Conferencia de resultados del T3 de 2026 de WESCO (WCC): las ventas aumentan un 17 % y se elevan las perspectivas

Puntos clave

• Las ventas del T3 de 2026 alcanzaron un récord de 7.200 millones de dólares, con un crecimiento orgánico del 17%. El volumen aportó aproximadamente 14 puntos porcentuales y los precios alrededor de 3 puntos.
• El EBITDA ajustado aumentó un 33% hasta un récord de 562 millones de dólares. El margen EBITDA ajustado se amplió 100 puntos básicos hasta el 7,8%, mientras que el BPA ajustado creció un 47% hasta los 5,77 dólares.
• Las ventas de centros de datos aumentaron aproximadamente un 55% interanual hasta un récord de 1.800 millones de dólares. En los últimos 12 meses, el negocio generó cerca de 6.000 millones de dólares y representó aproximadamente el 23% de las ventas de WESCO.
• La cartera de pedidos aumentó más de un 80% alcanzando un nivel récord, con nuevos máximos en sus tres unidades de negocio. La cartera de pedidos de CSS aumentó aproximadamente un 140%, la de EES creció cerca del 40% y la de UBS se incrementó en torno al 90%.
• WESCO elevó sus previsiones para 2026 a un crecimiento orgánico de las ventas del 13%-14%, un margen EBITDA ajustado de aproximadamente el 7,2% y un BPA ajustado de 18,00-18,50 dólares.
• La dirección prevé que las ventas de 2027 crezcan a un ritmo de un dígito entre medio y alto, con una continua expansión de los márgenes, aunque no ofrecerá proyecciones detalladas hasta la publicación de los resultados del T4 de 2026.

Resultados financieros clave

Rendimiento operativo y del negocio

Soluciones de Comunicaciones y Seguridad

Las ventas de CSS aumentaron un 22% hasta un récord de 2.900 millones de dólares, con un crecimiento orgánico del 21% impulsado casi en su totalidad por el volumen. Las soluciones para centros de datos de WESCO crecieron aproximadamente un 40%, lideradas principalmente por clientes de centros de datos de hiperescala y multinquilino.

El EBITDA ajustado aumentó un 42% hasta los 313 millones de dólares. El margen se amplió 160 puntos básicos hasta un récord del 10,7%. La dirección señaló que los centros de datos ahora aumentan el margen de CSS, impulsados por un mayor arrastre de productos, una creciente combinación de servicios y apalancamiento operativo, en lugar de por los precios.

Soluciones Eléctricas y Electrónicas

Las ventas de EES aumentaron un 18% hasta un récord de 2.800 millones de dólares. Las ventas a OEM crecieron aproximadamente un 30%, la construcción aumentó a un ritmo cercano al 15% y las ventas industriales avanzaron a un dígito medio. Las ventas de centros de datos se duplicaron con creces, mientras que las ventas de EES excluyendo centros de datos crecieron a un ritmo de un dígito alto.

El EBITDA ajustado aumentó un 31% hasta los 259 millones de dólares, con un margen de subida de 90 puntos básicos hasta el 9,3%. La dirección también citó una mayor demanda de productos en stock y distribución directa, especialmente en EES.

Soluciones para Servicios Públicos y Banda Ancha

Las ventas de UBS aumentaron un 6% hasta los 1.500 millones de dólares, mientras que las ventas orgánicas subieron un 7%. Las ventas a empresas de servicios públicos crecieron a un ritmo de un dígito alto, respaldadas por empresas privadas de servicios públicos, mejores tendencias en energía pública e inversiones en infraestructura. Las ventas de banda ancha se mantuvieron estables en comparación con el mismo trimestre del año anterior, en el que habían crecido más del 20%.

El EBITDA ajustado aumentó un 6% hasta los 158 millones de dólares. El margen fue del 10,4%, mejorando 40 puntos básicos de forma secuencial. Los servicios de red registraron un crecimiento de dos dígitos por cuarto trimestre consecutivo y siguieron aportando un margen positivo a WESCO.

Proyecciones de la dirección

Las ventas preliminares por día hábil en octubre subieron en el rango alto de entre el 10% y el 20% interanual. Para el T4 de 2026, la dirección prevé un crecimiento de las ventas reportadas en la franja de entre el 10% y el 15% y una expansión del margen EBITDA ajustado de aproximadamente 50 puntos básicos.

WESCO mantuvo sus previsiones de flujo de caja libre a pesar de las necesidades de capital de trabajo asociadas al aumento de las ventas. Para 2027, la dirección prevé actualmente un crecimiento de las ventas de un dígito entre medio y alto y una continua expansión del margen, aunque calificó esto como una indicación de inercia y no como una previsión formal.

