WCC Q2 Deep Dive: Data Center Momentum Powers Growth Amid Market Uncertainty

Electrical supply company WESCO (NYSE:WCC) announced better-than-expected revenue in Q2 CY2025, with sales up 7.7% year on year to $5.9 billion. Its non-GAAP profit of $3.39 per share was 0.8% above analysts’ consensus estimates.

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StockStory’s Take

WESCO’s second quarter saw strong sales growth, led by surging demand in its data center solutions and continued momentum in core electrical distribution. Management emphasized that organic growth was driven by large-scale project activity, particularly with hyperscale customers, and sequential improvement in operating leverage. However, the market responded negatively to the results, reflecting caution about gross margin pressures and ongoing utility market softness. CEO John Engel noted, “Our sales momentum accelerated in the second quarter, with data center sales eclipsing $1 billion, up 65% versus the prior year.”

Looking ahead, WESCO’s outlook is shaped by expectations for continued strength in data center and electrification-related projects, tempered by uncertainty from tariffs and utility market timing. Management highlighted record backlog and early third-quarter sales growth, but also acknowledged that the impact of new tariffs remains difficult to predict. CFO Dave Schulz stated, “We recognize the uncertainty and volatility surrounding tariffs and the impact of the overall economy, but demand for data centers has been strong and our electrical end markets are improving.”

Key Insights from Management’s Remarks

Management attributed the quarter’s sales momentum to data center project growth, strong performance in key segments, and early signs of utility market stabilization.

• Data center sales surge: WESCO’s data center solutions business surpassed $1 billion in quarterly sales, with growth of 65%. This increase was fueled by hyperscale project activity and expanding customer relationships in both the white space (IT infrastructure) and gray space (power and mechanical systems) segments of data centers.
• CSS and EES drive performance: Communications & Security Solutions (CSS) achieved 17% organic growth, supported by large-scale data center projects and double-digit gains in security solutions. Electrical & Electronic Solutions (EES) grew 6% organically, with contributions from OEM, construction, and industrial markets, particularly in wire and cable tied to infrastructure projects.
• Utility segment stabilizing: While Utility & Broadband Solutions (UBS) sales declined 4% year-over-year, there were signs of improvement, with investor-owned utilities returning to growth and backlog increasing. Management expects broader utility growth in the second half of the year as public power customers recover.
• Gross margin pressure: Gross margin remained under pressure, down 80 basis points year-over-year, primarily due to the mix of large, lower-margin projects and increased competition. Sequential margin improvement was achieved through operating cost leverage and stable pricing in core markets.
• Capital allocation and leadership changes: WESCO completed a preferred stock redemption to strengthen its balance sheet and appointed Dirk Naylor as EVP and GM of CSS, following the departure of Bill Geary. Management reaffirmed its commitment to investing in digital transformation and pursuing targeted acquisitions to bolster growth sectors.

Drivers of Future Performance

WESCO’s forward guidance is driven by robust demand for data center projects, ongoing electrification trends, and uncertainty surrounding tariffs and utility recovery.

• Data center and electrification demand: Management expects data center growth to remain a primary driver, with expanding project scope and customer relationships, especially as AI-driven infrastructure upgrades accelerate. Electrification and infrastructure modernization projects are also anticipated to support sales across the EES segment.
• Tariff and pricing uncertainty: The company is actively managing supplier price increases and supply chain adjustments due to evolving tariff policies. While recent price hikes are being passed through to customers, the full impact of future tariffs on demand and margins remains uncertain, and is not factored into current guidance.
• Utility recovery timing: WESCO anticipates utility segment growth to resume in the second half of the year, driven by a backlog of grid modernization and investor-owned utility projects. However, the pace of public power recovery and overall demand normalization are key risks highlighted by management.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) whether WESCO can sustain rapid data center sales growth and expand its role in AI-driven infrastructure, (2) the timing and strength of utility market recovery, especially among public power customers, and (3) how effectively the company manages gross margin amid supplier price increases and tariff changes. Execution on digital transformation and strategic acquisitions will also be critical signposts.

WESCO currently trades at $211.20, in line with $212.24 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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