Encore Wire Corp (WIRE) 2007 Q3 法說會逐字稿

Good morning. Welcome to the Encore third-quarter earnings call. Our first speaker will be Daniel Jones, President and CEO of Encore Wire.

Thanks, Robert. Good morning ladies and gentlemen and welcome to the Encore Wire Corporation third quarter conference call. I'm Daniel Jones, the President and CEO of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer.

We're pleased to announce a profitable quarter in the midst of the tough competitive environment we're currently the facing in our industry. The building wire industry has endured low margins in the last four quarters, having abated only in the second quarter of '07. Despite historically high copper prices, building wire margins are lower than we would like. Certain competitors continue to respond to the slowdown in residential construction with cutting wire prices in an attempt to maintain market shares and pricing margins below our expectations at this level of copper prices.

Our plants ran very efficiently during the quarter, enabling us to maintain low production cost. Our G&A costs remain extremely low. We continue to focus on tight cost controls throughout our operation. Our Armored Cable sales are meeting our expectations and we continue to strive to improve margins while resisting the urge to gain volume by cutting prices by focusing our customers' attention on our innovative products, superior order fill rates and long-term relationships. Our attempts to hold the line on margins has cost us some volume in '07, but we would rather maximize our profits than trigger another round of price cuts.

We believe there is room for significant growth of our Encore Wire sales and earnings in the future. We're very proud of Encore's achievements [and] the hard work our employees and associates put forth to make it happen.

Frank Bilban, our CFO, will now discuss our financial results. Frank?

Thank you, Daniel. In a minute, we will review Encore's financial results for the quarter. After the financial review, we will 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 Denise [Liss] or me at 1-800-962-9473, and we will get you a copy.

Before we review the financials, let me indicate that in our initial comments and in the question and answer period that follows, 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 today. I refer all of you to the Company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties.

Now, the financial results. Net sales for the quarter ended September 30, 2007 were $308.5 million compared to $372.9 million during the third quarter of '06. Net income for the third quarter of '07 was $5.8 million versus $35.8 million in the third quarter of '06. Fully diluted net earnings per common share were $0.24 in the third quarter of '07 versus $1.51 in the third quarter of '06. Net sales for the first nine months of 2007 were $902.8 million compared to $987 million during the first nine months of 2006. Net income for the first nine months of 2007 was $31.9 million versus $109 million in the first nine months of 2006. Fully diluted net income per common share was $1.35 in the first nine months of 2007 versus $4.60 in the first nine months of 2006.

On a sequential quarter comparison, net sales for the third quarter of 2007 were $308.5 million versus $333.6 million during the second quarter of 2007. Net income for the third quarter of 2007 was $5.8 million versus $19.7 million in the second quarter of 2007. Fully diluted net income per common share was $0.24 in the third quarter of 2007 versus $0.83 in the second quarter of 2007.

Residential wire unit sales are down 15.2% in the first three quarters of 2007 versus the same period in 2006, but Commercial wire unit sales are up 0.4% and Armored Cable unit sales are up 843%. As a result, our total unit volume shipped, measured in pounds of copper contained in the wire, is down only 1.7% in the first three quarters of 2007 versus the first three quarters of 2006. Encore's first Armored Cable shipments were made in the third quarter of 2006.

The only long-term debt we have as of September 30, 2007 is $100 million in long-term notes due in 2011 with our $200 million revolving line of credit currently paid down to zero. In addition, we have $59.2 million in cash as of September 30, 2007. We will monitor our cash balances in the coming quarters to determine whether paying off any additional long-term debt is advantageous. Our balance sheet is solid with a conservative 28% debt to equity ratio. We also declared another cash dividend during the quarter.

We want everyone to know that this conference call will be available for replay after the conclusion of this session. If you wish to hear the taped replay, call 866-439-4729 and enter the conference reference 340723, pound sign. I will now turn the floor back over to Daniel Jones, our President and CEO. Daniel?

Thank you, Frank. Robert, we're ready for the Q&A session.

(OPERATOR INSTRUCTIONS). Trey Snow.

Good morning. You provided volume for the first nine months on those three segments -- Residential, Commercial and Armored. Could you do that for the quarter on a stand-alone basis?

I don't know, Robert, where we did provide the volume.

I'm sorry -- unit sales?

Yes, we don't provide that for competitive reasons. I apologize, but we do indicate to you that on a quarter-to-quarter basis or a nine-month basis as I indicated in the release and in our little speech just a moment ago, that over nine months, our unit sales are down 15% in Residential, they're up 0.4% in Commercial, and we are 843% in Armored for an overall decrement of 1.7%. I hope that helps you.

Right, but in the second quarter, you provided it for second quarter versus second quarter. Is there some reason that you won't do it in the third?

Okay, I see the question. You want third quarter over third quarter last year?

Yes, Correct.

The total is down 1.2%.

Can you do it by segment, or is that the --?

Residential is down 3%, Commercial is down 4% and MC is up 198%.

Great. Okay, thank you.

Curtis Jensen.

It might be a little tricky, but can you give me some sense of capacity utilization across at least through the major products?

Currently, or through the quarter or --?

Just kind of currently, I suppose.

We're running basically five days and we run the plants 24 hours a day, if that helps you.

And some sense -- can you remind me again what has happened to the copper pricing environment on a year-over-year basis?

The year-to-date average is a little bit more expensive than last year's year-to-date average.

