Encore Wire Corp (WIRE) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to today's fourth quarter earnings conference call. (Operator Instructions). And now to start off today's conference I would like to welcome and turn the call over to Mr. Daniel Jones, President and CEO. Go ahead, sir.

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

We are pleased to announce strong quarterly earnings in midst of the severe recession currently taking place in the construction industry. As we have repeatedly noted the, key metric to our earnings is the spread between the average price of wire sold per copper pound and the Company's average cost of raw copper per pound in any given period. That spread increased 59.9% in the fourth quarter of 2010 versus the fourth quarter of 2009 while our unit volume shipped in the fourth quarter of 2010 increased 6% versus the fourth quarter of 2009. The spread increased 32.5% on a year over year basis while unit volume decreased 3.8%.

Driving the increase in our earnings despite the decreased unit volume, the results in the last three quarters are particularly encouraging following the losses we sustained in the fourth quarter of 2009 and the first quarter of 2010. After earning $0.05 per share in the five quarters ended March 31, 2010, the Company earned $0.77 per share in the last three quarters of 2010.

We believe the exit of a former competitor in the first quarter of 2010 has contributed to the positive trend in the industry, pricing levels and margins over the last three quarters. We continue to strive to support industry price increases to maintain the momentum started during the past two quarters. 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.

As our orders come in from electrical contractors the contributors 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 inventory levels for us. We believe our performance is impressive in this economy. We thank our employees an 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. This release is available on the Internet or you can call Tracy West at 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 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 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.

Moving on to the financial results. Net sales for the fourth quarter ended December 31, 2010, increased 44.6% to $256.1 million compared to $177.1 million during the fourth quarter of 2009.

Unit sales in the fourth quarter ended December 31, 2010, increased 6% versus the fourth quarter of 2009 while the average price per pound for building wire sold in the quarter increased by 36.3%. Sales prices rose primarily due to higher copper prices. Copper prices rose 30.8% in the same period comparison.

Net income for the fourth quarter of 2010 increased to $4.5 million versus a net loss of $1.9 million in the fourth quarter of 2009. Fully diluted net earnings per common share were a positive $0.19 in the fourth quarter of 2010 versus a loss of $0.08 in the fourth quarter of 2009.

Net sales for the year ending December 31, 2010, increased 40.1% to $910.2 million compared to $649.6 million during the year ended December 31, 2009.

The average price per copper pound of building wire sold in the quarter increased by 45.8% driving the increase in net sales dollars. Unit volume in the year ended December 31, 2010, decreased 3.8% versus the year of 2009. Net income for the year ended December 31, 2010, increased 320.6% to $15.3 million versus $3.6 million in 2009.

Fully diluted net earnings per common share were $0.66 for the year ended December 31, 2010, versus $0.16 in 2009. On a sequential quarter comparison net sales for the fourth quarter of 2010 were $256.1 million versus $242.8 million during the third quarter of 2010.

Unit volume decreased 8.7% on a sequential quarter comparison while the average selling price of wire increased 15.6%. Net income for the fourth quarter of 2010 was $4.5 million versus $5.1 million in the third quarter of 2010.

Fully diluted net income per common share was $0.19 in the fourth quarter of 2010 versus $0.22 in the third 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 had $103.3 million in cash as of December 31, 2010. We also declared another quarterly cash dividend during the fourth quarter of 2010.

This conference call will be available for replay after the conclusion of the session. If you wish to hear the taped replay, call 866-551-4520 and enter the conference reference number 270461 and the pound sign. I will now turn the floor back over to Daniel Jones our President and CEO. Daniel?

Thank you. As Frank highlighted, all things considered, Encore performed well in the past quarter. We believe we are well positioned for the future.

Mona will now take questions from our listeners.

(Operator Instructions). Our first question is from Liam Burke's location, Janney Capital Markets, go ahead please.

Thank you. Morning Daniel. Morning Frank.

Hi, Liam.

Daniel, this is more of an end market question. It looked like the commercial construction market, after having a pretty rough 2010, according to census bureau numbers, was getting better. It was still down year-over-year but dramatically -- the decline was dramatically less. On the end market side are you seeing any of that follow through?

There still are pockets, Liam, where that would be true. We're still seeing data centers, some hospitals or medical buildings, smaller type office buildings in outlying areas. And it seems to be the construction -- commercial construction side of it -- there seems to be pockets where it seems to be somewhat positive.

Okay. And, Frank, what was the LIFO adjustment for the fourth quarter?

Of the fourth quarter we took an expense of $15.9 million and for the total year it was $27.4 million also of expense.

Great. Thank you very much.

Thank you.

You're welcome.

Our next question is from Keith Johnson's location at Morgan Keegan. Go ahead, please.

Hi. Good morning, guys.

Good morning.

A couple questions real quick. Maybe first off on a year-over-year basis in the fourth quarter could you guys give us an idea of how your commercial volumes and residential volumes changed.

Q4 over Q4?

That's it.

Residential was down almost 29% and commercial was up 15%.

Okay. And can I get the same numbers for the year?

Sure. Year-over-year residential was down 15% and commercial was down 1%.

I was trying to get an idea -- you guys -- I guess volume only down 3.8% in such a challenging market in 2010. I guess part of that is maybe gaining some share. Could you give is a little bit of color about what you think the underlying -- or building wire market how much it declined in 2010 versus 2009?

