Encore Wire Corporation
Q1 2011 Earnings Call Transcript

Published: 29 Apr 2011

[Operator:]

Good morning, ladies and gentlemen, and welcome to today’s first quarter earnings review conference call. Please note that all your lines are on listen-only mode, and there will be time for a Q&A session towards the conclusion of this meeting. (Operator instructions) And now to start off our conference, I’d like to welcome and turn the call over to Mr. Daniel Jones, Chief Executive Officer, Encore Wire. Go ahead, sir.

[Daniel Jones:]

Thanks, Mona. Good morning, ladies and gentlemen, and welcome to the Encore Wire Corporation quarterly conference call. I’m Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer. We are pleased to announce strong quarterly earnings in the midst of the severe recession currently taking place in the construction industry. As we have repeatedly noted, the key metric to our earnings is the spread between the average price of wire sold for copper pound in the company’s average cost of raw copper per pound in any given period. The spread increased 42.2% in the first quarter of 2011 versus the first quarter of 2010 while our unit volume shipped in the first quarter of 2011 increased 28.9% versus the first quarter of 2010. The spread increased 14.3% on a sequential quarter basis while unit volume increased 5.3%, driving the increase in our earnings. In the trailing 12 months ended March 31, 2011, we produced net sales of $1.038 billion and net income of $28.4 million or $1.22 per share versus net sales of $680.4 million and a net loss of $3.4 million or negative $0.15 per share in the 12 months ended March 31, 2010. The results in the last four quarters are particularly encouraging. We believe the exit of a former competitor in the first quarter of 2010 has contributed to the positive trend in our industry pricing levels and margins over the last four quarters. We continue to strive to lead or support industry price increases to achieve profit growth. We believe our superior order fill rates continue to enhance our competitive position, as our electrical distributor customers are holding lean inventories in the field. As orders come in from electrical contractors, the distributors can count on our order fill rates into ensure quick deliveries from coast to coast. We have been able to accomplish this despite holding on historically lean inventory levels for us. We believe our performance is impressive in this economy, and we thank our employees and associates for the tremendous efforts. We also thank our shareholders for their continued support. Frank Bilban, our Chief Financial Officer, will now discuss our financial results. Frank?

[Frank Bilban:]

Thank you, Daniel. In a minute, we will review Encore’s financial results for the quarter. After the financial review, we will take any questions you may have. Each of you should have already received the copies of Encore’s press release covering Encore’s financial results. This release is available on the Internet or you can call Tracy West at 800-962-9473 and we will get you a copy. Before we review the financials, let me indicate that in our initial comments and in the question-and-answer period that follows, we may make certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation and instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties. Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including EBITDA, which we believe to be useful supplemental information for investors, are posted on www.encorewire.com. Moving on to the financial results, net sales for the quarter ended March 31, 2011 were $303.4 million compared to $175.2 million during the first quarter of 2010. Net income for the first quarter of 2011 was $10.7 million versus a net loss of $2.5 million in the first quarter of 2010. Fully diluted net income per common share was $0.46 in the first quarter of 2011 versus a net loss of $0.11 in the first quarter of 2010. Unit volumes, measured in pounds of copper contained in the wire sold during the period increased 28.9% in the first quarter of 2011 versus the first quarter of 2010. The spread between the cost of a pound of copper purchased and the sale price of wire containing a pound of copper increased by 42.2%. The 2010 first quarter results included a $2.6 million pretax charge associated with the early retirement of long-term debt that the company paid off in January of 2010. On a sequential quarter comparison, net sales for the first quarter of 2011 were $303.4 million versus $256.1 million during the fourth quarter of 2010. Net income for the first quarter of 2011 was $10.7 million versus $4.5 million in the fourth quarter of 2010. Fully diluted net income per common share was $0.46 in the first quarter of 2011 versus $0.19 in the fourth quarter of 2010. Unit volumes increased 5.3% in the first quarter of 2011 versus the fourth quarter of 2010. The spread between the cost of a pound of copper purchased and the sales price of wire containing a pound of copper increased by 14.3%. As Daniel previously highlighted, our performance in the trailing 12-month comparisons are particularly encouraging. Our balance sheet is very strong. We have no long term debt, and our revolving line of credit is paid down to zero. In addition, we have $75.2 million in cash as of March 31, 2011. We also declared another quarterly cash dividend during the last quarter. We want everyone to know that this conference call will be available for replay after the conclusion of this session. If you wish to hear the tape replay, please call 866-551-4520 and enter the conference reference 272369 and the pound sign. I’ll now turn the floor back over to Daniel Jones, our President and CEO. Daniel?

