Encore Wire Corporation
Q1 2015 Earnings Call Transcript

Published: 24 Apr 2015

[Operator:]

Welcome to the Encore Wire First Quarter Conference Call. My name is Leslie and I will be your operator for today. 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 Mr. Daniel Jones, Chairman, President and CEO. Mr. Jones, you may begin.

[Daniel Jones:]

Thank you, Leslie. Good morning ladies and gentlemen and welcome to the Encore Wire Corporation quarterly conference call. As mentioned, I am Daniel Jones, the President, Chief Executive Officer, and Chairman of the Board of Encore Wire. And with me this morning is Frank Bilban, our Chief Financial Officer. First quarter was good from both the volume and margin perspective. Aluminum unit volumes were up strongly in the first quarter of 2015 compared to the first quarter of 2014, as we continue to grow that portion of our building wire business. We believe rough winter weather contributed to the flat copper volumes during the quarter and anecdotal information confirms our belief that we are outperforming the industry and 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 3% in the first quarter of 2015 versus the first quarter of 2014, and 6% on a sequential quarter comparison. The copper spread expanded 6% as the average price of copper purchase declined 10.8% in the first quarter of 2015 versus the fourth quarter of 2014 with the average selling price of wire sold fell only 6% 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 11.8% in the first quarter of 2015 versus the first quarter of 2014. 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 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 the financial results. Frank?

[Frank Bilban:]

Thank you, Daniel. In a minute, we'll review Encore's financial results for the quarter. After the financial review, we'll take any questions you might have. Each of you should have already received a copy of Encore's press release covering Encore's financial results. This release is available on the Internet or you can call Karen Wagner, at [phone] and we will be glad to get your 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 first quarter ended March 31, 2015, were $250.3 million compared to $277.2 million during the first quarter of 2014. Copper unit volume measured in pounds of copper contained in the wire sold increased 0.5% in the first quarter of 2015 versus the first quarter of 2014. Aluminum building wire sales contributed 9.4% of net sales dollars for the first quarter of 2015 versus 7.9% in the first quarter of 2014. Aluminum unit volume was up 11.8% in the first quarter of 2015 versus the first quarter of 2014. The average selling price of wire per copper pound sold dropped 11.6% in the first quarter of 2015 versus the first quarter of 2014 accounting for most of the decrease in net sales dollars. Sales prices declined, primarily due to lower copper prices, which declined 17.2% versus the first quarter of 2014. Net income for the first quarter of 2015 was $10.8 million versus $10.9 million in the first quarter of 2014. Fully diluted net earnings per common share were $0.52 in the first quarter of '15 versus $0.52 in the first quarter of '14. On a sequential quarter comparison, net sales for the first quarter of 2015 were $250.3 million versus $285.3 million during the fourth quarter of 2014. Sales dollars were down due to a 6% decline in the average selling price per pound of copper wire sold and a unit volume decrease of 6.8% of copper building wire sold on a sequential quarter comparison. Net income for the first quarter of 2015 increased to $10.8 million versus $5.1 million in the fourth quarter of 2014. Fully diluted net income per common share was $0.52 in the first quarter of 2015 versus $0.24 in the fourth quarter of 2014. Our balance sheet remains very strong. We have no long-term debt and our revolving line of credit is paid down to zero. In addition, we have $53.3 million in cash at the end of the quarter. We also declared another cash dividend during the quarter. I want to remind you that this conference call will be available for replay after the conclusion of this session. If you wish to hear the taped replay, please dial [phone] and enter the reference number 7201305 and the pound sign. I'll now turn the floor back over to Daniel Jones, our Chairman, President, and CEO. Daniel?

[Daniel Jones:]

Thank you. As Frank highlighted Encore performed well in the past quarter and we believe we are well positioned for the future. Leslie, we'll now take questions from the listeners.

[Operator:]

Thank you.

[Daniel Jones:]

Thank you.

