Encore Wire Corporation
Q4 2013 Earnings Call Transcript

Published: 20 Feb 2014

[Operator:]

Welcome to the Encore Wire Fourth Quarter Conference Call. My name is Ellen, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Daniel Jones, President and CEO. Mr. Jones, you may begin.

[Daniel Jones:]

Thank you, Ellen, and 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. Continuing the positive trend we saw developing earlier this year, the fourth quarter was encouraging to us from both the volume and margin perspective. Unit volumes were up in all building wire products. We believe our expansion of product offerings to our existing customer base over the last several years has been critical to maintaining and perhaps boosting our market share as capital expenditures help to drive increase sales. As we've repeatedly noted, one of the key metrics to our earnings is the spread between the price of copper wire sold and the cost of raw copper purchased in any given period. This spread increased 3.7% in 2013 versus 2012, while our copper unit volume shipped in 2013 increased 9.5% versus 2012. Along with the continued success of our aluminum building wire launch, the increase in copper unit volumes and spreads help drive earnings per share in 2013 to the second highest yearly total ever. Our new aluminum building wire plant finished its first full year of operation during which we sold $79.8 million of aluminum building wire. We also believe our ability to perform on aluminum wire has resulted in increase copper sales. We continue to support industry price increases in an effort to maintain an increase margins and 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 to ensure quick deliveries from coast-to-coast. We have been able to accomplish this despite holding what our historically lean inventories for us. We believe our performance is impressive in this economy and we thank our employees and associates for their tremendous efforts. We also thank our stockholders 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 the financial results for the quarter. After the review we will take any questions you may have. Each of you should have received a copy of our press release covering Encore’s financial results. This release is also available on the Internet or you can call [Melissa Robby] at [phone] and we’ll get you a copy. Before we review financials, let me indicate that throughout this conference call, 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 here 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. Net sales for the fourth quarter of 2013 increased to $293.5 million compared to $258 million during the fourth quarter of 2012. Unit volume, measured in copper pounds contained in the wire sold, increased 18.4% in the fourth quarter of 2013 versus the fourth quarter of 2012. The volume increase was offset somewhat by a 6.8% decrease in the average selling price per copper pound sold in the fourth quarter of 2013 versus 2012. Sales prices declined primarily due to lower copper prices, which declined 8.6% versus the fourth quarter of 2012. Aluminum building wire sales continued their growth pattern, constituting 8% of net sales dollars for the fourth quarter of 2013 versus 5.1% in the fourth quarter of 2012. Net income for the fourth quarter of 2013 increased to $11.2 million versus $5.2 million in the fourth quarter of 2012. Fully diluted net earnings per common share were $0.54 in the fourth quarter of 2013 versus $0.25 in the fourth quarter of 2012. Net sales for the year ended December 31, 2013 increased to $1.158 billion compared to $1.072 billion during the same period in 2012. Unit volume, measured in copper pounds contained in the wire sold, increased 9.5% in 2013 versus 2012. The volume increase was offset somewhat by a 4.7% decrease in the average selling prices per copper pound sold in 2013 versus 2012. Sales prices declined primarily due to lower copper prices, which declined 7.5% in 2013 versus 2012. Aluminum building wire sales continued to grow, constituting 6.9% of net sales dollars during 2013 versus 3.6% in 2012. Net income for the year ended December 31, 2013 was $46.9 million versus $19.8 million in 2012. Fully diluted net earnings per common share increased to $2.26 per share for the year ended December 31, 2013 versus $0.91 per share in 2012. On a sequential quarter comparison, net sales for the fourth quarter of 2013 were $293.5 million versus $309.9 million during the third quarter of 2013. Copper unit volume decreased 6.7% on a sequential quarter comparison. The fourth quarter is generally a slower quarter in the construction and building wire industries. Net income for the fourth quarter of 2013 was $11.2 million versus $13.8 million in the third quarter of 2013. Fully diluted net income per common share was $0.54 in the fourth quarter of 2013 versus $0.66 in the third quarter of 2013. Our balance sheet remained strong. We have no long-term debt, and our revolving line of credit is paid down to zero. In addition, we had $36.8 million in cash at the end of the quarter. We also declared another cash dividend during the quarter. This conference call will be available for replay as Ellen mentioned earlier after the conclusion of this session, if you wish to hear the taped replay, please dial 888-843-7419 and enter the conference reference 6194224 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, Encore performed well in the past quarter and we believe we’re well positioned for the future. Ellen will now take questions from listeners.