[Daniel Jones:]

Thank you. As Frank highlighted, all things considered, Encore performed well in the past quarter. We believe we’re well positioned for the future. Mona will now take questions from our listeners.

[Operator:]

(Operator instructions) Our first question is from Keith’s location. Keith, go ahead, please.

[Keith Johnson:]

Good morning. This is Keith Johnson, Morgan Keegan.

[Daniel Jones:]

Hi, Keith.

[Keith Johnson:]

Hi, guys, how are you this morning?

[Daniel Jones:]

Good.

[Keith Johnson:]

Good quarter there. I was just wanting to get a couple maybe clarifications on a few items. Maybe first off, the solid I guess increase in volumes year-over-year, could you kind of break that out on a year-over-year basis how the residential markets and commercial markets performed?

[Daniel Jones:]

Residential, and you’re talking Q1-to-Q1, Keith?

[Keith Johnson:]

That’s it.

[Daniel Jones:]

Q1-to-Q1 residential was just about dead even. No gain or loss. And commercial was up 36% on a unit basis.

[Keith Johnson:]

And then, of that 73% or so year-over-year increase in revenues, how much was kind of – would you attribute to kind of the selling price side of the equation? You highlighted the volume increase year-over-year but on the selling price side.

[Daniel Jones:]

The average sales price per copper pound shipped went up 34%.

[Keith Johnson:]

On the increase in the commercial volume, are you guys seeing any better trends in any of your markets related to kind of some early indicators on non-residential construction?

[Daniel Jones:]

As far as this month?

[Keith Johnson:]

Well, yes, kind of as you came through the first quarter, kind of where you are now looking as we go into the summer?

[Frank Bilban:]

Each month, Keith, actually was a little bit stronger than the other. February beats January and March beats February about a little bit. And we’re seeing that trend – that as being a trend or a bias at least.

[Keith Johnson:]

Okay. And what about maybe just comments around the trend and the pricing dynamics, the ability for that spread to expand? Did it – was it consistently better through the first quarter or did it have some months that were a little stronger than others?

[Frank Bilban:]

It was consistently better. And I think the dynamics associated with the volatility and some of the uncertainties in the markets led to cross support. And as we mentioned more directly to your question – (Audio Gap)

[Daniel Jones:]

(inaudible) $8.25 million. That was an expense of $8.25 million.

[Keith Johnson:]

Okay. And then copper for the quarter for you guys was – copper purchase price?

[Daniel Jones:]

Average price for copper during the quarter?

[Keith Johnson:]

That’s it.

[Daniel Jones:]

It was about 4.37.

[Keith Johnson:]

All right. Great. Thanks. Good luck.

[Frank Bilban:]

Thanks, Keith.

[Daniel Jones:]

Sure, Keith.

[Operator:]

(Operator instructions) We have a question from Kerry’s location. Go ahead, sir.

[Kerry Rigdon:]

Good morning, gentlemen. This is Kerry Rigdon, Mayberry Partners. Congratulations. Great quarter. One question, Daniel, concerning pricing. How would you characterize the pricing discipline in the quarter?

[Daniel Jones:]

Well, it’s improving from January through March each month, each week, so forth, got a little bit better. There were several price increase attempts, and several of those were supported. The volatility – obviously you guys can see what’s happening with copper and the volatility has supported that in most instances. And in some instances, the day of a price increase, copper would drop and we met some resistance. But net-net, the bias was more toward an increase being supported.

[Kerry Rigdon:]

Terrific. Thank you.

[Daniel Jones:]

You bet. Thanks, Kerry.

[Operator:]

Gentlemen, it looks like that was our last question.

[Daniel Jones:]

Super. Mona, you’ve done a great job and we appreciate you folks that called in. If there are any questions that come up after the call, you can reach either Frank or myself at the office. And again appreciate your support and thanks for calling in.

[Operator:]

Ladies and gentlemen, thank you for your time and attendance. This conference is concluded. Enjoy the rest of your afternoon.