What happened

Shares of Wesco International (NYSE:WCC) were down more than 15% at noon EST on Tuesday following the industrial supplier's fourth-quarter earnings report. Results fell short of expectations and Wesco provided tepid guidance concerning 2021, and the shares traded down as a result.

So what

Before markets opened on Tuesday, Wesco reported fourth-quarter adjusted earnings of $1.22 per share on revenue of $4.1 billion, shy of Wall Street expectations of $1.33 earnings per share on revenue of $4.12 billion.

The results close out a busy year for Wesco, which in mid-2020 closed its $4.5 billion acquisition of cabling and electrical wire provider Anixter International. The deal nearly doubled the size of the company, creating a global electrical and data communications equipment distribution powerhouse.

Electrical wiring at a construction site.

Image source: Getty Images.

The fourth-quarter result included about $15 million in merger-related charges, as well as a $23 million charge related to inventory absorption accounting. Back out those numbers and the company generated a gross profit of 19.6% in the quarter, compared to 18.6% in the fourth quarter of 2019.

The deal also increased Wesco's debt and interest expense. The company's net interest expense for 2020 was $226.6 million, compared to $65.7 million in 2019.

"We completed the transformational acquisition of Anixter, doubling our size and changing our trajectory for years to come," CEO John Engel said in a statement. "And at the same time, we delivered operating results during a global pandemic which demonstrate the strength of our franchise, the commitment of our extraordinary team of associates, and position us well for future growth as the economy continues its recovery and the secular trends supporting our future growth generate momentum across our business units."

Now what

There's great potential in the combination, but it might not materialize quite as fast as Wall Street had hoped. Wesco said it expects adjusted earnings per share of $5.50 to $6 in 2021, below the $6.83 per-share consensus estimate.

For now, the company is focused on paying down the debt it took on to buy Anixter. In the six months since the deal closed, Wesco has reduced net debt by $389 million, but Wesco ended the year with $4.37 billion in long-term debt.

Scale is important to distribution businesses, and the Anixter merger -- despite the added leverage -- still makes sense. It is now up to Wesco to execute. The stock is up more than 55% even after Tuesday's decline, implying investors believe the company is on the right track. However, the fourth-quarter earnings provide a reminder that the business is in a complicated, transitional period.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.