[Operator:]

[Operator Instructions]. We have a question from Brent Thielman with D.A. Davidson.

[Brent Thielman:]

Yes, good morning Daniel and Frank.

[Daniel Jones:]

Hey, how you are doing?

[Brent Thielman:]

Good morning. Doing well. Nice quarter.

[Daniel Jones:]

Thank you.

[Brent Thielman:]

Daniel, it sounds like weather posed some challenges for volumes this quarter certainly, some others in the construction world. As you have exited March, are things getting a little busier?

[Daniel Jones:]

We kind of need to stay on track with the first quarter but the answer is yes.

[Brent Thielman:]

Okay.

[Daniel Jones:]

There are some areas that have dried out and warmed up a little bit, were heavy.

[Brent Thielman:]

Okay. And --

[Daniel Jones:]

Quite a bit was missed out.

[Brent Thielman:]

Sure. Is -- and correct me, if I'm wrong, as you bring the aluminum capacity online this quarter, should we assume any sort of temporary disruptions from the volume standpoint or anything like that, or you expect it to be a pretty smooth transition?

[Daniel Jones:]

As it's relative to the first quarter, we put those numbers out. I don't see anything; I don't see any issues in the second quarter at this point.

[Brent Thielman:]

Okay. And then lastly do you have the split in terms of volumes in residential and non-residential this past quarter?

[Frank Bilban:]

We do, residential volume comprised 22.7% of our pounds -- excuse me, 22.1% of our pounds in Q1 of '15, and the rest was variety of commercial and industrial products and that's on the copper side. Aluminum is all commercial.

[Brent Thielman:]

Okay. Thank you.

[Daniel Jones:]

You bet. Thank you, Brent.

[Operator:]

And we have a question from Michael Conti with Sidoti.

[Michael Conti:]

Yes. So last quarter you mentioned pricing pressure within the aluminum space from a competitor. I mean how did that trend during the quarter, did that subside at all?

[Daniel Jones:]

Yes, there were spots where it was better and then an occasional order where it seemed to show up. But in general, in the quarter it was better.

[Michael Conti:]

Okay. So should we expect that trend to more or less continue as we enter the second and third quarters?

[Daniel Jones:]

Great question. Trying to stay to just the results in the first quarter. But the answer that would be easy to give today is, yes.

[Michael Conti:]

Okay. And then just given the two month rally we had in copper in February and March, were you able to increase selling prices during that period. Was that the driver of the spread expansion? So I guess in other words, I mean did we see most of the gross profit dollars during those two months?

[Daniel Jones:]

The profit dollars were pretty even across the three months, but it did help to have a bias on the upside for copper to substantiate the price increases. We were successful on about a third to a half of those increases. You do as much as you can, as quickly as you can. Typically, it's a Thursday, Friday cutoff with a Monday, Tuesday, Wednesday wait and see type bill on the new sheet. And for the most part, we had some success there.

[Michael Conti:]

Okay. And then, can you maybe talk about few regions where you saw pocket of strength or weakness?

[Daniel Jones:]

Yes. The southeast has been good; the northeast was really good other than some weather related delays. Southwest was good for us. Texas continues to be good market. Pacific Northwest has been performing. There is really not a specific area, Michael, that's lagging in activity. The time between quote and shipping the product has tightened up a little bit. The overall average size of the order is going into specific markets is up a little bit. So all the normal signs are there. We are getting paid on time, which is always a good sign. Our customers are getting paid on time, which is another good sign. And that's pretty much coast to coast. There's just not a -- other than a few weather related pockets, it looks decent. Activity is really good.

[Michael Conti:]

Okay. So you're confident that maybe any deferred volume shipments in the first quarter due to weather, we should see those gradually start to ramp-up as we are heading to the stronger construction season then?

[Daniel Jones:]

Yes. I am confident, yes.

[Michael Conti:]

Okay. And lastly, one for you, Frank. What was the LIFO adjustment in the quarter, if any?

