Encore Wire Corp (WIRE) 2010 Q1 法說會逐字稿

Hello, and welcome to the Encore Wire first-quarter earnings conference call. As a reminder, all lines will be on listen-only mode, and we will conduct a Q&A session at the end of the call. (Operator instructions.)

At this time, I'd like to turn the call over to Mr. Daniel Jones, President and CEO.

Thank you, Ross. Good morning, ladies and gentlemen, and welcome to the Encore Wire Corporation quarterly conference call. I'm Daniel Jones, the President and CEO of Encore Wire, and with me this morning is Frank Bilban, our CFO.

Unit volume decreases caused by the drop in construction activity continue to create turmoil in our industry. During the quarter, a competitor exited the market by selling out to another competitor. Despite the continued volume decreases, there were positive developments including the increase in spreads during the past quarter. The spread between the price of wire sold and the cost of raw copper is a key metric in this industry and a key driver of the level of profitability. With our low-cost structure, we have strong upside leverage when the spread expands.

On a sequential quarter basis, the average cost of copper purchased increased by 10.7%, while the average price of wire sold increased by 14.1%, increasing the spread by 28.6%. Our pretax loss of $4.1 million, which is $2.5 million net of income taxes, includes a one-time pretax charge of $2.6 million, $1.7 million net of income taxes, associated with the debt retirement we executed in January.

This positive change in sequential quarterly earnings occurred despite the 13.3% decrease in unit volumes sold. We produced these results in this difficult environment due to our low-cost business model and aggressive cost-cutting in all facets of our operation.

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. The low inventory levels in the distribution chain make Encore's excellent order-fill rates valuable to customers who are gravitating toward a just-in-time inventory.

We believe our volume decreases are less than total industry, and we believe we are able to get a slight premium for our excellent service level from customers who realize they're saving money by buying from us. Despite our desire and effort to do better, our performance is impressive in this economy 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 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. The release is available on the Internet, or you can call [Denise Liss] at 800-962-9473 and we will get you a copy.

Before we review the financials, let me indicate that in these 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 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.

Now for the financial results. Net sales for the quarter ended March 31, 2010, were $175.2 million, compared to $144.5 million during the first quarter of 2009. Net loss for the first quarter of 2010 was $2.5 million versus net income of $4.6 million in the first quarter of 2009.

Fully diluted net loss per common share was $0.11 in the first quarter of 2010 versus earnings of $0.20 in the first quarter of 2009. Unit volumes, measured in pounds of copper contained in the wire sold during the period, declined 30.6% in the first quarter of 2010 versus the first quarter of 2009. However, the spread between the cost of a pound of copper purchased and the price of a pound of copper sold increased by 12.3%. The 2010 first-quarter results also include a $2.6 million pretax charge associated with the early retirement of long-term debt that the Company paid off in January.

On a sequential-quarter comparison, net sales for the first quarter of 2010 were $175.2 million versus $177.1 million during the fourth quarter of 2009. Net loss for the first quarter of 2010 was $2.5 million versus a $1.9 million net loss in the fourth quarter of 2009.

Fully diluted net loss per common share was $0.11 in the first quarter of 2010 versus an $0.08 net loss in the fourth quarter of 2009. Unit volumes declined 13.3% in the first quarter of 2010 versus the fourth quarter of 2009. However, the spread between the cost of a pound of copper purchased and the price of a pound of copper sold increased by 28.6%.

We continue to maintain our strong balance sheet. We've paid off our long-term debt and our $150 million revolving line of credit has a zero balance. In addition, we had $130.4 million in cash as of March 31, 2010.

Our bank covenants were amended in the quarter to take current economic conditions into account. We also declared our 14th consecutive quarterly cash dividend during the first quarter or 2010.

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, please call 866-206-0173 and enter the conference reference number 253426 and the pound sign.

I will now turn the floor back over to Daniel Jones, our President and Chief Executive Officer. Daniel?

Thank you, Frank.

Russ, we're now ready for the questions-and-answer session.

Okay, sir. (Operator instructions.)

Okay. We do have one question, and it comes from Liam Burke at Janney Montgomery Scott. Go ahead, please.

Good morning, Daniel. Good morning, Frank.

Morning.

Daniel, do you have a breakdown of revenues or year-over-year revenue comparisons for the residential and commercial market, or Frank?

Yes. Well again, I have it in percentage terms.

That's fine.

Residential in first quarter of 2010 comprised 25% of our sales, and we'll get you the revenue numbers shortly if we can. And the first quarter of last year residential was 18%.

Okay.

I said 18% last year and 20% this year.

That's fine. Thank you.