Riesgos y aspectos a vigilar

• El T4 cuenta con un día hábil menos de forma secuencial, mientras que las festividades de diciembre y otros factores estacionales podrían afectar a los ingresos y al apalancamiento operativo.
• El fuerte crecimiento y los proyectos de ciclo largo a gran escala requieren capital de trabajo adicional. El capital de trabajo neto se mantuvo en aproximadamente el 20% de las ventas de los últimos 12 meses.
• El crecimiento de los centros de datos se enfrenta a comparativas interanuales cada vez más exigentes.
• El mercado de la energía pública sigue siendo competitivo, lo que exige disciplina en los precios y diversificación de clientes.
• La cartera de pedidos incluye desde demanda a corto plazo hasta ciertos productos de ciclo largo programados para dentro de uno a dos años. La dirección no cuantificó la conversión de la cartera de pedidos por año.

Puntos destacados del turno de preguntas y respuestas con analistas

• Transformación digital: La dirección señaló que las tres unidades de negocio operan en la nueva plataforma digital en múltiples ubicaciones. WESCO mantiene su objetivo de lograr con el tiempo un beneficio de al menos 100 puntos básicos en el margen EBITDA gracias a la transformación, con potencial alcista, aunque no especificó su contribución para 2027.
• Despliegue de IA: WESCO está utilizando aplicaciones de IA tradicional, generativa y de agentes con su lago de datos y su nueva infraestructura tecnológica. La dirección indicó que estas herramientas ya están contribuyendo al análisis de datos, la productividad y el apalancamiento operativo.
• Exposición a centros de datos: El negocio va más allá de los clientes de hiperescala e incluye a operadores multinquilino, empresas emergentes de IA y clientes corporativos que despliegan infraestructura híbrida, privada y edge. WESCO atiende aplicaciones de espacio blanco, espacio gris, energía e infraestructura a lo largo de todo el ciclo de vida del centro de datos.
• Rentabilidad de centros de datos: La dirección atribuyó la mejora del margen principalmente a la adición de productos y servicios a medida que avanzan los proyectos, más que a la inflación de productos o a los precios. Las capacidades posteriores al despliegue también amplían la participación de WESCO más allá de la construcción inicial.
• Plazos de la cartera de pedidos: La dirección afirmó que los ingresos actuales reflejan proyectos vinculados al gasto de los clientes anunciado anteriormente, dado el desfase desde la planificación energética hasta la construcción del espacio gris y el espacio blanco. Ciertos elementos de la cartera de pedidos pueden extenderse de uno a dos años.
• Servicios de red: La dirección prevé que una adjudicación plurianual anunciada previamente comience a contribuir de forma significativa en el primer semestre de 2027. El negocio está creciendo más rápido que UBS en su conjunto y presenta una rentabilidad atractiva que amplía los márgenes.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Hello, and welcome to the WESCO's 2026 Third Quarter Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand the call over to Scott Gaffner, SVP, Investor Relations, to begin.

Scott Gaffner

Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature, are subject to uncertainties. Actual results may differ. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures.

Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information about these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com.

On the call this morning, we have John Engel, WESCO's Chairman, President and Chief Executive Officer; and Neel Dev, Executive Vice President and Chief Financial Officer. And with that, I'll turn the call over to John.

John Engel

Thank you very much, Scott. Well, good morning, everyone, and thank you for joining our call today. We're very pleased with our record third quarter results, and we carry positive business momentum into the fourth quarter.

Once again, sales, backlog, operating profit and earnings per share all increased double digits versus the prior year. And importantly, they achieved records that exceeded our expectations. We are particularly pleased with our free cash flow generation during the quarter, which was strong given the sales growth that we delivered.

The past 5 consecutive quarters of double-digit sales growth demonstrate WESCO's higher growth profile, which extends well beyond our important data center positioning. Customer demand is strong across the rest of our diversified portfolio in end markets, with sales up high single digits, excluding data centers.

Our customers continue to invest in major capital and infrastructure projects, and they're increasingly relying on WESCO to manage their needs. And this is all happening while we add more services to our portfolio and demonstrate the continued effectiveness of our One WESCO cross-selling strategy.

Especially noteworthy, our backlog was up over 80% to a new record level for each of our 3 business units. The power of our customer value proposition, our global capabilities and our leading portfolio of product services and solutions is clear as we continue to outperform the market. Our backlog growth is being fueled by multiyear customer commitments as our large customers recognize our unique capabilities across the communications, security, electrical, utility and power markets.

As a result, we are, again, significantly raising our full year 2026 outlook, reflecting our continued confidence in our continued strong execution. Given the positive market momentum that we are seeing, I'm bullish that WESCO will continue to outperform our markets and deliver superior value to our customers, suppliers and shareholders to close out 2026 and in 2027.

With regards to 2027, we will provide our full year outlook when we report our fourth quarter earnings in February of next year. With that said, we expect to continue to outperform our markets again next year with sales up mid- to high single digits, along with continued margin expansion.

Before turning it over to Neil, I would like to highlight that we will be hosting a virtual investor event on Tuesday, November 10, from 10 a.m. to 11:30 a.m. Eastern Time, where we'll discuss our leadership position in the data center space and our differentiated solutions across the data center life cycle.

