Encore Wire Corporation
Q1 2014 Earnings Call Transcript

Published: 25 Apr 2014

[Operator:]

Good morning, and welcome to the Encore Wire first quarter conference call. My name is Shawn, 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 the conference is being recorded. I will now turn the call over to Daniel Jones, President and CEO.

[Daniel Jones:]

Thank you, and good morning ladies and gentlemen. Welcome to the Encore Wire Corporation's quarterly conference call. I am 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 throughout last year, the first quarter was encouraging to us from both a volume and margin perspective. We believe that the harsh winter weather had some anything impact on our unit volumes this quarter, although the exact amount is difficult to quantify. The results in the first quarter of 2014 were improved versus the first quarter of 2013. Building wire process and margins were fairly stable during the quarter, following the pattern of stability in copper prices. We believe our expansion of product offerings over the last several years has been critical to maintaining and perhaps boosting our market share. 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. The spread increased 1.6% the first quarter of 2014 versus the first quarter of 2013. While our copper unit volume ship increased 9.1% in the first quarter of 2014 versus the first quarter of 2013. Along with the continued success of our aluminum building wire launch, the increase in copper unit volumes and the copper spread helped drive earnings per share in the quarter. We continue to strive to lead or follow industry price increases to achieve profit growth. We produced these results due to our low cost business model and aggressive cost control in all facets of our operations. 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. We believe our performance is impressive in this economy, we thank our employees and associates for their tremendous efforts. We also thank our stockholders for their continued support. I'm also pleased to note that Encore Wire was recently named one of Forbes 100 Most Trustworthy Companies for 2014, based on our straightforward financial disclosures and accounting and governance factors. This is the second time in the last three years we have been honored with this award. 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 review we will take any questions you might have. Each of you should have already received a copy of our 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 any 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 quarter ended March 31st, 2014 were $277.2 million, compared to $265.4 million during the first quarter of 2013. The average selling price of wire per copper pound sold dropped 6.5% in the first quarter of 2014 versus the first quarter of 2013. However, copper unit volume measured in pounds of copper contained in the wire sold increased 9.1% in the first quarter of 2014versus the first quarter of 2013. Aluminum building wire sales constituted 7.9% of net sales dollars for the first quarter of 2014 versus 5.7% in the first quarter of 2013. Net income for the first quarter of 2014 was $10.9 million versus $6.4 million in the first quarter of 2013. Fully-diluted net income per common share was $0.52 in the first quarter of 2014 versus $0.31 in the first quarter of 2013. On a sequential quarter comparison, net sales for the first quarter of 2014 were $277.2 million versus $293.5 million during the fourth quarter of 2013. Net income for the first quarter of 2014 was $10.9 million versus $11.2 million in the fourth quarter of 2013. Fully diluted net income per common share was $0.52 in the first quarter of 2014 versus $0.54 in the fourth quarter of 2013. Copper unit volumes decreased 5% in the first quarter of 2014 versus the fourth quarter of 2013, while aluminum unit volumes decreased 6.7% in the same quarterly comparison. We continue to maintain our strong balance sheet. 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 as of March 31st, 2014. We also declared another quarterly cash dividend during the past quarter. This call will be available for replay after the conclusion of the session. If you wish to hear the replay, please call 888-843-7419, and enter the conference reference 6194224 and the pound sign. I want to apologize for my raspy voice, and I will 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 that we're well-positioned for the future. We'd like to open up the call now to the question-and-answer period.

[Operator:]

Thank you. I will now begin the question-and-answer session. (Operator Instructions). We do have a question from Brent Thielman from D.A. Davidson. Please go ahead.

[Brent Thielman:]

Hey. Good morning, guys.

[Daniel Jones:]

Hey Brent, how you doing?

[Frank Bilban:]

Good morning, Brent.

[Brent Thielman:]

Doing well. Doing well. Hey Frank or Dan, did you provide the change in average cost of copper purchased this quarter?

[Frank Bilban:]

The change in average copper purchased versus the first quarter of last year?

[Brent Thielman:]

Yes.

[Frank Bilban:]

Was down 9.2%.

[Brent Thielman:]

Okay. Great. And then, I know you can't quantify the impact of weather this quarter, and it's clearly been kind of an issue for everyone around the industry, but maybe you could kind of give us a feel for what you experienced. Did you have downtime in McKinney, logistics issue, or do you look at it as maybe, more so problems out in the field in terms of getting construction jobs going?

[Daniel Jones:]

All of the above really. The logistics piece of it was the biggest challenge, getting trucks in, getting trucks out, and then getting the trucks empty on the other end. As far as weather in McKinney, we had three or four instances that were ice-related and delayed starts, skeleton crews, what have you during the quarter. As far as the job sites themselves, the ones that were prepared for bad weather, and maybe roofed in and dried in were no issues. Other jobs that had anything to do with obviously underground utilities there would be an issue, but overall really, you work through it, you pay the drivers to stay over, to find someplace safe to stay, get off the highways, what have you, but mostly logistics would contribute to the issues of, and compounded clearly, by one week following up with the next week. We had weather events that were kind of backed up, stacked up, that kind of thing.

[Brent Thielman:]

Okay. Great. That's helpful. And it feels like things are maybe returning to normalcy here. Is that fair?

[Daniel Jones:]

Yes. I think so. Yes. Yes. It has been good.

[Brent Thielman:]

Okay good. And then just curious, this price disappointment, does if remain pretty sticky throughout the quarter? Any changes as April approached?

