if you were to adjust March for the year-over-year Easter timing and then you were to adjust April for the year-over-year Easter timing and FX is moved from tailwind to a headwind. It was a tailwind in Q1; it's a headwind in Q2, April stronger than March..

Okay. That's helpful. I think there might be a little confusion..

I think that's a very important point. I think we're clearly seeing the momentum back there improve as we step through each of the month in 2017. So February was better than January, March was better than April or March was better than February and April was better than March..

Okay. And then second question I've got, John, on the construction business. The backlog jump you've seen since year end, I think, is pretty notable.

Can you talked about what end markets are driving that? And when do you think that starts to translate into revenue growth for that piece of your business?.

Good question. The first, I don't think we had this in the script, so I don't want to get it out there, so it's in the transcript because I know we'll get this question later. Oil and gas performance all in for WESCO, we're still down in the quarter. We were down 9%. Now that's much better than we were in 2016.

We ended up being down 24% all in last year and then close to 30% in 2015. So oil and gas has not fully recovered. However, we've got some sequential step up in oil and gas. And I would say that's much more MRO driven than it is capital projects.

I would say, all in, the capital projects still represent a significant opportunity and upside, Matt, as we look to move through the year. I'm very encouraged by our backlog growth. You're right. Sequentially, it's a nice step up. It always steps up, but this is bigger than normal.

I think the important point is, we've just come out of a couple year period where we've not have any backlog growth. And so to have our first quarter of backlog growth since the first half of 2014, I think, second quarter of that year specifically, is notable. We're seeing very good data activity levels.

We've got some recent wins in healthcare, lighting, datacom, product security, education, infrastructure. As you kind of look across both the U.S. and Canadian landscape, we are beginning to see a better balance in terms of activity levels. We're particularly pleased with the improvement in Canada on a return to growth this year.

So that's a little context of setting to hit you. Direct response to your question is, we think we're setting up for a nice entry into the construction season. And that will determine how the year ends up closing out, clearly.

So as we move through the second quarter into the third, I think we're well positioned with the backlog growth and the improving momentum vector of the business. And we are hearing from contractors that they're expecting a stronger second half versus the first.

Did that help?.

Yes, it does. And just one more real quick one, if I can, just on the margins in that business. You said something about the competitive pricing in the contractor business.

Should we be worried about what that means for margins going forward, or is that not a problem?.

No. I think what this is, this is a classic case of - and I've been very clear what - this is the environment we've been in for, for some time now. It's been a lackluster recovery. It still is a demand constrained value chain. On the supply side of our value chain, inflation wants to start to tick up. Supplier, we're working with suppliers.

We're aligned with our supply partners; we'd like to manage price increases through. But quite frankly, until customers see their demand pick up in a meaningful way, and I think we're at the front end of that.

But with that said, until we see a pickup in a meaningful way, they're continuing to keep the tight screws on cost reductions on their buy side equation for all types of purchases and CapEx is under great scrutiny still. So even though they have improved plans to spend more this year, right? It hasn't been released yet.

So I think we got the classic case of inflation starting to pick up, demand is unfolding through the value chain yet and there will be the lag effect, right? That lag effect have the ability to push price increases through. So that's our view currently when you look at kind of the nature of how pricing was.

Pricing was flat in the quarter, as Dave mentioned. And when you look at our margins at the end of the day, it's a little - it's the same pricing pressure we've had, a little bit of mix driven..

Okay. Thanks..

Nothing that overly concerns us..

Our next question is from Andrew Buscaglia from Credit Suisse. Please go ahead..

Hey, guys..

Good morning..

Good morning. Can you just touch on your - so industrial and Canada were, kind of, the two segments, you really needed to see to get things working here.

What is the typical lag - I mean, I know you weren't expecting much in Q1, but what's a typical lag when those market start to work and when you really see it start to flow through the margin?.

Yeah, I think that, again, we're encouraged with the pickup with industrial with our biggest end market and with Canada. And for Canada, what we're most encouraged about is, again, oil and gas is not growing again yet. And we're still seeing a pickup in some of the MRO, but not the capital projects yet.