WESCO is uniquely positioned with our comprehensive product services and solutions offerings for data center white space, gray space and power infrastructure applications. Our 3 business leaders will discuss our One WESCO strategy, our leading value proposition and our end-to-end capabilities for our data center customers during this upcoming virtual investor event.

With that, I will now turn it over to Neel to take you through our third quarter results, and our raised full year outlook in more detail. Neel?

Indraneel Dev

Thank you, John, and good morning, everyone. As John highlighted, we delivered another exceptional quarter driven by strong execution accelerating growth and increasing contribution across the portfolio.

Before turning to the quarter in more detail, let me start with a few highlights. We delivered record sales, adjusted EBITDA and earnings per share. Organic sales increased 17%, reflecting strong execution across the business. Growth was broad-based with data center sales up 55% year-over-year and nondata center sales growth of 7% year-over-year.

Adjusted EBITDA increased 33% with EBITDA margin expanded 100 basis points to 7.8%. We generated solid free cash flow after investing in working capital to support strong sequential sales growth. Based on our strong year-to-date performance and continued momentum entering the fourth quarter, we are significantly raising our full year outlook for sales, adjusted EBITDA and adjusted EPS.

With that, let me turn to our third quarter results, starting on Slide 5.

For the third quarter, we delivered excellent sales growth and record profitability across the business. Organic sales increased 17% to $7.2 billion, driven by strong volume growth in all 3 business units. Pricing contributed approximately 3% and volume approximately 14%.

Adjusted EBITDA increased 33% to a record $562 million, while EBITDA margin expanded approximately 100 basis points to 7.8%. Gross margin increased to 21.7% and SG&A improved approximately 50 basis points as strong sales growth, productivity and disciplined cost management drove operating leverage.

It's important to note that our SG&A incorporates ongoing investments in expanding our footprint and capabilities to support our profitable growth.

Turning to Slide 6. Adjusted EPS increased 47% year-over-year to a record $5.77 per share. The improvement was driven primarily by strong operating performance, including higher sales and margin expansion.

Turning to CSS on Slide 7. CSS delivered record sales and profitability in the third quarter as strong data center demand continued to drive growth. Sales increased 22% to a record $2.9 billion with organic growth of 21%, driven almost entirely by volume. WESCO data center solutions grew approximately 40%, primarily driven by growth in hyperscale and multi-tenant data center customers.

ENI and Security also delivered strong growth during the quarter, reflecting continued investment and customer demand in network infrastructure. Backlog ended the quarter at another record level, up approximately 140% year-over-year, underscoring the strength of data center demand and providing increased visibility into future revenue.

Adjusted EBITDA increased 42% to a record $313 million, and adjusted EBITDA margin expanded 160 basis points to a record 10.7%. Data center business remains margin accretive to CSS and continues to be a meaningful contributor to our overall WESCO margin expansion objective.

Turning to EES on Slide 8. EES delivered record sales and profitability, highlighted by excellent growth in OEM and continued positive momentum in construction and industrial. We are pleased with the accelerating momentum and improving results over the first 3 quarters of this year. Sales increased 18% to a record $2.8 billion. OEM grew Approximately 30%, reflecting broad-based strength across semiconductor and data center markets. Construction grew mid-teens on continued infrastructure and data center project activity.

Industrial increased mid-single digit on a healthy MRO demand. Data center sales increased more than 100% year-over-year reflecting our expanding participation in data center infrastructure. Excluding Data center EES, grew high single digit demonstrating healthy demand across our core end markets.

Backlog increased approximately 40% year-over-year to a record level. Adjusted EBITDA increased 31% to a record $259 million, and EBITDA margin expanded 90 basis points to 9.3%. Margin expansion was driven by gross margin improvement and operating leverage resulting from the strong sales growth and effective cost management.

Turning to UBS on Slide 9. UBS delivered solid growth and maintained strong profitability in the third quarter, while continuing to build on the improving trends we've seen throughout 2026. Sales increased 6% to $1.5 billion with organic sales up 7%. Utility grew high single digits, driven by strong IOU performance, improving public power trends and continued infrastructure investments.

Broadband was flat year-over-year on the back of a challenging prior year comparison as sales in the third quarter of 2025 were up over 20%. Continued share gains supported by our performance in current quarter. Backlog increased approximately 90% year-over-year to a record level, driven by grid services and strong order activity across utility and broadband.

Adjusted EBITDA increased 6% to $158 million. EBITDA margin remained strong at 10.4%, improving 40 basis points sequentially. We are pleased with the EBITDA margin expansion over the past 3 quarters and maintained our double-digit EBITDA margin in the third quarter. This was achieved with a backdrop of a competitive public power landscape as we focused on pricing for our value proposition, driven strong operating cost leverage and continue to diversify our customer base.

Moving to Slide 10. Data centers our sales are now approximately $6 billion on a trailing 12-month basis and represent approximately 23% of company sales. Importantly, this business continues to be margin accretive to WESCO and remains a meaningful contributor to our profitability and margin expansion.