I don't have specific numbers on it, on where it ended up, but we do know from a few the resources that we rely on and some of the folks that we put some faith in on their reporting it appears that it somewhere between 25% and 30% on the downside.

Okay.

Which is up a little bit from the 2008 to 2009 number that was -- some published as much as 45% to 50% down.

And that's on a volume basis I guess?

Correct.

Okay. For the industry.

Yes.

And I guess maybe final question. Copper of course went up, I guess steadily through the quarter, and it seemed that from 3Q or to 4Q the price of copper was more linear in its trend of going higher. Did that help the industry kind of manage the selling price versus copper price environment a little better than when we see these markets where copper is up and down, up and down, on a more volatile type of basis?

Well, the volatility has become in the top two or three issues that we consider each day, but having said that, the volatility being a given, the overall bias seems to be an upward trend until the last few days. But to answer your question more directly how it relates to pricing we contend and have always stood by the fact that we do better in a rising copper market on a trend basis. It forces a few of the irritant type competitors to have a little more discipline. It may not be brilliant management or genius or any of the other credits that we all would like to take at some point, but if you have copper running $0.25, $0.30, $0.40 a pound, there is not a lot of options other than to take the price up to cover that cost. Along with other raw materials. When you see the other raw materials increasing also, obviously, on a lesser overall percentage of the product or cost of goods sold, copper is by far the leader, but all of the raw materials were increasing.

Okay. Thanks a lot.

You bet.

(Operator Instructions). Our next question is from Kerry Rigdon's location at Mayberry Partners. Go ahead, please.

Good morning, gentlemen.

Hi Kerry.

Quick question. Daniel, you were talking about the pricing. I guess consistency or stability was better through the last couple of quarters. Would you characterize that as remaining like that as we -- as you kind of exited Q4? I mean has that pricing discipline still been there or still there?

We're supposed to only talk about Q4, but overall the feel in the market is better. There's a little -- the feel is there's a little bit of business out there to be had and yes, I mean the best way is to be brief and say yes. The overall feel us a little bit better, yes.

Okay. I understand. And also in terms of the inventory levels would you say that the distributors, that their inventory levels remain -- has that number remained very, very thin or have there been any changes one way or the other in terms of how that progressed through the last few quarters?

I think the answer -- the easy answer is yes. I mean the volatility and the upward bias on copper, at some point even the most skeptical buyers become believers if they're burnt in the market by waiting for a cheaper price next week, and they go back and look and it could be as much as 10% or 15% increase. They're convinced that's the right thing to do and about the time we have the market moving in concert with raw material increases, that's when things work out for everyone. But, again, the pricing discipline becomes forced at some point. It just depends on the threshold of those manufacturers, I guess, when someone is looking at the margins that are obviously controlled by the price as much as anything, when the cost is out of control, if someone is looking and it's their money, I think that threshold would be crossed much quicker than folks that may be out pricing product in the market and it's not their money.

Okay. A few years ago -- one last question. A few years ago there was discussion that when copper gets to certain levels that you start to see a shift in usage to other products. Aluminum or something else. Have you seen any hint of that, is that even -- I know all materials have risen, but have you seen any suggestion of that or any kind of trend that might suggest so?

I think that's existed for a while now. You hear of jobs that are quoted copper and then they go back to aluminum and copper drops a little bit and they go back to copper or vice versa. So, again, the volatility in the market, depending on which bias we're in, has an influence certainly one way or the other, but to what extent on a percentage basis would be hard for me to pin down. I can't tell you of any substantial jobs that we've lost to aluminum recently. There certainly -- it comes up. It is an option. There's pluses and minuses to be considered when you're going from copper to aluminum and, again, it depends on I guess the owner or getting the decision in the hands of the folks that are writing the checks to decide whether that change is worth the monetary number, maybe trying to get it to a business decision in some fashion, but overall we see it as more discussion points. And in the end most folks that we deal with prefer to have the copper installed.

Okay. Thanks, guys.

You bet, thank you.

You're welcome.

Looks like our last question is from Tom Brashear, Preston Capital Management. Go ahead, please.

Hey, gentlemen. Great quarter.

Thanks, Tom.

With the favorable housing start figures we saw last week and then that was further quantified, talking about more apartments were built than anything, are you seeing -- are you benefiting by that in orders and sales? And then second question regarding residential single family detached, are you seeing home builders begin to ramp up any, or what's the latest you're seeing there?

Most of the numbers that we're seeing on the residential side fluctuate from week to week. There may be a situation where a few substantial orders for the residential product will make that week a positive number and then the following week or even the week before that, could be negative or neutral numbers. So overall in the residential market, the few competitors that we have that participate, I think the capacity that is in that market, any type of uptick in residential demand would be very easily swallowed up with the existing capacity. I know that's a long answer to your question, but overall, the residential is -- it's up and down. We're seeing the same numbers that you're seeing most likely. Inventories are very lean in the field but, again, any type of substantial order that comes through is filled and shipped very quickly.

Thank you. Keep up the great work.

You bet. Thanks for the question.

Gentlemen, we have no further questions.

Okay. Great job, Mona. We appreciate your assistance in helping us deliver the call and the news and look forward to speaking to everyone next quarter.

Thank you, gentlemen. Ladies and gentlemen, thank you for your time and attendance. This conference is now concluded. Enjoy the rest of your afternoon.