So I think that represents a nice potential as we move to the second half of the year or into next year. Mining is peaking up a bit as we said sequentially. So is OEM. OEM is a good indicator for us, too, like portions of MRO. But OEM in particular is a very good indicator for us in terms of what's happening with our industrial customers.

The fact that, that was up nice sequentially is a good bellwether that industrial is clearly picking up. A number of our supply reporters, a number of our customers have reported results already.

I think they're generally seeing those publicly traded companies kind of a pickup in the industrial results and I think this was our view that this has the potential to occur and we've built it into our outlook and our plans for this year. It's begun. I would tell you, Andrew, that the year started as we expected.

Canada may be a little bit stronger than we thought, but we clearly expect that industrial will pick up. And I would say that the latest macro view coming out of Canada is that it's going to be a better year. Economic growth should tick-up.

We're, again, particularly pleased with our results given the fact that oil and gas is not coming back yet in a meaningful way. I said, i.e., with the CapEx.

And I think there is a view that Canada's two oil-producing provinces, Alberta and Saskatchewan, could return to positive overall economic growth this year, which would be a nice real nice positive for us because of our strength in the Western provinces. The rest of Canada is similar to what we talked about the last couple of quarters.

You look at the Canadian dollar, you get to the Central and even in BC, there they're still growing. We got a good position. So I think it's a setup for entering the middle of the year and particularly the back half. When we put the year together, the outlook in December, and our view remains unchanged.

We had expected a much stronger second half from the first in there. And it's playing out that way thus far. It matches our current view..

Okay. And then, could you just touch on construction? Because that ticked down and I was confused in the commentary when we talk about the industrial market within construction, contractor serving that market, kind of, adding to that weakness.

What's your commentary there and why that's pulled back?.

It hasn't pulled back in terms of momentum back there. On a sequential basis, it's in line with normal seasonality, in terms of going Q4 to Q1. So that's the most relevant kind of metric I can give you or data point relative to momentum.

And I told you, backlog had a real nice growth off of year end and it's the first quarter of backlog growth and that really is construction and construction projects since the second quarter 2014. So I'd tell you that, I don't - construction wasn't consistent with our expectations in the quarter..

Okay. Thanks, guys..

Yeah..

Our next question is from Deane Dray from RBC. Please go ahead..

Good morning. This is Andrew Krill on for Dean..

Good morning, Andrew..

Can you give a little color - good morning - on the gross margin, a little more color on the gross margin declines in the quarter, the cadence of how you guys expect this to improve as the year progresses. And I guess, just if there's any interpretation of, if there may be an interpretation of chasing lower margins business? Thank you..

Maybe I'll start by saying, we haven't changed how we're running the company. We're not chasing lower margin business. I think, we've been through the cycle, both ends the cycle, through the cycle many times and I think we're seeing that classic challenge at the front end as inflation starts to pick up and customer demand doesn't fully support it yet.

There's clearly a lag effect with distribution. So let me start out there and then hand it over to Dave to expound further..

Sure. So Andrew, a couple of things to explain our margins for Q1. As you're aware, we do have significant margin differences in the type of shipment that we have. So our direct ship actually was a margin drag for the quarter relative to prior year.

And as you're also aware, we had a better mix on industrial and on Canada, which was a benefit to our gross margins. As we mentioned in the prepared remarks, we did have some drag on the building margins. And again, we believe that there is a combination of the competitive nature of the construction market.

And also, as we anticipate going forward as that activity increases, we believe that we will have less of an impact due to that billing margin drag..

Got it. And then, just as a quick follow-up. Is there any pricing changes assumed in the 2017 guidance? I think before you guys have said kind of flattish..

No, we don't - as you know, we don't forecast or provide guidance relative to pricing. And so with that said, as Dave mentioned, pricing was flat in the quarter. It hasn't turned positive for us yet. So to the extent, what I just described, Andrew, right, demand starts to pick up, starts to pull through the value chain.

We're able to work with our supply partners and get meaningful price increases pushed through and that lag starts to catch up, so to speak. Then we get back into more of the way the cycle works and we get some positive price contribution as the economy grows and that has been our view of how the year would play out, right.