Third quarter data center sales increased approximately 55% year-over-year to a record $1.8 billion, marking another quarter of strong growth despite increasingly challenging year-over-year comparisons.

Turning to Slide 11. Free cash flow generation was $184 million during the third quarter. We continue to focus on our working capital efficiency, and we are pleased with our cash flow generation this quarter. As a reminder, we are an asset-light business with working capital being our primary investment supporting profitable growth. We are successfully managing pressures on our working capital intensity as we execute large long-cycle projects with longer-term commitments from our customers.

Net working capital as a percentage of trailing 12-month sales was approximately 20%, remaining generally consistent with prior quarters despite higher sales, expanding margins and accelerating momentum in our business.

Moving to Slide 12. Net leverage improved to 2.8x net debt to adjusted EBITDA compared to 3.4x at year-end, notably ending the quarter below 3x. This continues our trend of steady deleveraging with leverage improving every quarter over the past year. Approximately $2 billion of our debt consists of our revolving credit and accounts receivable facility. These credit facilities are in place to support fluctuations in our working capital, and the balances are typically countercyclical in nature.

We exited the quarter with available liquidity of over $2 billion. We also maintain a well-structured debt maturity profile with no significant near-term maturities and sufficient flexibility to support our capital allocation priorities and future growth.

Moving to Slide 13. Turning to our 2026 outlook by business unit. We have raised our growth expectations for CSS and EES. We now expect CSS sales to grow about 20% and EES to grow low double digit for the year. Within CSS, we have also increased our outlook for WESCO data center solutions and now expect growth of more than 40%. We continue to expect UBS to grow at a mid-single-digit rate in 2026.

Moving to Slide 14 and our outlook for the remainder of the year. Based on our strong year-to-date performance and continued positive momentum across the business, we are again raising our full year outlook. We now expect organic sales growth of 13% to 14% and reported sales growth of 14% to 15%, resulting in expected full year sales of approximately $26.8 billion to $27 billion. We are significantly increasing our adjusted EBITDA margin outlook to approximately 7.2% and significantly raising our adjusted EPS outlook to $18 to $18.50 per share.

As reflected on the slide, we've made some minor adjustments to NIS, stock-based compensation and interest expense. Despite significantly higher sales growth and implications for working capital, we are maintaining our free cash flow guidance reflecting the progress we are making with our working capital improvement initiatives. Overall, our updated outlook reflects continued strength across the portfolio, strong execution and confidence in our ability to deliver.

Turning to Slide 15. Preliminary October sales per workday are up in the high teens year-over-year, providing an excellent start to the fourth quarter. We currently expect low to mid-teens reported sales growth and adjusted EBITDA margin expansion of approximately 50 basis points in the fourth quarter versus the prior year. These expectations are consistent with our increased full year outlook and reflect the continued positive momentum we are seeing across the business.

We've covered a lot of material this morning. So let me briefly recap the key points before we open the call to your questions. In summary, we delivered our fifth consecutive quarter of double-digit sales growth, with record sales backlog, adjusted EBITDA and adjusted earnings per share.

Momentum continue to build across the portfolio with positive organic sales growth across all 3 business units. Data center remains a significant growth driver and continues to evolve into a company-wide growth engine. CSS delivered another quarter of exceptional growth and profitability, further demonstrating that data center remains a margin accretive growth driver.

EES delivered another quarter of exceptional growth and profitability, reinforcing its role as an increasingly important contributor to WESCO's overall performance. UBS delivered solid growth and a third consecutive quarter of sequential margin improvement, while grid services continues to diversify our customer base. Strong sales growth translated into record profitability, driving meaningful operating leverage and further improving our leverage profile. Lastly, based on our strong year-to-date performance and continued momentum, we are significantly raising our full year outlook for sales, adjusted EBITDA and adjusted EPS. With that, operator, we can now open the call to questions.

Operator

[Operator Instructions] Our first question today comes from David Manthey with Baird. .

Preguntas y respuestas

David Manthey

Everything really look good. I'm sure you'll get a lot of questions on data centers. So I'll go on to tangent here to start off. Could you give us an update on the digital transformation? And I believe you have 100 basis points of EBITDA margin benefit targeted. Is that expected to start to materialize in 2027? Is that a part of your mid-single digit, high single-digit top line and margin expansion outlook in broad strokes, you gave us John here on 2027.

John Engel

Dave, thanks for that. Look, we're making very good progress on our digital transformation, and we remain committed to the long-term vision we outlined our last full Investor Day back in 2024, all 3 SBUs are running build on the new digital platform in multiple locations. So that gives us a strong foundation as we continue to expand the capabilities. And over the past year, we've continued to build out the functionality while deploying a platform across additional locations.

In the first half of this year, we successfully deployed the platform in a much more complex operation really an end-to-end business and it's been successfully converted to the new platform, which gives us even -- gives us the confidence that we're on track, and we'll realize material benefits of our digital transformation. So we're on great progress.

