Encore Wire Corporation
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Welcome to the Encore Wire Second Quarter Conference Call. My name is Cory 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, Chairman, President and CEO. Mr. Jones, you may begin.

[Daniel Jones:]

Thank you, Cory, and good morning ladies and gentlemen and welcome to the Encore Wire Corporation quarterly conference call. I am Daniel Jones, the President, CEO, and Chairman of the Board of Encore Wire. And with me this morning is Frank Bilban, our Chief Financial Officer. The second quarter margins improved in both copper and aluminum wire sales. Unit volumes were down somewhat in 2015 compared to 2014, as we continue to see the overall construction and building wire markets appear to be trying to breakout to higher levels. We believe rough spring weather contributed to the soft unit volumes during the quarter. We also know that we passed on a number of orders during the quarter that did not meet our margin criteria. We believe this strategy of attempting to be an industry pricing leader clearly contributed to our improved margins during the quarter. 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 11% in the second quarter of 2015 versus the second quarter of 2014, and 1.2% on a sequential quarter comparison. The copper spread expanded 11% as the average price of copper purchase decreased 11.1% in the second quarter of 2015 versus the second quarter of 2014, but the average selling price of wire sold decreased only 5.1% 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, versus 8.9% in the second quarter of 2014. We continue to strive to lead and support industry price increases in an effort to maintain and increase margins. We also 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 the economy that we’re in and we thank our employees and associates for their tremendous efforts. We also thank our shareholders for their continued support. Frank Bilban, our Chief Financial Officer, will now discuss the financial results in the quarter. Frank?

[Frank Bilban:]

Thank you, Daniel. In a minute, we'll review the financial results for the quarter. After the review, we'll take any questions you may have. Each of you should have 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 800-962-9473 and we will be happy to get you a copy. Before we review the financials, let me indicate that throughout this call we may make certain statements that could 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 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, for the financial results. Net sales for the second quarter ended June 30, 2015, were $253.7 million compared to $307.1 million during the second quarter of 2014. Copper unit volume measured in pounds of copper contained in the wire sold decreased 13.4% in the second quarter of 2015 versus the second quarter of 2014. Aluminum building wire sales constituted 9.4% of net sales dollars for the second quarter of 2015 versus 8.9% in the second quarter of 2014. Aluminum unit volume was down 14.9% in the second quarter of 2015 versus the second quarter of 2014. The average selling price of wire per copper pound sold dropped 5.1% in the second quarter of 2015 versus the second quarter of 2014 also contributing to the decrease in net sales dollars. Copper wire sales prices declined, primarily due to lower copper prices, which declined 11.1% versus the second quarter of 2014. Net income for the second quarter of 2015 was $11.4 million versus $10.2 million in the second quarter of 2014. Fully diluted net earnings per common share were $0.54 in the second quarter of 2015 versus $0.49 in the second quarter of 2014. Net sales for the six months ended June 30, 2015, were $504 million compared to $584.3 million during the same period in 2014. The average selling price of wire per copper pound sold - the average selling price of wire per copper pound sold dropped 8.3% while copper unit volume sold declined 6.9% in the six months ended June 30, 2015 versus the six months ended June 30, 2014. Copper wire sales prices followed the price of copper purchase, which declined 14.1%. Aluminum building wire sales constituted 9.4% of net sales for the first six months ended June 30, 2015 versus 8.4% in the six months ended June 30, 2014. Net income for the six months ended June 30, 2015 was $22.1 million versus $21 million in the same period in 2014. Fully diluted net earnings per common share were $1.06 for the six months ended June 30, 2015 versus $1.01 in the same period in 2014. On a sequential quarter comparison, net sales for the second quarter of 2015 were $253.7 million versus $250.3 million during the first quarter of 2015. Sales dollars increased due to a 2.4% increase in the average selling price per pound of copper wires sold offset slightly by a 1% unit volume decrease of copper building wires sold on a sequential quarter comparison. Net income for the second quarter of 2015 increased to $11.4 million versus $10.8 million in the first quarter of 2015. Fully diluted net income per common share was $0.54 in the second quarter of 2015 versus $0.52 in the first quarter of 2015. 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 had $45.6 million in cash at the end of the quarter. We also declared another cash dividend during the quarter. I'd like to remind you this conference call will be available for replay after the conclusion of this session. If you wish to hear the taped replay, call 888-843-7419 and enter the conference reference number 7201305 and the pound sign. I'll now turn the floor back over to Daniel Jones, our Chairman, President and Chief Executive Officer.