As we would move into that phase at some point. And what's not our view to that would occur in Q1? And on one hand, the pricing wasn't a negative, wasn't a positive, it was flat consistent with expectations..

Got it. Thank you. Operator Next question is from Nigel Coe from Morgan Stanley. Please go ahead..

Hey, guys. This is Jane [ph] filling in for Nigel. We just want to take a little more in pricing dynamics. Just to clarify, I think you guys talked about kind of a flattish price in last quarter and then we're seeing some of the pricing pressure in the construction market.

So would you describe that as a step down versus last quarter? Or it was just no signs of improvement in this market yet?.

No step down. Margins are down a little bit year-over-year, but they're up sequentially. So no sequential degradation in the pricing environment. The answer is no..

Okay. That's clear. And in terms of price, so we're seeing some inflation in commodity prices.

How do you expect the price rose to try throughout the year, do you expect that to be a headwind to margin over time?.

No, no, no. I just described await the way the value chain works. And so again, when inflation occurs, once it's supported by the appropriate demand through the value chain, we're able to work our pricing increases through. In addition, we're always working in conjunction with the supplier partners in our value proposition to sell value.

So no, you should not view that as a headwind that becomes potential benefit and tailwind with the assumption that economic output does improve, i.e., customer demand improves, customer sales rates pick up, their utilization or their factories pick up and it kind of pull through the whole value chain.

So not a headwind, not expected headwind and expected benefits as we move through the year and get through the cycle..

Got it. Got it. That's very clear. A quick follow-up, if I may, just in terms of kind of expected pricing improvement.

What kind of visibility do you have? Do you see that in your backlog already and that gives you the confident that pricing will flow through the year?.

Again, we don't forecast price, so I'm not going to give you any outlook with respect to price. Our visibility typically in our earnings calls and then, Mary Ann and Dave follow up accordingly and we had these discussions. We give some insight in what we're seeing in terms of planned supplier price increases.

And for the second quarter, supplier price increases are fewer in number than Q1, which is more typical and the ranges is still in the kind of 1% to 5% range with selected categories have been above that.

So when you look at the range of price increases that suppliers would like to work with distribution to push through channel, it was a range of price increases and the average are consistent with the first quarter. I think in terms of numbers, typical with kind of a normal seasonality.

The margin rate of our backlog, we do look at that, I think that was also part of your question and those are holding up just fine..

Okay, got it. That's really helpful. Thank you very much guys..

Your next question is from Christopher Glynn from Oppenheimer. Please go ahead..

Hi, Good morning..

Good morning, Chris..

Good morning, Chris..

Good morning, John. So the industrial guidance initially was down low single to up low single. You started out in the positive side of the ledger and very clear description of momentum building.

So just wondering if you could put that into perspective?.

Very, very good question, Chris. After the first quarter, we've not gone in and revised the page on kind of, let's call it the composition of our Outlook for the full year and we're not adjusting our outlook. We feel good about the outlook that we put in the place when we entered a year in December. So it's clear, you understand what we're doing there.

With that said, I do think that we did expect industrial to return to growth. And as a company, as a total enterprise, our top priority was to return to growth in 2017. So I'll remind all of you about that. That is our top priority. It's clear to everyone inside so that's what we're driving for.

So that's really happen, we needed our biggest end market to return to growth. And so it's really good to see industrial do that in the first quarter.

We did expect that we will return the growth this year, right? Even though we gave that outlook, there is some uncertainty about the timing of capital projects, oil and gas were it would fall and such Chris that was our take you back to the December time frame when we laid out that framework.

With that said, I think the momentum vector was positive as we finish the fourth quarter, it's continued every month so far in the first quarter and so far in April as I have outlined. So industrial - the industrial improvement is better than we had laid out in our outlook guidance. And we had discussions back then.

Some of you said, look, maybe you're a bit too pessimistic on industrial. And some thought and were kind of right down the middle. So maybe we were even incrementally optimistic. But so far, I think that's been a pleasant surprise, and so it's kind of returning to growth.

So it's a really nice start to the year with two very large parts in the business..