I will tell you, we haven't -- we're not going to give you the kind of composition of the '27 outlook or guide yet, we'll do that as part of the -- when we deliver the fourth quarter earnings release. I will say this, though, the 100 basis points that we targeted as a result of deal transformation. It will be in at least 100. I think as we've made progress on the deployment, we see material opportunities and upside.

So I'll just say that without updating the number, let's say, it's an at least 100 basis points of EBITDA margin expansion. And Dave, we'll give that a little more color when we provide the full year outlook for '27 in the Q4 earnings release.

David Manthey

That sounds good. And then as a follow-up, I think when people think data centers, they sort of think AI data centers, and I know you have a broader business than that. Can you talk about beyond that specific vertical, your exposure to general cloud providers on-prem, et cetera, in terms of your capabilities?

John Engel

David, that's an outstanding question. And look, this is a really important question. And I think that everyone is getting painted with the AI hyperscaler data center brush. This is why we chose to do a deep dive on data centers in our virtual Investor Day week after next.

So just to address your question directly, we have been in the data center business for decades. So our business is broad-based. yes, we obviously have served the hyperscalers. And we have, again, a terrific we think, a leading value proposition, global execution capability, and we serve end-user customers directly, not through intermediaries. And that includes the hyperscalers and includes MTDCs. It includes the emerging AI players, but very importantly, includes all the enterprise class customers, of which -- that's where our deep roots are in data centers.

We've been serving them for decades, not just in U.S. and North America but around the world. Our data enter demand remains strong and very broad-based. And what I see happening for data centers, and we'll double click this and go in much more detail on our deep dive.

Enterprise AI investment is expanding well beyond the hyperscalers with the large enterprise customers building out hybrid and private AI infrastructure and deploying AI closer to the edge. So that sets up exceptionally well for Wesco given our history, our leading capabilities in terms of the value prop, across white space, gray space and power and infrastructure and our global execution model.

And for us, specifically, our bookings and sales accelerated in the third quarter. And the backlog growth is exceptional, far stripping -- far surpassing the sales growth. And it's important to note that as we had expected, and we said this would happen as we move through the cycle, the data center business is now is margin accretive. So it's a great question. We'll bring this to life in much more detail again week after next. Thanks, Dave.

Operator

The next question comes from Sam Darkatsh with Raymond James.

Sam Darkatsh

Yes. Well, we'll repeat what Dave said. It was a hell of quarter, obviously. My first question, as it relates to the implied fourth quarter guide, it seems as though the margins. There's probably some conservatism, I think, in your margins. I'm just trying to understand the decremental margin sequentially or like 20% to 30% or so if my math holds, and the incremental margins year-on-year are only around 10% or so. What's -- is there something structural keeping the margins lighter than a normal flow through? Or is that just normal conservatism?

Indraneel Dev

So Sam, I think just to put the outlook in context, right, we're guiding to a solid fourth quarter growth year-over-year. But if you think about fourth quarter, you have the December dynamic potentially whether there's holidays, et cetera. And so we're factoring that in. But having said that, very solid growth. So if you think about it sequentially, you got one less business day. And so there is a slight step down in revenue.

And so operating leverage goes slightly different direction. And then we're also continually investing in the business as we look forward to next year. I will get a longer-term customer commitments, long-cycle project bills. So all in all, we factored all of that in. And so it really is the leverage in the business that's driving that.

Yes, and I'll take structural, Sam or anything to highlight.

Sam Darkatsh

Got you. And then my follow-up, sort of similar, with this kind of growth, that's likely be sustained at least for a fairly extended period of time. John, how do you view your labor and your physical footprint capacity right now, especially knowing that the digital transformation is still in its early stages.

John Engel

Yes. Great question, Sam. We haven't talked much about that, but we've been continuously managing that since Anixter and WESCO came together back now 6 years ago in the beginning of the pandemic. So we've been going through a continuous process of where we've been optimizing that. Again, we haven't really put a spotlight on that externally for all the investors.

But we've been continuously combining facilities where it makes sense, our new facilities that we added to our footprint are materially larger, and they also have kind of a different scope and expanded mix. It supports more of our value-added services. We had a press release recently on a very large facility down in Texas that's new that we stood up and expanded and that includes Level 10, Level 11 and level 12 data center testing capability for the full up server racks.

We'll double-click on that in much more detail in our Investor Day week after next. So we've been investing, Sam. Since we put Anixter and WESCO together, while pruning and optimizing the footprint. And so I feel very good about what we have right now. Look, we've kicked into a much higher gear in terms of growth I've said for a number of years now that this portfolio mix shifted to a higher growth profile. We're really seeing it kick in now.

As strong as data centers are and look, they're terrific. We're exceptionally well positioned with a leading set of capabilities and we're taking advantage of that. It's terrific. I'm especially pleased with the growth across the balance of the portfolio being high single digits. It stepped up from Q2 to Q3 and that just shows the breadth and depth of the portfolio.