[Frank Bilban:]

LIFO adjustment was $9.3 million credit to cost of sales or a decrement to cost of sales. And that's consistent with what you would expect with the price of wire dropping, price of copper dropping.

[Michael Conti:]

Okay. Thanks. That's all the questions I have.

[Daniel Jones:]

Thank you, Mike.

[Operator:]

Our next question comes from Brian Gibson with Raymond James.

[Brian Gibson:]

Hi guys. Hey Dan. You had mentioned -- I don't quite know how you said it, but you said it something like, we tried to set the standard in the industry for price discipline. It really -- what you are saying, I perceive that as saying that hey, you are just not going to dabble or haggle with prices, you're going to throw out your price and if they don't they don't like your price you're just going to be firm there and just walk away from business, if they are beginning for a decrease in price.

[Daniel Jones:]

Sure. It sounds a lot simpler when you say it, Brian, than when I say it.

[Brian Gibson:]

I thought I was traveling there actually.

[Daniel Jones:]

No, no.

[Brian Gibson:]

But that's pretty much what you do, you just delay that -- this is our price.

[Daniel Jones:]

Well, you try to do that. You try to sell on things other than price. This goes way back, but we've been quoted before. Unfortunately, I've been quoted and saying any idiot can cut the price and that remains true today. There is forced discipline at times and other times you just would love to sit in on a meeting as to who made the decision to cut the price on something that you see in the market. But that's not new; that's an ongoing issue. But more directly to your original topic of what do we do, when we say we are leading price increases and trying to support price increases in the market, it's from a business standpoint, it's not from some type of budgeted number that you are -- that's -- I really, I can't even speculate what the other guys would be doing on occasion. To cut the price to get an order and then ship 65% or 70% of, to me, is ridiculous. But having said that, it's a good industry, business has been good and we had decent pricing discipline. Some of it forced by outside influences in the first quarter but hey we'll take it.

[Brian Gibson:]

Very good. And then I like the -- how you guys use your discipline. Several conference calls ago, maybe it was a year ago or so somebody was asking a question about this big, the tray cable was I think the natural gas chemical plants down south on the coast. Is that -- are we getting a lot of business from that or would it be 10% of the business? Or a couple of callers ago, they talked about business is good in the southeast and the northeast and all that. So I mean are things picking up on the -- or have things picked up on the residential? I don't know quite for sure what I'm -- how to ask that. But really what's the -- how is the breakout of the business?

[Daniel Jones:]

We've had a decent run on the residential product. It's not back to the $2.5 million start number obviously where we were, but it's been good. The residential plan is performing well. Our deliveries are really good. Quality is not an issue. We have had a lot of success in the residential piece relative to obviously, the bottom. It's not back to 2004, 2005, 2006 numbers in volume, but it's handy. It's a good solid month-in month-out part of our business. And then specifically back to the tray cable and a lot of the industrial type expansions along the coast, we have been successful and participated successfully with those expansions. There are still ongoing quotes. There's a lot of work being done towards successfully securing that business going forward, maybe not at the same pace as it was before, but the projects that were initiated in those industries are going forward. The Dakotas, there is plenty of that type of product; the industrial heavier type cables being moved. It's not 10% of our overall sales, but it's a nice healthy volume number and acceptable decent margins. We'd always like the margins to be better, but it's a good product category for us, yes.

[Brian Gibson:]

Okay. Good. Well, it's been fun. It's been fun watching the company grow.

[Daniel Jones:]

Yes, sir. Thank you, Brian.

[Operator:]

At this time, I am showing no more questions.

[Daniel Jones:]

All right, Leslie. Well, thank you. I want to say thank you to the callers and our employees that are doing great job here. And I see on the screen, we have several of our competitors on the call and I want to say hey, to you guys and look forward to speaking to everybody next call. Thanks a lot, Leslie.

[Operator:]

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.