Okay. It curse, me that maybe there's a little bit of offset in the construction side. I think number of peers in the electrical components, at least lighting, have talked about just elasticity of short cycle, smaller projects seems to be a bit of a headwind near term..

Yes, I think maybe you could say construction for us, sequentially Q1 and Q4, is consistent with more normal seasonality. So what's the read to that? It's not getting worse, but it hasn't really started to pick up yet.

So to the extent that someone said, okay maybe you are going to have an improvement in construction in a meaningful way versus normal seasonality in Q1. It didn't happen. With that said, our leading indicator is backlog. And a sequential backlog step up was very high at double digits. And then year-over-year we got a first quarter of backlog growth.

So that is our leading indicator. Bid and activity levels are high. And we're beginning to see - we foreshadowed that in Q3 but more so in Q4 last year some of the larger project. The FIDs or decisions are being made in those projects are beginning to progress. Now, they're longer cycle.

They're not going to - they don't really turn into meaningful sales in the first half of 2017 - those decisions that were made last year.

So anyway, I think, we've got - with that said, the non-resi market, there is some areas where it still challenges other areas where - and we've talked about this in the last couple of quarters, quite frankly, where the constraint is labor; i.e., for contractors, it's electricians. So there is some local markets that are somewhat labor constrained.

So there is a lot of variation and a lot of verticals in the construction market. All in, I would tell you our read is consistent with normal seasonality, it's good to see the backlog growth. It's a nice setup for the construction season, and the construction season will determine how this year turns out..

Thanks. Last one, just a little bookkeeping.

The full year tax rate implies 32% or so in the back half, which seems a little out of bounds to the high side, if you could help bring that up?.

Yeah.

Dave?.

Sure. So as you're aware, we are heavily leveraged towards a U.S. recovery. And as we take a look at the mix of our earnings before tax between the Canadian business and the U.S. business and our international operations, that's what's driving our effective rate tax guide for the year. It's that mix of income before tax by market..

Great. Thank you..

And our next question is from David Manthey from Baird. Please go ahead..

Yeah. Hi. Good morning, guys. '.

Good morning, Dave..

So just first off, Dave, did you say that when you originally gave your guidance the ASU 2016-9 was not contemplated at all or that the impact this quarter was greater than you thought?.

So, Dave, we did not include the adoption of the accounting standard in our original guide for the effective tax rate. It's extremely difficult for us to quantify what that impact would be..

Okay. And then second, for John, you discussed the positive momentum vector here overall. But I'm wondering, if you look at by segment and you think about the industrial segment, it looks like things are improving and the market is improving a bit out there.

And you have an easy comp here in the first quarter and your comparisons continue to get more difficult as we move through the year. But you're telling us, you still expect acceleration in industrial specifically.

Am I reading that right?.

Yeah. So that's what we've seen through the first quarter, and it's continued in April, Dave. And my view - my current view is that I don't expect it to inflect the other way. I don't see any indication to that.

And as you know, we've got - even with our industrial customers, that segment, let's say, it could be - it's MRO, it's OEM, but it's also capital projects. And we're not seeing the benefit from any of the plans from certain customers to increase capital spending. There's a lag effect there versus let's say OEM and MRO. So yeah that is that is my view.

I do think that we're at the front end of industrial improving all our own data points discussions with customers would suggest that. I think though there is also still the book. And so customer sentiment has improved as we've moved through the first part of 2017..

With that said I do think there is a still expectation on behalf of our customers as we have the same expectations that you know they'll be positive benefits due to regulatory reform tax reform and some increased infrastructure spend. And so that requires decisions and actions to be taken there which haven't really been taken yet.

So you know I think that. But - but I think our customers believe that we believe that and you know that's the underpinnings of the view..

Got it. Okay. And just finally and construction you specifically say in the slides that you expected to gradually accelerate through the year and you said that the backlog in some of the increase in from customer support. Just so we can size the backlog.

I mean how big backlog is for you relative to one quarter's sales in the construction segment for example?.

We've - I don't - no I don't know and I'll take that on your advisor or Marriott. I'm not sure we've ever sized it Mary-Anne..