And Sam, we're leveraging really the optimization moves we've made on our footprint over the last several years. So I think we're exceptionally well positioned to continue to see the operating cost leverage that gearing, I'll say, as we drive these higher sales growth numbers.

Operator

The next question comes from Tommy Moll with Stephens.

Thomas Moll

John, I want to push a little bit on the comment you made regarding 2027 sales. If we just look at the acceleration in the nondata center business, which you've highlighted a couple of times, it was a [ 7 ] in the most recent quarter. Presumably, you're dialing in something similar in Q4, so you're exiting very strong into next year. .

And then I don't know what you assume for data center, but something accretive to that. I mean, almost any way you cut it, you're going to get to a solid high singles kind of outlook. So is there some kind of conservatism in your comment or something I've overlooked here?

John Engel

Tommy, I got -- I'll stand with my comments because we're not providing any outlook yet, but I think it's been our history that with Q3 results, we're at least trying to give you a sense of, and we're beginning to think about it. And just -- we do have very strong positive momentum. We carried into the fourth quarter. We expect that will continue through the quarter, and we'll exit with that very strong momentum entering next year. And then we'll give our full outlook when we do our Q4 results.

Thomas Moll

Fair enough. And I also wanted to ask on the digital investment today versus when you kicked off that initiative, there's a lot more opportunity to deploy AI now across the enterprise. So I'm just curious, have you needed to update your planning on how you execute this big investment cycle? Or what can you tell us there?

John Engel

Yes. So one of my quotes is timing is everything in light of business. And so when you think about when we started down our digital transformation journey, that strategy was clearly articulated back in an Investor Day in 2019. Some of you will recall that and that capture in the history books. And so we said very strongly that we want to invest and be the leader in digitally transforming the B2B distribution value chain and do it by leading that transformation of our company. .

And that -- we said we would have to acquire a big or big and then get the synergies to pay for that, but then take a piece of those synergies and reinvest it in the business. And that's the playbook we've been running over the last 5 to 6 years. We absolutely picked the right architecture. It's a new tech stack, wrapped around 1 world-class data lake that we've been hydrating all our data in and we've made substantial progress on leveraging AI. We focused inside our 4 walls quite frankly, as we're learning and developing and expanding our AI applications.

It started as standard AI applications several years ago, we moved to generative AI. Now we have a combination of generative and true agentic AI applications running inside our environment with our new tech stack and against our big data set it's in our day lake.

The data lake really is the core. I've said many times, the greatest status that we have that's not on the balance sheet is a big data. That's our data on all our transactions and remember, we're the market leader. So it's that plus uniquely customer data, supplier data and then we use other external data sources as well. So we'll talk much more about this as we move into next year.

But I'm really pleased with the value we're already getting out of AI in terms of enhanced analytics driving some productivity, it's starting to support the operating cost leverage. We didn't spike out the contribution, but it's clearly a contributor, which tags on to Sam's comment. And look, this is why we did this, but we're in the early days of starting to realize these benefits. And by the way, bottom line, too, we don't have to wait for the digital new tech stack to be deployed to every location around the globe, we're getting these benefits of AI implementation, both generative and agentic AI along the way.

So I'm more bullish than ever in terms of the operating leverage, the productivity, it will actually help accelerate our sales growth as well with some unique insights for gaining across our big data set. And so with 2010 hindsight, we absolutely had the right strategy, and I'm really happy that we launched this years ago as opposed to just trying to get started now because. And again, maybe my final point is the quality and fidelity of the AI implementation and the ability to get the benefits is directly proportional to the quality and fidelity of your big data. And again, it's the greatest asset that we have that's not on the balance sheet. So thanks for that question.

Operator

The next question comes from Christopher Glynn with Oppenheimer.

Christopher Glynn

Congrats on the quarter here. So interesting, the comment that data center sales now [ are accretive ] to enterprise margins, it's great to hear. We've been seeing them deliver great incremental while now. But particularly interesting to hear that comment in context where CSS is reporting 1% growth and ESS is reporting 5%. So just curious about the the pricing differential there? What you could say about that and if that's a pricing opportunity, Tom?

John Engel

Yes, so great question, Chris. Here's what I'd focus you on -- if you go back several years ago, when we started seeing the acceleration in data center, as you recall that we had a few quarters in CSS where the margins weren't moving or kind of flat or maybe a little bit of pressure.

I was very clear that given where we fit in the construction cycle, the data center life cycle, and where we sit in terms of the value chain that was the front end of that business. And as we secure these bigger construction projects, that as we progress through and manage them, there'll be additional products that we would pull through and we would increasingly add services. So that's what you're seeing. Like-for-like the products, there's not tremendous inflation for what we do.

Again, we're not doing NVIDIA chips and the core compute solution. That's not -- does not go through distribution to the end customer. We're doing everything else wrapped around it. We'll deep dive this a week after next. But the way you should look at it is it's not that price is going to be a huge lever to gross margin expansion. It's our conscious strategy of adding additional products once we're in at the beginning through the life cycle of the build and increasing the services content, while the projects being built and post deployment of the project, which, again, we've done a series of acquisitions that give us additional capabilities to manage day 2 through day end of data center, not just up to day 1.

