Encore Wire Corp (WIRE) 2010 Q2 法說會逐字稿

Welcome to the Encore Wire second-quarter earnings conference call.

As a reminder, all lines will be on listen-only mode. There will be time for question-and-answer at the end of the call. (Operator Instructions).

I will now turn the call over to Daniel Jones, President and CEO of Encore Wire. Go ahead, please.

Thank you Stephen. Good morning, ladies and gentlemen. Welcome to the Encore Wire Corporation quarterly conference call. I'm Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning as Frank Bilban, our Chief Financial Officer.

We are pleased to be able to announce strong quarterly earnings in the midst of the severe recession currently taking place in the construction industry. As we've repeatedly noted, the key metric to our earnings is the spread between the price of wire sold and the cost of raw copper. The spread increased 35.7% in the second quarter of 2010 versus the second quarter of 2009, while our unit volume shipped in the second quarter of 2010 increased 2.3% versus second quarter of 2009. The spread increased 14.7% on a sequential-quarter basis while unit volume increased 34.1%.

The sequential quarterly comparisons are particularly encouraging. We believe the sequential trends are due to several factors.

In the first quarter of 2010, we posted our lowest unit sales in over a decade. We believe this was due not only to the construction and building wire recession in the United States but also due to the fact that a former competitor was purchased and liquidated their remaining wire inventory during the first quarter at extremely low prices. We elected not to match these price levels, negatively impacting our unit volume in the first quarter.

In the second quarter, building wire industry exhibited improved pricing discipline, favorably impacting our spreads and allowing our unit volume to return to what we believe may be more normal levels. We continue to strive to support industry price increases to maintain the momentum started during the past quarter.

We believe ours superior order fill rates continue to enhance our competitive position as our electrical distributor customers are holding very 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. 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?

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 our financial results. This release is available on the Internet, or you can call Denise List 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 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, reconciliations of non-GAAP financial measures discussed during this call to the most directly comparable financial measures presented in accordance with GAAP, including EBIT, 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, 2010 were $236.1 million, compared to $159.4 million during the second quarter of 2009. Higher prices for building wire sold in the quarter ended June 30, 2010 accounted for most of the increase in net sales dollars, increasing 44.9% per copper pound sold versus the same period in 2009. Sales prices rose primarily due to higher copper prices.

Unit volume in the second quarter of 2010 increased 2.3% versus the second quarter of 2009. Net income for the second quarter of 2010 increased 1256.5% to $8.1 million versus $600,000 in the second quarter of 2009.

Fully diluted net earnings per common share were $0.35 in the second quarter of 2010 versus $0.03 in the second quarter of 2009.

Net sales for the six months ended June 30, 2010 were $411.3 million compared to $303.8 million during the same period in 2009. Higher prices for building wire sold in the six months ended June 30 accounted for the increase in net sales dollars, increasing 59.2% per copper pound versus the same period in 2009. Unit volume in the six months ended June 30 decreased 14.9% versus the same period in 2009. Net income for the six months ended June 30, 2010 was $5.7 million versus $5.2 million in the same period in 2009.

Fully diluted net earnings per common share were $0.24 for the six months ended June 30, 2010, versus $0.22 in the same period in 2009.

On a sequential-quarter comparison, net sales for the second quarter of 2010 were $236.1 million, versus $175.2 million during the first quarter of 2010. Unit volume increased 34.1% on a sequential-quarter comparison.

Net income for the second quarter of 2010 was $8.1 million versus a loss of $2.5 million in the first quarter of 2010. Fully diluted net income per common share was $0.35 in the second quarter of 2010 versus a loss of $0.11 in the first quarter of 2010.

Our balance sheet remains strong. We have no long-term debt and our revolving line of credit is paid down to zero. In addition, we have $90.5 million in cash as of June 30, 2010. We also declared another quarterly cash dividend during the second quarter of 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 866-551-4520 and enter the conference reference number 265319#.

I'll now turn the floor back over to Daniel, our President and CEO.

Thank you Frank. Stephen, we will now take questions from listeners.

(Operator Instructions). Liam Burke, Janney Montgomery Scott.

Thank you. Good morning Daniel. Good morning Frank. Daniel, it's no secret that the construction markets are still having a very, very tough time out there, but you were able to show volume growth. Could you sort of give us some details on is it -- because obviously your market share gains has something to do with it, but could we get some more details on that?

