Encore Wire Corporation
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Welcome to the Encore Wire's Third Quarter Conference Call. My name is Larissa, 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 this conference is being recorded. Now I will turn the call over to Daniel Jones, President and CEO of Encore Wire. Sir, you may begin.

[Daniel Jones:]

Thanks Larissa. Good morning ladies and gentlemen and welcome to the Encore Wire Corporation 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. The third quarter was good from both a volume and margin perspective. Aluminum unit volumes were up strongly in the quarter and the nine month periods as we continue to grow that portion of our building wire business. Copper wire units are up on a year-to-date basis. The overall construction and building wire markets appear to be doing okay this year, but not showing any significant improvement over last year. Anecdotal information confirms our belief that we are outperforming the industry in volume growth. Our third quarter copper wire unit volumes are near the average of the first two quarters. 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 2.1% in the third quarter of 2014versus the third quarter of 2013, and 9.6% on a sequential quarter comparison. The copper spread expanded 9.6% as the average price of copper purchased rose 1.8% in the third quarter of 2014 versus second quarter of 2014, but the average selling price of wire sold rose 3.9%, as a result of somewhat improved pricing discipline in the industry. The aluminum building wire products grew to 9.4% of net sales in the quarter, driven by unit sales increase of 28.4%in the third quarter of 2014 versus the third quarter of 2013. We continue to strive to lead and support industry price increases in an effort to maintain and increase margins. 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 are 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:]

Thanks Daniel. In a minute, we will review Encore's financial results for the quarter. After the review, we will take any questions you may have. Each of you should have already received a copy of Encore's press release covering Encore's financial results. This release is also available on the internet or you can call Karen Wagner, at 800-962-9473 and we will be glad to get you a copy. Before we review the 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, reconciliation 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. Now the financials; net sales for the third quarter ended September 30th, 2014, were $297.4 million compared to $309.9 million during the third quarter of 2013. Copper unit volume, measured in pounds of copper contained in the wire sold, decreased 5.7% in the third quarter of 2014 versus the third quarter of 2013, accounting for most of the decrease in net sales dollars. Aluminum building wire sales somewhat offset the decreased copper sales, constituting 9.4 % of net sales dollars for the third quarter of 2014 versus 7.2% in the third quarter of 2013.Aluminum unit volume was up 28.4% in the third quarter of 2014 versus the third quarter of 2013. The average selling price of wire per copper pound sold dropped 0.7% in the third quarter of 2014 versus the third quarter of 2013. Sales prices declined primarily due to lower copper prices, which declined 1.8 % versus the third quarter of 2013. Net income for the third quarter of 2014 was $11.1 million versus $13.8 million in the third quarter of 2013. Fully diluted net earnings per common share were $0.53 per share in the third quarter of 2014 versus $0.66 in the third quarter of 2013. Net sales for the nine months ended September 30, 2014 were $881.6 million compared to $864.7 million during the same period in 2013. Increased unit volumes of building wire sold in the first nine months of 2014 versus the first nine months of 2013 accounted for the increase in net sales dollars. Unit volume, measured in copper pounds contained in the wire sold, increased 4% in the first nine months of 2014 versus the first nine months of 2013. The volume increase was offset somewhat by a 4.3% decrease in the average selling price per copper pound sold in the first three quarters of 2014, versus the first three quarters of 2013. Sales prices declined primarily due to lower copper prices, which declined 4.9% in the first three quarters of 2014 versus the first three quarters of 2013. Aluminum unit volume increased 43.6% in the first nine months of 2014 versus the first nine months of 2013. Net income for the nine months ended September 30, 2014 was $32.1 million versus $35.7 million in the same period of 2013. Fully diluted net earnings per common share were $1.54 for the nine months ended September 30, 2014 versus $1.72 in the same period in 2013. On a sequential quarter comparison, net sales for the third quarter of 2014 were $297.4 million versus $307.1 million during the second quarter of 2014. Unit volume of copper building wire accounted for the majority of the decrease, dropping 7.4% on a sequential quarter comparison. Net income for the third quarter of 2014 increased to $11.1 million versus $10.2 million in the second quarter of 2014. Fully diluted net income per common share was $0.53 in the third quarter of 2014 versus $0.49 in the second quarter of 2014. 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 $38.8 million in cash at the end of the third quarter. We also declared another cash dividend during this quarter. Please note this conference call will be available for replay after the conclusion of this session. If you wish to hear the replay, call 888-843-7419 and enter the conference reference 6194224 and the # sign. I will now turn the floor back over to Daniel Jones, our President and Chief Executive Officer. Daniel?