No. We haven't..

And we will go back and look Dave if we ever have we can be more, clear, about that going forward. I will tell you I use it and I've said this over the years I use that very as an indicator. Not as a directional indicator as opposed to a now let us try to forecast by individual project and how that project plays out..

Okay that makes sense. All right, thank you very much..

Okay. Thanks, Dave..

Our next question is from Ryan Merkel from William Blair. Please go ahead..

Thanks. Good morning..

Hey, Ryan. Good morning..

So John could you just talk about lighting trends in the first quarter and what was the girlfriend there..

Yeah. So our - our overall lighting was flattish. And let me decompose that for you. LED we had very nice growth and our mix is consistent with our supplier partners and I think is as you know Ryan you know we have we have relationships with the world's top lighting manufacturers. We have a terrific array of supplier relationships.

What makes us a little different than some other distributors is the legacy lamp business that we have. And so when you think about our - our global account customers and this has been you know it has been obviously there are sources of Wesker strength period.

But we you know for those customers that have facilities and we've got a global account agreement with been supporting their lighting we had a replacement lamp business and that's been a strong driver of our lighting category for as long as I've been with the company.

And obviously started way before I was with the company he is going his way back into the Westinghouse roots that legacy land business is declining at a double digit rate not ours the market has good market data on that so you can look at the big three and there is good market data on that.

So that's the headwind we're facing the LED uptake is growing very nicely. So with all that said, my disappointment with flattish lighting sales, I would like to have some kind of nominal growth in the quarter.

It is still one of our - my personal and organization stopped growth engines, I feel very good about our capabilities end-to-end, and we've done acquisitions even in the recent years to bolster those in the form of Aelux and Lumigent. And so it remains one of our top growth engines, we'll be talking about it on Investor Day.

I'm still very bullish over the mid to long term. And the reason is fundamentally I don't think I'll move longer with this answer because I think it's really important. Lighting historically, when you look over the last couple of decades, was construction market driven, i.e. new construction driven.

The biggest markets that exist is the install base and because now, you've had to shift to solid-state lighting, essentially analog to digital right going to semiconductor base. It's a semiconductor capital economics curve. They are now the foundation of lighting solutions and that price performance is improving, price and cost is coming down.

And that's opening up better ROI on upgrading and retrofitting and renovating the installed base. And any place where you are - when you look out the window and you look at all the structures that exist, what percentage is LED? It's a very small percent. That's the opportunity. So, we are still very bullish in the long term..

Okay. That's helpful. And then secondly, price transparency has become an issue for one of the biggest MRO distributors and I'm sure you've seen this.

So just wondering, was this an issue that's relevant for you or does your service model sort of protect you?.

Yeah, excellent question. First of all, we focus on three demand streams of our customers, capital project, that's our deepest roots. And we have deep, deep domain knowledge around everything electrical.

OEM and MRO, when you look at the structure of our back end of our operations, we have very few branches with counter business and we've never been geared for that - I thought that lockup contractor who didn't know what they needed until that morning when they got to job site and said, here's what I need to complete my day.

That's not how we've been built, that's not the customers we serve. We're great with multi-location customers and industrial and the utility, governmental agencies, institutions, commercials and then we're terrific with our range of projects. There's more complex and challenging the project, the better we are.

And we have a terrific service value proposition. So that's our deep roots and capability. If you were to transact with us over our website, you're not going to find that we do a lot of business with that - with a “walk-up customer” who's just shopping on our website.

Our e-commerce business is wrapped around customized let's call it, applications for specific multi-location customers where we create punch-out catalogs unique to their operations. And that's tailored customer by customer. And so that's our deep roots. I'm taking a little bit longer to tell you, it's very important.

And so we don't have - we've never been a catalog model, a retail catalog model list minus discount pricing on the web. And so I think that is the very nature of our value proposition, our business models and the fact that an awful lot of what we do is application-specific, RFP, RFQ driven.

Its technical sales, focused on the customer application with service that extends after the product is delivered as part of a contract. The fact that that's the nature of our business creates a - it's a different than our catalog base model, where all pricing is transparent on the web. And so it creates a stickier business relationship.