[Operator:]

Thank you. (Operator Instructions) Our first question is from Brent Thielman with D. A. Davidson. Please go ahead.

[Brent Thielman:]

Hi. Good morning guys.

[Daniel Jones:]

Hey Brent.

[Brent Thielman:]

Frank, can you give us the percentage difference in spread for Q4 versus last year and in Q4 versus the third quarter?

[Frank Bilban:]

Sure. In the copper spread, Q4 versus Q4 of last year, we were just down marginally 1.7%. So it’s above flat and on a sequential quarter basis, was that your second question?

[Brent Thielman:]

Yes.

[Frank Bilban:]

It was down about the same, 1.5.

[Brent Thielman:]

Okay. So I mean, in the lower gross margin on a sequential quarter basis that’s probably little bit to do with spread and gets a little less volume throughput. Is that fair?

[Daniel Jones:]

That’s fair. Yeah.

[Brent Thielman:]

Okay. And then the aluminum wire continued to grow pretty quickly here. Can you kind of remind us the current metal prices, what sort of revenue capacity, you think you have in there right now?

[Daniel Jones:]

Really don’t want to talk about capacities over there and looking at the attendee list on the screen, Brent, and even though we don’t identified ourselves, it looks like all of our competitors were on here. But current metal prices, we’ve got some room. We ended up -- as Frank mentioned or in the numbers, we mentioned about $80 million in revenues. There is plenty of room there. I’m now concerned all about the capacity.

[Brent Thielman:]

Okay. That’s fair. And then just lastly, do you have the mix between resi and kind of non-residential in the quarter?

[Daniel Jones:]

In the fourth quarter, the residential wire in the copper sales constituted 21.3% of copper pounds.

[Brent Thielman:]

Got it. Okay. Thanks guys.

[Daniel Jones:]

Hey, thank you.

[Operator:]

(Operator Instructions) Our next question is from Bob Kelly with Sidoti & Company. Please go ahead.

[Bob Kelly:]

Hey Daniel and Frank, good morning.

[Daniel Jones:]

Bob, how are you?

[Bob Kelly:]

Good morning.

[Bob Kelly:]

Great. Question on the volumes, two consecutive quarters of high teen volume growth. Haven’t seen that for a couple of years now. Is this real demand flowing through due to better quoting and bidding activity on the field. Can you just talk about the inflection point you saw in the second half of ‘13 on the volume side?

[Daniel Jones:]

That’s the field, Bob. We’re going into the quotes with more information really and before real information, real data to help to get a decision or get a business decision made on the quotes and the lead time from quotes to purchase order has shorten the work leading up to the actual quote is stretched out a little bit, but the actual quote to purchase over lead time has shortened a little bit. So it feels like it will grow. We're cautious about talking about it too openly, but the business itself looks like is going pretty well. It definitely feels like it's positive.

[Bob Kelly:]

Okay. Good to hear. As far as, thus far in 1Q, weather has been pretty poor in most of the country. Has that impacted your business in a material way?

[Daniel Jones:]

It has. In the transportation side, losing trucks, going out for a day or two or actually trucks are even getting empty and coming back this direction, both because anything heading to the east. There were issues with getting things delivered and actually getting trucks back in to get them reload it. But overall, the timing of the weather issues in February I think actually ended up maybe complement some things we were doing. But specifically to the fourth quarter, what didn’t happen maybe in Late October and November weather-wise. Surprisingly, December was pretty strong.