Okay. And then, cash from ops versus CapEx for the nine months, do you have that handy?

Cash flow from operations for the nine months is a positive $56.7 million, and CapEx for nine months has been $21.6 million.

Okay, that's it, thanks.

Will Lyons.

I have a couple of questions. You mentioned Armor Cable sales are up almost -- well, they've almost tripled year-on-year, quarterly year-on-year. Has that been mostly through your existing distributor network, or are you finding that you are also adding some distributors now that you have that product line in the Armor Cable?

That was a great question, but it's all through existing customer base, Will.

Do think that will change, or would that be sort of your expectation?

It's in line with what we expect.

Secondly, pricing pressure now seems to be, well, I'll call it a semipermanent part of the wire industry environment. Do you think this -- now Daniel or Frank, this is really just a question of your opinion -- do you think this is primarily due to reduced competition and consolidation in the industry, or is something else at work?

There's several -- it's a pretty complicated question to answer generically, but generically, Will, I believe that there is some posturing going on in the marketplace currently. We have received increases in cost pretty much across the board. The real difference today versus a year ago is in the sale price. The price has eroded significantly and all of our costs are up. The scramble for market share or posturing of competition, really not sure exactly how to answer it specifically to a competitor, but it's difficult times. The sale price in the market is the issue.

As it has been at least for the past year.

Yes, sir.

Well then my final question is very simple one for Frank. Frank, when do you expect the 10-Q will be available?

Our deadline with the SEC is the 9th and we will try to meet that -- I mean, we will try to beat that deadline by a couple of days.

Congratulations on a good quarter in a tough environment, guys.

Jim Larkins.

Good morning. Question on Armor Cable. Can you just give me a sense of what the end market is for that? Is that primarily a commercial product or residential?

It's a commercial and industrial application.

Okay. You also made reference to true color in the press release. Can you talk about the acceptance of that product? And I understand that at times you get resistance from unions on that product and kind of I wondered, is there certain geographies where that does better or certain industries where that does better? And overall, would you say that product continues to gain traction and take share?

I'm not certain about the union part of the question, but the colored feeder product continues to grow as a percentage of our sales. It has caught on in several markets. It's mainly in the larger markets. But for the most part, the colored feeder still is preferred by several contractors and distributors in large markets, and in the other markets it has not caught on as well. There's still plenty room for growth there.

And is there a lot of competing product there, or do you still have a unique offering?

We have a competitor or two that offers that product. That's about all I want to say about a.

Very good. Thanks guys.

[David Mee].

Mr. Jones, I know that you and Mr. [Rago] used to work as a team in the Company. Has there been any thought to returning to a CEO and a COO approach in running the Company?

Not currently. We have had some internal discussions about where we are currently and where we are headed, but we have not identified a COO currently.

Is there any reason why?

No, no specific reason.

[John Jay].

I noticed that when we had our last downturn, it created some significant opportunities with the elimination of some of your competition. I'm wondering, number one, if you see any opportunities existing in this downturn right now that would give Encore a competitive advantage with such a strong balance sheet. That's question number one. And then number two is, with the stock dropping in the $20 level, it looks like there would be some significant opportunities for some share buybacks. And with the dilution of some of the options, I haven't seen that in the last year. I'm wondering if there's any way you can comment anything on that.

The question on the downturn, we obviously have our eyes open. If we were able to find something that would complement what we do and not take away from our current offering and our momentum, we would certainly consider that. We don't have -- we have not announced anything publicly as far as acquisitions or so forth. I do believe that there is a possibility of more attrition from the competitive standpoint. And then on the share buyback, we certainly are considering that. We have Board approval to do so. And as it goes forward, we'll continue to consider it. When the time is right, we will jump in there.

Just give me a call when you are ready.

[Brad Langston].

Congrats on a good quarter in a tough market. I was wondering -- in your prior press releases, you gave volume percentage changes and you just gave year-over-year. If you can give quarter-over-quarter sequentially. I know we can probably back that out, but do you have those numbers handy?

You want Q3 over Q2?

Yes.

In total, we were down 2.8%.

And by segment?

Residential was actually up 10.6%, Commercial was down 7% and Armored was down 20%.

Okay. And then, I don't know if you can comment on this, but directionally, how are (inaudible) margins trending fourth quarter versus third quarter average? I guess so far in the quarter, what have you been seeing today versus June, July, August?

That's a little too specific for us to answer, Brad, but fourth quarter looks okay.

Are spreads sequentially improving, or is it still sort of challenging?

Rather not comment on the fourth quarter yet (technical difficulty).

Thanks guys, congrats again.

Kent Holden.

I just wanted to see if I can understand this right. The sales volume is down about 10%, but the units volume is about 3% -- is that correct?

What time frame are you looking at?

Sequentially?

That's correct.

That's it, yes.

Net sales are down 7.5%, and units were down 2.8%.

What do you see that will turn this trend around?

From the volume standpoint, Kent, the residential certainly has an influence, the commercial activity that we see is there. The activity on the sales desk as far as Commercial quotations is pretty strong. And as far as the revenues itself, it's a function of sale price.

And so the competitors' pricing actions have not abated?

Well, the third quarter, no. Fourth quarter, things look a little bit better, but I don't want to get too deep into the fourth quarter yet because it's early.

It appears we have no more questions.

Okay, Robert, thank you folks for the questions and thank you for participating and we look forward to the next call.