[Daniel Jones:]

Well, there were some timing issues. I would like to tell you that every time copper movers up, we're able to put an increase through and it holds. That's not the case. We did have some movement in some of the non-copper items that occurred. Our industry typically though, doesn't respond to the non-copper issues, even though you should be able to put through price increases that are deserved, really the only thing that's substantiates or supports or validates really a price increase is if copper has a bias, maybe a trend on the upside, so it really was more about timing to catch the ups and the downs. We had some competitive pressure. Any time copper has a one or two days of bias on the downside, we see some issues with price cutting a little ahead of the decrease, and then again on the upside it's a little slower, but all-in-all at the end of the day, I think for the most part with volatility that we had, it was a little calmer than it has been maybe in past quarters. So I think stability is maybe too strong, but certainly more stable than it has been.

[Brent Thielman:]

Okay. Great. That's very helpful. And then just lastly, great volume growth still here in aluminum on a year-on-year basis, obviously a little bit lower compared to the fourth quarter. Do you at that as mostly kind of weather and seasonality, versus kind of any disruptions maybe by competitors?

[Daniel Jones:]

Possibly. There was some posturing in the market, some issues, competitive issues that were, we recognize and see, but all-in-all I'm very happy with the way the aluminum expansion is going. No question.

[Brent Thielman:]

Okay. Great. Thank you.

[Daniel Jones:]

You are welcome.

[Operator:]

And we have a question from Bill Baldwin from Baldwin Securities. Please go ahead.

[Bill Baldwin:]

Hey. Good morning. Can you offer any color as to how significant, or how important you think the increase in spending, and expected to continue to increase, you spending is going to be to your Company, Daniel, from the big investments going on in the petrochemical and refining industries, there in Louisiana and Texas, and really in other parts of the country, too, but mainly down there?

[Daniel Jones:]

Right, we're shipping a tremendous amount of wire to those areas, and as that spending continues we'll match that type of, the complexion of our inventory will match that type of demand. So as those areas continue to place the orders on large scales for jobs, and smaller scale for fill-in and whatever, we actually have had to react from an inventory standpoint, move some whip into areas where before we may have not been as heavy, but we feel like we have positioned ourselves really well to take advantage of the growth in those areas. Clearly with both copper and aluminum.

[Bill Baldwin:]

Is there a tendency to utilize the higher profit margin wires like the trade cable, and so forth, in those types of construction projects, Daniel?

[Daniel Jones:]

Yes. The basic construction actually has more, you are right on target with that. It has more of the high-end insulating compounds and so forth on the cable, so we tend to do better from a profit standpoint with those products.

[Bill Baldwin:]

Is the competition as intense in those higher end products, as it is maybe in more of your general residential, and just your general type building wires, the more common type?

[Daniel Jones:]

Yes. I mean there is certainly competition there, but there are things you can do, I don't know the best way to answer this, but there are things you can do with those types of orders that really become more important than just the lower price. So we are able to write some of those orders based on service. I mean at the end of the day that is it, service and quality, and then we do some things a little bit differently that offers some value, rather than just going in and trying to cut the price. So I think you know our history as well as anybody. I am notinterested in getting larger and poorer, so we really are able to do some things, Bill, and I think you have been aware of over the years, that help us defend our position on price.

[Bill Baldwin:]

Right. Right.

[Daniel Jones:]

So there is competition there. There's going to be attention given in those areas, obviously, everyone reads the same periodicals that we read, so it's not a new area of opportunity by any means, but it certainly is an area where we can make a little extra money based on some of the things that we offer.

[Bill Baldwin:]

Right. Okay. Well, very good. Congratulations on a job well done.

[Daniel Jones:]

Thank you, Bill.

[Frank Bilban:]

Thanks, Bill.

[Operator:]

(Operator Instructions). And we have a question from Bob Kelly from Ceridian, please go ahead.

[Bob Kelly:]

Hey, guys. How's it going?

[Daniel Jones:]

Hey. How are you?

[Frank Bilban:]

Good.

[Bob Kelly:]

Doing well. Just one question on 1Q specifically. Where is the volume growth coming from? Was it the industrial market that you just called out in Texas and Louisiana, is it broad-based across your commercial and industrial electrical contractors? Just a little help on what happened in 1Q specifically with the weather giving you the headwind?

[Daniel Jones:]

Well, yes. I mean it's actually more broad-based than it would be any one specific area. The commercial was decent, the industrial has been good. We feel like the aluminum product in the specific offering that we have, which may be, may appear from the outside to be somewhat limited, but we think that clearly pulls through some of the copper that we're after, so it really was a pretty decent mix. We had some decent residential orders for, sporadically but different weeks that looked really good, so I would really tell you that it was all of the above for us. We had commercial, industrial and some residential shipments that seemed pretty good.

[Bob Kelly:]

Good to hear that. And then if you would, I don't know if you want to talk April, but could just give us a sense of how units trended into January, February, March time frames?

[Daniel Jones:]

Yes. I really don't want to talk April on this call, but we were pretty even across January, February and March. We had some late weather into the first part of March which may have pushed some stuff out, but at the same time, and I have said this before, and I am a believer, most of our industry goes back to work after the last SuperBowl party. So it was really good to see January and February early to be as strong as they were, but it did not taper off in March. It was really pretty decent.

[Bob Kelly:]

Very good to hear. Thanks, guys. Have a great one.

[Daniel Jones:]

Thanks, Bob.

[Frank Bilban:]

See you, Bob.

[Operator:]

(Operator Instructions). Okay. I have no questions queuing up at this time.

[Daniel Jones:]

Alright. Well, thank you very much for the participation, and we look forward to talking to you guys next quarter. Thank you.

[Operator:]

Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating. You may now disconnect.