As we mentioned in the press release, there was a competitor that was bought by another competitor in the first quarter, and there was some inventory liquidation and so forth. I guess, going in to the second quarter, there was some posturing by a few folks that we compete with. Then what ended up happening, that business I guess was divvied up between the remaining competitors. We feel like, from talking to the existing customer base that we sell through, they were able to pick up some market share. Therefore, it was passed on to us.

We did not go out and chase down new customers, so to speak. We stuck with the guys that have been with us, but they were able to go out and actually get some business. We picked up some of the fallout from that purchase, there's no question, in the second quarter. But we have seen a few small pockets of positive numbers as far, as the different markets that we ship into, to round out that market share number.

Great. Frank, could you give us a cash flow from operations and a CapEx number please? Those first six months of the year, I'm sorry.

For the six months of the year, cash flow from operations was a negative $24.3 million. That was due to the increased sales. Accounts Receivable took up $49.3 million. So without receivables, we would have had positive cash flow, and that's a good sign. We are just waiting to collect the sales we made in Q2. CapEx for the six months to date is $11.2 million.

Thank you.

Michael Coleman.

Good morning. Just can you (inaudible) data points on the current mix, residential versus commercial, as well as if there was a LIFO adjustment in the quarter?

You want the residential versus commercial mix for the quarter, or the six months?

Either or both.

For the second quarter, the residential was just a hair under 20%. That is also true for the six months, almost identical. LIFO for the quarter was a credit of $9.2 million, which for the six months balances out the first quarter almost identically. We have a net credit of $700,000 for the six months, almost nothing.

One other piece -- could you talk about the portion (inaudible) increase that was due to the increase in rep commissions, given the topline improvement?

Sure. Again, commissions for the quarter versus the second quarter of last year are up almost $2 million. Again, those commissions are a relatively stable percentage. To the extent that sales go up, that will flow linear up with the sales on a linear fashion. For the year-to-date, it's also up $2.5 million.

Great. One more question. You've lost another competitor. How does that -- how many are you down to now? Kind of what do you think the concentration of the industry is, Daniel, of maybe the top three players in the industry?

Well, in better times, the smaller competitors are less affective in the market and have fewer successes. But the last year and a half to two years, some of those guys have become more of a competitor than we would like, somewhat irritating with their approach going to market, so to speak. But today, there's probably a total of four or five competitors. I would say the top three or four account for around 75%, maybe 80%.

Great, thank you.

Robert Kelly.

Good morning. On the sequential increase in volume you saw in 2Q from 1Q, any way to parse out the growth rates for commercial and residential?

Sure. You're looking sequentially. Residential was up 32%, and commercial was up about 37%, so they were pretty close, for a total growth rate of the 34% we reported.

So now this will probably be tough to quantify. Is there some restock and share gains in that 37% commercial, or is that just snap back of demand and the seasonal issues falling away?

Well, there may have been some seasonal. The first quarter was pretty tough, not only with the liquidation of the inventory of the competitor that was going out but also weather-related issues. There were some areas that were hit pretty hard with weather. But copper was pretty volatile. When you have that type of volatility on the upside creating a trend, you flush out some business, so to speak. A lot of the larger commercial jobs will come out that were sitting and waiting for timing or what have you. But overall, it looked like, to us, a mixture of both. There wasn't any one specific area that outperformed the other as far as where the share came from.

Great, thanks guys.

(Operator Instructions). Brad Evans

Just -- I'm sorry if you mentioned this, and I missed it. But could you give us your thoughts as to the volume trends in July so far? Have they continued the favorable positive year-over-year trends you saw in the second quarter?

It's tough to be that specific when we are talking only about the second quarter as far as going into the future. But July was okay, and again, the market itself seems to be more disciplined than it was in the first quarter. There were several things contributing to that that we have mentioned. But overall, as we sit now, there is nothing really that's going to either extreme. It seems to be going along pretty well.

One more clarification in terms of both volumes and spreads throughout the second quarter, did they improve each month?

They actually did. It was pretty positive growth from one month to the next within the quarter.

Great quarter. Thanks a lot.

(Operator Instructions). Tom [Brashir].

It appears we may have lost Tom.

I am here. Good morning gentlemen. Congratulations on a successful quarter. Are you seeing any favorable trends in municipal building, commercial building, school district building, that would tend to be optimistic?

It was spread across the category really. There were hospitals and schools and universities, and a few of the larger projects that had been sitting and waiting. There seems to be -- in the technical field, seems to be some expansions going on there. Again, it was pretty evenly spread throughout. There wasn't really one sector that showed up more than the other.

(Operator Instructions). There are no more questions at this time.

Super. Thank you very much for the questions and support, and we look forward to the next call.