So thank you for that question. And this is a topic that will develop even more fully at the Investor Day..

Perfect. Thank you..

Our next question is from Hamzah Mazari from Macquarie. Please go ahead..

Thank you. Just a first question is around your M&A pipeline. And what you're seeing there. It seems like you did - you were pretty active in the deal market even with leverage sort of slightly higher than this or in late 2015 and you haven't done a deal in over a year maybe just frame for us.

Is that conservatism around the balance sheet relative to history or is the pipeline just not as robust?.

Good morning, Hamzah. Thanks. That's an excellent question. I appreciate it. So no look we have a - I would say our pipeline is as robust as ever. The two comments I would make is the last deal we did with AED and that was in March of 2016. So we've just left the one year anniversary. This is one of the key value creation levers for the company.

It has been it still is and will continue to be in the future. And the reality is we don't always control the timing at times we end up doing two or three deals, boom, boom, boom at a quarter and then there could be several quarters ago by where we don't have a deal that's done so.

And the reason we don't control the timing is when you look at it the overwhelming majority of the companies we buy are private companies. And so if they're choosing to put their own company into play, we always get a look and we want to have last look and we'd like to have already look at it.

We've been working the deal some time we've been able to pull that off, sometime we inspire them to put it in play, but it requires them to make a decision around governance and transition and we view ourselves as a very high valued acquirer that's our reputation. So we always get a look at all transactions with that.

Then we're also disciplined with what the business case needs to deliver for us to pull the trigger on the deal. So the bottom line on this is as robust as ever a pipeline. This is not us changing our priorities are operating posture.

It's just the nature of what deals we were we wanted to go after and that we gained close versus you know it's just it's just timing really quite frankly.

Got it. Understood. And then just a follow-up question. I'll turn it over. Not too long ago, you had organized your businesses which were not branch based into national platforms with specific customer segments and product categories.

As you look out, is there any more restructuring you need to do either around the branch network? Do you see footprint or maybe the mix of transactions? Maybe more direct ship versus stock orders or special orders.

Just looking out, is that mostly behind you? Or is the portfolio - has the portfolio evolve there, your go-to-market may evolved, too?.

That is an outstanding question. Thank you for that. I will answer it this way. In Canada, I would say that we are - the heavy lifting has been done.

We have a four distribution center model on the WESCO side of the business across Canada that I think is effectively well positioned to provide optimized hub-and-spoke support for customers in those geographic regions. And on the eco side, they have a similar model with, let's call it, a 6-region structure.

There's a greater number of branches, more local branches, more local inventory, too, in the Western provinces. I think the work that's left to be done in Canada is just how do we continue to leverage that terrific combination of EECOL and WESCO. We had the Number 1 market position.

And I think we're seeing the benefits of what the results we're driving with customers and what still an economy that's recovering. In the U.S, we have made substantial progress. With that said, we still got a lot to go. I would say we're not in the early innings, but we're not in the late innings.

But we're still in the first half of the game, let's say, on terms of - in terms of optimizing the back end. So if you look, Hamzah, at the last, I say, five to six year, the new branches that we've opened are larger in format. We've done a number of consolidations and branch locations.

I think there's the opportunity to continue to refine and optimize the back-end focused on customer service, metrics and satisfaction metrics. So we don't talk a lot about that externally, but we've got an aggressive agenda on that and I would stay we still got a couple of years in the making on that left..

Great. Thank you so much..

Yes, thanks..

Our next question is from Chris Belfiore from UBS. Please go ahead..

Hi, good morning.

How you guys doing?.

Good morning, Chris..

So, I just want to go back a little bit to the industrial stuff, but it sounds like you - on the capital projects side, it's kind of as expected to start the year, but it was more like MRO stuff that you guys thought come back.

And then with regard to that, in terms of being on the industrial side being the stronger gross margin business, did the expectations for the year - is that kind of how the expectations for the year expected play out in terms of just capital project not still being pushed out with customers, not being cautious and its more MRO?.