And Daniel, obviously, with volumes down the way they are, you are showing some positive movements on the spreads. The ABI numbers are looking to be less worse, which bodes better for the future. Is there anything more near-term, either in terms of geography or pockets of either residential or commercial, that are getting better for you?

Well a few of the pockets commercially, Liam, seem to be really large jobs, pretty high-profile jobs. There's still some activity at the universities and schools as far as expansions go. There's still a little bit of the government buildings going up on the commercial side. And then residentially, there's areas, for whatever reason, that seem to be picking up somewhat. Again, none of it is fantastic. It's all relative. But it is still positive.

Great. Thank you.

(Operator instructions.)

Okay. We have one more coming into the queue. Hang on one second. Okay. Our next question comes from Kerry Rigdon at Mayberry Partners. Go ahead, please.

Good morning, gentlemen.

Hi, Kerry.

Just a quick question on the -- there was a competitor that went out of the market space. Was that early in the quarter, late in the quarter? And how would you characterize the change in the space after that exit?

It was early, Kerry. And I guess the best way to describe it would be the company that went out I think it was maybe somewhat obvious that there was a lack of discipline, if you will. And certainly with the new owner, we're looking forward to increased discipline. They run a good company and the guys that -- it was probably time for the guys that got out to get out.

They did a good job with what they did, but there's no question that their path to market was a little bit extreme at time and certainly did not agree with the philosophies that we have. So we see it as a positive.

Terrific.

One additional question, you commented about the inventories at the distributor level, and I know that has been a characteristic that's been out there for a while. Have you seen any change in that, even if it's ever so slightly one way or the other where distributors are taking a little bit more inventory, or has that remained fairly flat for the past few quarters?

No, we've actually started to see a little bit of a pickup in that category. There is some restocking that we feel certain went on in late March, which was good. And there's some seasonal maybe thought process there as well as some slight gains in business. I think most of the larger distributors that we sell to seem to be pretty optimistic going forward, although maybe a little cautious, but they're still optimistic, and we've seen a little bump in their inventories.

Terrific, terrific. Thanks, guys.

Okay. Our next question comes from Louis Corrigan at Kingsford Capital. Go ahead, please.

Hi. You may have already mentioned this, but I was curious what the -- if there was a LIFO benefit on the quarter.

No, there was a LIFO expense in the quarter of $8.5 million.

And that was [net] for the whole quarter.

Yes.

Okay. I noticed that the prepaid expenses are up quite a bit. Are those prepaid purchases of copper, or what exactly is in that?

Yes, that's primarily copper that just is coming in at the end of the quarter.

How much of that is copper?

Almost entirely copper.

Okay. And I noticed that your payables were up quite a bit sequentially, even though the inventory was obviously at a very low level. How did you manage that?

Well that's really due to timing. If you look at a December quarter, and this is pretty standard for us at year-end, we tend, in general and we did again this year in Q4, to take a fairly long shutdown of one to two weeks. And in anticipation of that, we really kind of drain down our purchases in December as you can imagine, and so your payables at December, if anything, wind up being lower than usual.

Okay. I guess I'm just confused, though, because the inventory is at such a low level, and looking at the period a year ago, when the inventory was much higher, the payables are $18 million up year-over-year.

Again, that's just the timing of purchases in the quarter. If you have inventory on the floor, it just depends -- it could be the same. It could be up. It could be down. But we bought -- what all the payables being up and the accruals at month-end is telling you is that we got a lot of copper in, in the last couple weeks of March.

Okay. Thank you.

You're welcome, sir.

(Operator instructions.)

Okay, we have one more question. And it comes from [Brad Evans] at [Powerland]. Go ahead, Brad.

Good morning, everybody.

Good morning.

Good morning, Brad.

I'm just curious. You mentioned -- or Frank -- the improvement in the spreads in the quarter, and I'm curious if you can articulate if that's continued into April and, if not, improved.

Well we really can't talk about April on the first-quarter call. We'll be glad to cover that in more detail on the next call. And we don't want to say too much anyway competitively because I see that four of our five main competitors are online.

Understood.

And Frank, can you give us the year-over-year volume changes for both commercial construction as well as residential?

Q1 to Q1?

Yes, sir.

Residential Q1 to Q1 was down 25% and commercial was down about 33%.

Okay. Thank you very much.

You're welcome.

Thank you, Brad.

(Operator instructions.)

Okay, gentlemen, that appears to be all the questions at this time.

Russ, thank you very much for handling the call and thank you, folks, for calling in and participating, and we encourage you to call in again next time and thank you so much for the support.

Thank you, ladies and gentlemen. That concludes this conference.