So this is really an important point. I would really focus you on the gross margin improvement is because of our services content increasing over time, and we're continuing to drive accelerate that. And the operating cost leverage is inherent because we're getting this exceptional growth, and we're getting great leverage off our operational footprint, which tags back than what I mentioned in response to Sam's question.

So the 1-2 punch we're seeing in CSS is really remarkable. And it gets CSS above the 10% EBITDA margin, 2 quarters in a row. This quarter in particular, just represents really terrific momentum.

Christopher Glynn

Sounds good. And I've also got a question on the UBS margins. Just given the peculiar dynamics of the trough that that's moving off of in the PPU recovery you've had a 2 or 3 quarter sequential margin expansion. Is that kind of just a natural course of the next few quarters where that trend of sequential expansion sales is a function of the PPU headwinds dissipating?

John Engel

Yes. So I'll address that question but expand it a little bit in terms of the different dynamics occurring there. .

But remember, UBS said it got to 11% EBITDA business. So we have a terrific set of capabilities, unique, leading market position, value proposition. And so -- and we are in a very interesting period because we're seeing very good accelerating momentum. First of all, the backlog being up over 90%, I'll come back to that is just a terrific indicator. But fundamentally, we've got improving sequential momentum.

IOUs grew double digits in the third quarter. That's the fourth quarter in a row of double-digit growth for and public power grew in the third quarter, okay? And that is the second quarter in a row that Public Power group, core margins stabilized, grid services is up double digits the last 4 quarters in a row, we told you that would grow double digits this year. And so -- and fundamentally, this recipe has an improved EBITDA margins profile as we move forward, and we've improved EBITDA margin successively over the last 3 to 4 quarters on a sequential basis and grid services will increasingly contribute as we move through time.

So we -- I remain very bullish on utility and the required power chain investments that are going to have to be made across -- to support not just AI-driven data centers, but all the other mega projects and the infrastructure build-out. And look, I've mentioned before, and I have a very strong belief that utilities become a secular growth industry. And when I say utility is a secular growth industry, I will include the IPPs, the independent power producers where -- I mean, basically, the way I look at this is all things power is what we're focused on due to the increasing energy demand and that bodes exceptionally well for us.

Operator

The next question comes from Ken Newman with KeyBanc Capital Markets.

Kenneth Newman

Congrats on the solid quarter. Maybe first, John, John, I appreciate the color on the support for mid- to high single-digit sales growth for next year. I'm assuming that comment is primarily just being driven by what you -- what's currently in the backlog today. So I guess, first, is that a fair assessment? And then secondly, is there a way to help us think about the stock and flow side of the business and how that performed this quarter relative to the backlog side?

John Engel

Again, I think what we've done with that commentary, Ken, is just consistent with the last couple of years. And so I think you should put it into that context. And in terms of what really is the drivers in the composition, we'll give that in great detail when we release our fourth quarter earnings results. And as we always do, we're in the middle of the fourth quarter now. We do have positive momentum. And that commentary we meant to reflect that we entered the quarter with great momentum.

We expect to exit the quarter with strong positive momentum, and it's more of a momentum comment as we move into next year. So that's how you should take it. But in terms of the detailed guide, we'll provide that again once 2026 is in the record books.

Kenneth Newman

Okay. And anything to comment on stock and flow versus project-oriented? .

John Engel

We've been getting a pickup actually mix-wise stock and flow, and it's most notable in our EES business, which I made that comment last 2 quarters, that has continued, and it's part of the broader commentary around EES just posted a record quarter, another record quarter. There's accelerating business momentum, Construction is accelerating, industrial is improving.

OEM has further acceleration as represented by our Q3 results. And I think we're at the beginning of an industrial super cycle. I've made those comments before. So the best is yet to come on industrial. I'll just tell you, it's great to see EES kicking into gear. And one of the attributes of that is we're getting this very strong growth in stock and flow.

Kenneth Newman

That's helpful. And then for the follow-up, I guess just thinking -- obviously, it seems like you aren't seeing or expecting any impact from the moratorium headlines from earlier this quarter and that seems like it jives with what most of your suppliers and competitors have said or have been seeing in project activity year-to-date.

I guess when you think about where you play primarily in the timing of new data center construction, is there a higher level way to think about the inherent lag of the new orders that you're winning today for new greenfields and when they ultimately flow through the P&L, just maybe ask another way, how much of the increase in the CSS backlog is for new data center projects that likely won't be -- you won't play for until like '28 versus '27.

John Engel

No. It's a good point. And we've given that view before over the last few years, and this is something we'll highlight in more detail a week after next in our data center deep dive. But when you see the headline numbers from a hyperscaler or MTDC in terms of their increased CapEx, where we play in the value chain, there is a meaningful time delay or time lag right?