[Daniel Jones:]

Thank you, Frank. Cory, we'd now like to start the question-and-answer-session from our listeners. Thanks.

[Operator:]

[Operator Instructions] And our first question comes from Michael Conti from Sidoti and Company. Michael, please go ahead.

[Michael Conti:]

Hi, good morning. Thanks for taking my questions. Can you talk about the progression of your volume shipments throughout the quarter? Did we exit with a stronger June, and is that what you're seeing in the first couple of weeks here in July?

[Daniel Jones:]

No, actually within the quarter, May was the month where the pricing volatility was little bit of an issue. Recent timing on the copper volatility versus attempts at price increase volatility and you could see on the COMEX average from one month to the next, we went from about 275 in April almost 290 in May and then back to about to about 267 or 268 in June.

[Michael Conti:]

Okay. Then your comment with the weather impact, can you give us an idea in areas of weakness, was that primarily there in Texas and the mid-west region?

[Daniel Jones:]

Midwest and there was some in the east coast, there were jobs that were - and continue to move along in various stages of the process and where our product category enters into the construction project actually was delayed somewhat. I don't want to give too much color on that, but that's the best way to put it. The job sites there were some delays, getting the pipe pulled and therefore delays in being prepped for the wire deliveries.

[Michael Conti:]

Sure, okay. And then - I guess with weather, we typically don't see a catch up or say with pent-up demand right away in the following quarter, but I guess do you think maybe because of the weather situations here that occurred that you might see greater strength that occur bit longer throughout the third quarter and possibly into the fourth quarter that we usually wouldn't see more or less a prolonged benefit, is that fair to assume

[Daniel Jones:]

I need to stick to the second quarter results rather than giving guidance on what's going to happen in Q3 or Q4, but things are going along real well, we're super busy, all the plants are running very well and I would think that it would follow that the jobs as they become ready we're ready to ship the product that's for sure.

[Michael Conti:]

Yes. Fair enough. And I guess with the expended aluminum facility, how should we think of that ramping up in terms of additional output, is there a targeted date in which you guys plan to have that running up to full capacity or will that depend more or less on end-market demand?

[Daniel Jones:]

Little bit of both, Mike, as far as the equipment ramping up and turning the plant up and hitting numbers that we feel like we're capable of hitting, we're seeing a little bit of that now. I would suggest that third and fourth quarter is - it definitely will be in 2015 on the equipment piece.

[Michael Conti:]

Okay. And lastly Frank, what was the LIFO adjustment for the quarter and what's your expectation for CapEx for the remainder of 2015 and 2016 if that's available?

[Frank Bilban:]

Yes, the LIFO adjustment for the quarter was minimal, it was $1.5 million as a credit to the income statement, which means we drew down the reserve and decrease cost of sales by $1.5 million. CapEx, we went through with the fine tooth comb the other day. It was 22.5 million for the first six months and right now we're expecting it to finish in the $40 million to $45 million range for the year which means it will be about the same in the second six months.

[Michael Conti:]

Do you have the number for 2016, is that available yet or is that…?

[Frank Bilban:]

We don't.

[Michael Conti:]

Okay.

[Frank Bilban:]

We’re still putting that together.

[Michael Conti:]

All right, great, that’s all I have. Thanks.

[Daniel Jones:]

Thanks Michael.

[Operator:]

We have no further questions at this time.

[Daniel Jones:]

Let's give them just a second Cory.

[Operator:]

[Operator Instructions] And our next question is from Kerry Rigdon from Mcpherson & Mayberry. Kerry, please go ahead.

[Kerry Rigdon:]

Good morning gentlemen. Could you just make a quick comment, there's been a lot of discussion about the strength in multi-family housing really across the country. Could you just give a brief comment and kind of what you guys are seeing in terms of the demand for that not only what we’ve seen here in the past, but kind of what that if you have an idea of what it looks like going forward?

[Daniel Jones:]

Well, it’s a great question and a good topic Kerry. I mean we can see it on the demand side, it’s picked up, the residential piece and flows right into our residential production in a separate plant that we have here in McKinney and it’s - we’re running an extra day, day and half to keep up. And it looks good. It’s certainly not 2004, 2005, 2006 numbers, but much better than it's been in the past. It’s actually moving in the right direction.

[Kerry Rigdon:]

Terrific. Thank you.

[Operator:]

[Operator Instructions] We have no further questions.

[Daniel Jones:]

Okay, Cory. Well thank you folks for calling in and we look forward to speaking to you guys at the end of the third quarter.

[Frank Bilban:]

Thank you.

[Operator:]

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