Yeah, so let me be clear on industrial. I think industrial, the way I would say it is, and this is what we've always seen in the past how the cycle works. You see - we actually see kind of OEM leading. And that's where we saw it first. It starts to pick-up in the fourth quarter and we spiked that out in our fourth quarter earnings call.

And we saw OEMs starting to pick-up, pick-up sequentially. That continued to the first quarter and through April and we're very pleased with that. This is what I was alluding to in my answer to Dave Manthey earlier. And the MROs that started to follow and we haven't really seen the CapEx yet. So I think that represents again a real opportunity.

And then that would speak to truly a full-blown kind of industrial recovery, right? When our industrial customers are confident enough to begin to start spending more capital again, upgrading and expanding their businesses. So I would say industrial played out a little bit faster than we thought in the first quarter.

As we move through the year, I think the whole pricing and margin dynamic is out as we've really are outlined in this call. And as Industrial accelerates and Canada has returned to growth now, we should have positive mix contributions as we're able to because, again, as the economy picks up, we're able to work pricing through the value chain.

So that's our view..

Right.

And I guess, just to that point, can a margin pick up if this year has no CapEx improvement? Can it just be OEM and MRO related kind of margin improvement?.

Yes, I mean, we're constantly working on optimizing and improving pricing and sourcing and working that spread. And so my commentary and Dave's are round kind of the where we are in the cycle and how we fit in the value chain.

And so I think, again, I'm encouraged because we're seeing a faster pick up than we thought, it did return industrial to growth without the CapEx. So when the CapEx kicks in, we can really - we really see tremendous results.

And I would take you back to coming off the trough of the great recession and take a look at what our industrial growth was coming out of '09 into '10, '11 and such. And that was kind of all three components driving industrial growth. It was OEM, it was MRO and it was capital projects.

And we had very strong organic growth in industrial and for the corporation, excellent pull through. So that's what we - when all three components kick in, we're very well positioned for our operating model to work..

Thank you..

And our next question is from Robert Barry from SIG. Please go ahead..

Hi, good morning guys. This is Ashish on for Rob..

Good morning..

Yeah.

So the question I have is, is the impact from exiting the lower margin Utility business disproportionately weighed to 1Q or first half?.

No. When you looked at - it was a very large customer. We sized it in our outlook call in December. And it was roughly, for all intents and purposes, equally balanced across the whole year. We had the customer through the entire year. And there was very little sales in this quarter, essentially, the transition has occurred..

Okay. Sure. Thank you.

And can you discuss the price cost dynamic in different verticals? In other words, is it more or less challenging to get price in one on the verticals versus another?.

No I mean, I guess, I don't want to parse that to that finer degree. I think again, I would point you to that, in general, it's a bit of demand constrained environment, that global macroeconomic forces are creating a set of conditions that's increasing inflation on certain commodity types.

We are working with the supplier pricing - supplier partners who try to push those through in general. But because it's still demand constrained and the only thing I will say is this, customers have - some customers have decapacitized in the last several years.

So as they start to re-ramp their operations, they start pulling on the supply chain harder. They don't have the buffers stock that will be a nice positive for growth. The distributors, by and large, there hasn't been a lot of capacity or rationalization in our part of the value chain, so it's still competitive.

And that's why it requires demand constrained environment to improve to create the conditions to kind of move price through. I would say it's overall.

I did also mention and Dave alluded to it, the contractors right now are being a bit aggressive with their pricing with their customers to try to stoke some of the demand on the projects side of the business. This is not unlike what we've seen previously in this phase of the cycle. So it's nothing new.

But again, I think everyone is looking forward desiring and want to help - wanting to help create a step up in the demand environment..

Okay. So just a quick follow-up on that one, I'm sorry for this.

What was the price, confirmation price last quarter?.

Flat..

Flat. Okay, thank you..

And ladies and gentlemen, this will conclude today's question-and-answer session. I would like to turn the conference back over to John Engel for any closing remarks..

Thank you for your time this morning and your continued support. We hope to see many of you at our Investor Day on June 7 in New York. In the meantime, Mary Ann and Dave are around today to take any further questions. Have a great day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..