[Bob Kelly:]

Okay. Fair enough. The aluminum business has been really solid growth in 2013. What has been the response from your competitors? Are you seeing new entrants into the aluminum niche? Is it pretty steady on a competitive front there? Just curios to what’s going on there given your success in 2013?

[Daniel Jones:]

Yeah, very, good question. In beginning, we were accused of all sorts of things from the competitors that were actually in the field with customers and making calls and whatever. They will confirm that that's not our approach to business for the ones that aren’t involved and somewhat out of touch with the market and the customers themselves. There were all kinds of excuses made but at the end of the day, the models the same for us. We offer a very quick turnaround on the orders at very high-service level, have commitment to the customer and distributor. And for those reasons, we want a fair price for that. But overall, not much different than what you normally hear in the market. Most sales people believe that they lose an order because somebody else had a better price. They think they win the orders because they have the best relationship and that’s typical for sales people. But in the end, the aluminum is doing the things that we wanted it to do in our opinion. It's not that we are out there trying to take over the aluminum market. We just don't want to lose the copper business that’s typically attached to an aluminum order.

[Bob Kelly:]

Great. And one final one, spreads, you had said in your release at 4% year-on-year. Could you give us some idea of where spread is relative to what you’ve done historically? I know you had some pretty better years back in ’05, ’06. Where is spread now compared to the peak?

[Frank Bilban:]

It’s still -- if you look at the peak, if you want to look at our peak quarter of Q2 of ’06, when spread was above a $1.90 a pound. I can tell you we are significantly short of that. As you know, we do a lot of detailing of our spreads in terms of percentage increases and decrease. Again, to Daniel’s point of whose lurking and on the call, we don’t announce exactly what the dollars spread is and [not to be worry], Bob. But our spreads on a historic basis are slightly above average and our earnings are reflecting that. We always think they should be a little better and as we’ve consistently indicated, if you gave us a choice between increasing our sales 10% next quarter or increasing our spreads 10%, we will always take the spread. So spread is where it’s all about but on a historic basis, we are doing good, not correct, is that fair?

[Bob Kelly:]

Yeah. Great answer. Thanks very much guys. Keep up the good work.

[Frank Bilban:]

Okay. Thank you.

[Operator:]

We have no further question at this time. I’d like to turn the call back to Mr. Jones for closing remarks, I’m sorry gentlemen we did have a question just queue up. It is from Kerry Rigdon with Pierson and Mayberry. Please go ahead, Kerry.

[Kerry Rigdon:]

Thank you. Good morning.

[Frank Bilban:]

Hi, Kerry.

[Kerry Rigdon:]

Real quick question, could you comment on how the more all-inclusive order trend is having on margins? Is that having any kind of material impact?

[Frank Bilban:]

Well, I guess, its relative. Any time we think we can get half a point or a point on our volume of sales, Kerry, that's significant to us. But I don't know that we’re able to charge any type of premium. Is that's what you're asking? But it certainly allows us to not have to match some road short-line competitor maybe off the price sheet by 8% or 9% low, if that helps answer that. We just don't have to match the lower numbers. We don't necessarily get a premium either.

[Kerry Rigdon:]

Not so much as a premium but are you seeing because of the larger size of the order that it becomes a more [efficient] order thus maybe your expense side is lower which is positively impacting your margin?

[Frank Bilban:]

I think you could make an argument for that, yes.

[Kerry Rigdon:]

Okay. Thanks.

[Operator:]

We have no further question at this time. I’d like to turn the call back to Mr. Jones for closing remarks.

[Daniel Jones:]

Thank you, Ellen. And thank you folks for the participation in the call and look forward to seeing you guys next quarter.

[Operator:]

Thank you, ladies and gentlemen. This concludes Encore Wire’s Fourth Quarter Conference Call. Thank you for participating. You may now disconnect.