[Daniel Jones:]

Thank you. As Frank highlighted, Encore performed well in the past quarter. We believe we are well positioned for the future. Larissa, we will now take questions from the callers.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Alyssa Johnson from DA Davidson.

[Alyssa Johnson:]

Hello. This is Alyssa in for Brent today.

[Daniel Jones:]

Yes ma'am. Hi, how are you?

[Alyssa Johnson:]

Good how are you?

[Daniel Jones:]

Great.

[Alyssa Johnson:]

So my first question is, the comments on the construction and building wire market, it seemed to suggest a flattish environment. Is there anything else kind of related to that bigger cause -- that caused the decline in the copper volumes this quarter?

[Daniel Jones:]

The first two quarters seem to be moving along pretty well, and I don't know if any one specific thing to point through. Most of the customers that we met with through the quarter and talked to through the third quarter, did have jobs and have projects coming somewhere pushed out a little bit, maybe delayed somewhat for whatever reason. Don't really have one specific reason as to why they would hold off a little bit or whatever, but somewhat just delayed. Some of the bigger jobs that we have been involved with, projects we are involved with, trying to get them to move and get off the ground; and in the first part of the quarter, lot of conversations, lot of activity. Middle part of the quarter, not so much, and then ended up pretty strong in September. SO we were working on the projects during the quarter, some came up, some didn't, though it pushed out a little bit.

[Alyssa Johnson:]

Okay, perfect. Next is, you mentioned somewhat of a improved industry pricing discipline. I know last quarter, that was pretty rough. Are you still seeing higher than typical irrational pricing moves in the market, or is that pretty much calmed down?

[Daniel Jones:]

Well Alyssa, to the third quarter specifically, fortunately or unfortunately, a lot of the discipline seems to be tied to an outside influence, not typically based on just a business decision that we deserve better or more profits so to speak. But in Q1, I think copper averaged around 320 something, and was around 310 or so in the second quarter, and it picked up to around 315 in the third quarter. When you have -- and that used to be considered very volatile, today its not too bad. But the firming up if you will, of copper in the quarter was certainly helpful. Timing of copper increasing along with price increases, solidifies that opportunity typically in our industry. If you put a price increase out and you don't have copper, at least a bias in your favor of copper, you are not able to hang on to those. We hit the timing pretty well in the third quarter with price increases with support from copper. That type of discipline, along with a couple of our competitors that also seem to have been very disciplined in the quarter, was certainly helpful.

[Alyssa Johnson:]

Okay. And then my last one. Do you have an expected timeline on when the new aluminum capacity will become available?

[Daniel Jones:]

We should be able to start moving equipment into the building the week before thanksgiving, as we start to shake the equipment down and I am sure there will be -- as with any project of that size, that will be something unforeseen, but for the most part, we will spend the first quarter installing and shaking down and that kind of stuff, and hopefully we will have the majority of equipment available to us first part, maybe middle of second quarter of next year.

[Alyssa Johnson:]

Okay great. Thank you.

[Daniel Jones:]

You bet.

[Operator:]

Thank you. (Operator Instructions). And we have no further questions at this time.

[Daniel Jones:]

Give them a minute. How does it look Larissa?

[Operator:]

No further questions.

[Daniel Jones:]

No questions. Well, we appreciate everyone for calling in and participating. We look forward to next call you're in. Thanks a lot.

[Operator:]

Thank you ladies and gentlemen. This concludes this conference. Thank you for participating. You may now disconnect.