Just it's the nature of the beast. We see these reported. Reported Headlines on CapEx increases. The first thing that has to be done is the overall power solution. And then as the construction build cycle progresses, it's gray space moving to white space. So what we're benefiting from now is projects that are spending that was announced quite some time ago on behalf of our end user customers.

It's a really important point that you've called out and that we've cited before. And so again, but when you look at our momentum vector, look at the backlog growth in CSS, 140% and look at the sales growth. Look at the backlog growth in EES, right, at the 4% level and then look at the sales growth and look at the backlog growth in UBS at 90% and look at the sales growth.

So I think that answers your question. At the high level, in terms of the dynamics of brand-new projects being loaded in backlog and the time phasing, we'll give a little more insight on that week after next because, again, I think we'll -- as we peel the onion on our data center business, I think you all appreciate much -- to a much better degree, which is why we choose to do it, the depth and breadth of our data center positioning our leading value prop, our global execution model and that we are across all types of data center applications and now have capabilities across the whole life cycle. That's the really important point. It's not just the build, but it includes Day 2 through day in of running the data center.

Operator

The next question comes from Guy Hardwick with Barclays.

Guy Drummond Hardwick

Actually, Ken asked most of what I was going to ask, but maybe I'll ask the question in a different way, John. Is it possible to kind of pause the backlog as to how much is delivered next year? How much is it in 2028 and beyond?

John Engel

Yes, Guy, we haven't done that historically, so I won't do that in Q&A. But we'll we'll take that input and see if we can provide some further insight as we move forward. I will just tell you that in general, what's in backlog, it includes a broad mix of demand. That can be tomorrow, next week, next month, next quarter. And typically, it's not 5 years out or 4 years out, but it can be a year to 2 years out for some very specific long-cycle products that are part of projects. So that's kind of the nature of the beast of our backlog for wholesale distribution.

Guy Drummond Hardwick

And just as my follow-up, what percentage of UBS now is grid solutions given it's grown, I think you said [indiscernible] 10%. I assume it's higher than that now.

John Engel

So we were a $300-plus million business last year. And we -- when we gave our outlook and guidance, our [ original one ] for 2026, we said it would grow double digits this year. It's been growing double digits all 3 quarters. We expect it to grow double digits in the fourth quarter as well. We'll update those mixes when we complete the -- when we closed out 2026. So we'll give you a sense of that then because it's growing at a higher rate than UBS overall, clearly.

So it's mix shifting up.

Operator

The next question comes from Chris Dankert with D.A. Davidson.

Christopher Dankert

I guess I did kind of want to hold on grid services for just a minute. John, I want to make sure I understand your earlier comments. When it comes to the profitability there, is that accretive to UBS today? Is the opportunity to expand that to be even higher than the segment average, kind of similar to what we've seen in data center? Maybe just some comments on the profitability of grid services would be great.

John Engel

It's accretive WESCO for sure and will obviously help UBS. So it's -- we've given kind of given a profile of that business as we move through the year, I'll just remind everyone that we first called it out at our last full Investor Day in 2024, Cameron, called it out during that Investor Day as part of Q&A.

And when we announced our fourth quarter results for 2025, we did profile that business because it was an important part of our plan for 2026 as we had planned double-digit growth this year. And now here we are 3 quarters in the record books, it's treading double-digit growth. And in last quarter, we called out a very large win that's multiyear in nature that kicks in starting -- extensively kicks 2027 starts to contribute meaningfully in the first half of '27. And so -- and the margin characteristics because of the value proposition we're delivering and we're managing a global supply chain with some very challenging requirements. They're attractive margins and margin accretive.

I thought I'd just give a little more color on what the drivers are there.

Christopher Dankert

Yes. Thank you very much for the reminder and the color there. And I guess to zoom out a little bit, can you remind us and forgive me if I missed it somewhere in the deck. But as far as the price/cost impact, are we kind of hovering it neutral right now that the same kind of price/cost neutrality expected fourth quarter in the guide there? I just kind of give us an update on price/cost?

Indraneel Dev

Yes, Chris, you're right. That's usually our objective. So we're generally neutral. And if you look at pricing, it's not a factor in our CSS business, like John touched on before, it's really primarily in our EES business, and we manage that very closely and try to maintain margins.

Operator

This concludes our question-and-answer session. I'll now turn the conference back over to John Engel for any closing remarks. .

John Engel

So I think we addressed all your questions today. It's great that we were able to get through all of them. Thanks for joining us. I'll bring the call to a close. Thank you all for your support. It's very much appreciated. I'm going to remind you again that we'll be hosting a virtual investor event on Tuesday, November 10, from 10:00 a.m. to 11:30 a.m. Eastern Time, and I hope you'll be able to make it.

I know we've got a number of follow-up calls lined up with Scott and teams. So we look forward to engaging with you in the coming days. And finally, we expect to announce our fourth quarter earnings on Tuesday, February 9, 2027. Thanks again for your support. Have a great day. .

Operator

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