Encore Wire Corp (WIRE) 2011 Q2 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the Encore Wire second quarter earnings conference. As a reminder, all of your lines will be on a listen-only mode, however we will have a Q&A session at the end of the call. (Operator Instructions). At this time, I would like to introduce and turn the call over to Mr. Daniel Jones, President and CEO of Encore Wire. Go ahead, Mr. Jones.

Thank you Angie, and good morning ladies and gentlemen. Welcome to the Encore Wire Corporation quarterly conference call. I am Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer.

We are pleased to announce strong quarterly earnings in the midst of the severe recession currently taking place in the construction industry. As we repeatedly noted, the key metric to earnings is the spread between the price of wire sold and cost of raw copper purchased in any given period. The spread increased 22.2% in the second quarter of 2011 versus the second quarter of 2010, while our unit volume shipped in the second quarter of 2011 increased 1.9% versus the second quarter of 2010.

For the six months ended June 30, 2011, the spread increased 30.4% versus the six months ended June 30, 2010, driving our increased earnings. Our unit volume for the same time period for the six months 2010 versus six months 2011 increased 13.4%. We believe the exit of a former competitor in the first quarter of 2010 has contributed to the positive trend and industry pricing levels and margins. In the past five quarters since their exit, we've earned a cumulative $1.62 and fully diluted net earnings per share versus a cumulative $0.05 and fully diluted net earnings per share in the previous five quarters ended March 31 2010.

Despite producing strong earnings in the second quarter of 2011, we are down slightly on a sequential quarter comparison. With the volatility of copper prices during the quarter, industry attempts to introduce price increases were occasionally stymied by the volatility. We attempted to lead or follow price increases during the quarter, some of which were unsuccessful. We continue to support industry price increases in an effort to maintain and increase margins. We believe our superior order fill rates continued 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 and 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 and thank our employees, 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 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 Tracy West at 800-962-9473 and we will get you a copy.

Before we review the financials, let me indicates that throughout this conference call 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 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.Encore Wire.com.

Now the financials. Net sales for the second quarter ended June 30, 2011 were $309.5 million compared to $236.1 million during the second quarter of 2010. Higher prices for building wire sold in the quarter ended June 30, 2011 accounted for most of the increase in net sales dollars, increasing $0.286 per copper pound sold versus the same period in 2010.

Sales prices rose primarily due to higher copper prices, which rose 30.7%. Unit volume in the second quarter of 2011 increased 1.9% versus the second quarter of 2010. Net income for the second quarter of 2011 increased 16.3% to $9.5 million versus $8.1 million in the second quarter of 2010. Fully diluted net earnings per common share increased 16% to $0.40 in the second quarter of 2011 versus $0.35 in the second quarter of 2010.

Net sales for the six months ended June 30, 2011 were $612.8 million compared to $411.3 million during the same period in 2010. Higher prices for building wire sold in the six months ended June 30, 2011 accounted for most of the increase in net sales dollars, increasing 31.5% per copper pound versus the same period in 2010. Unit volume in the six months ended June 30, 2011 also helped to increased the top-line sales dollars, increasing 13.4% versus the same period in 2010.

Net income for the six months ended June 30, 2011 was $20.1 million versus $5.7 million in the same period in 2010. Fully diluted net income per common share increased 253% to $0.86 for the six months ended June 30, 2011 versus $0.24 per common share in the same period in 2010.

On a sequential quarter comparison net sales for the second quarter of 2011 were $309.5 million versus $303.4 million during the first quarter of 2011. Unit volume increased 6% on a sequential quarter comparison. Net income for the second quarter of 2011 was $9.5 million versus $10.7 million in the first quarter of 2011. Fully diluted net income per common share was $0.40 in the second quarter of 2011 versus $0.46 in the first quarter of 2011.

Our balance sheet remained strong. We have no long-term debt, our revolving line of credit is paid down to zero. In addition, we have $46.8 million in cash as of June 30, 2011. We also declared another quarterly cash dividend in the second quarter of 2011.

Everyone should know that this conference call will be available for replay after the conclusion of the session. If you wish to hear the replay, please call 866-551-4520 and enter the conference reference number 274645 and the pound sign. I'll now turn the floor back over to Daniel Jones, our President and Chief Executive Officer. Daniel?

As Frank highlighted, all things considered, Encore performed well in the past quarter and we believe we are well positioned for future the future. Angie, we would now like to take questions from our listeners.

(Operator Instructions). Robert Kelly.

Daniel, Frank, good morning. Just a question on one of the lines in the prepared remarks. The copper volatility stymied some of your efforts to increase prices. Would you just talk about the trend, whether it be pricing or spreads in April, May and June, how that played out throughout the quarter if you could?

Right. April ended up around the 430 mark on the COMEX average for the month. May ended up about 405, and June I think was around 410. Going from a higher copper average to a lower copper average each month within the quarter, if you print a price increase and the industry either follows or it doesn't. But if you lose, for example, $0.25 from April to May in COMEX average, you have little chance of that price increase sticking. The good thing was, in June it recovered about $0.05 and we were able to put some -- price increases through that helped.

Great. As far as July you've seen some strength in the copper market again. Has there been any change to, you know, discipline in the market? It seems over the past five or six quarters you've seen the market get religion following the liquidation of AIW. Any change to the competitive dynamics with copper back on the rise?

I can't really speak to Q3, but there certainly, is in my opinion, there is an improvement of discipline in the market. We were 1% in additional price, or very close to having a blowout quarter. So I do believe the discipline in the market has been good.

One thing in the industry that happens, when you have an upward trend or an upward bias I guess today, rather than a trend, but if you have an upward bias in copper, you're able to substantiate those price increases with very little effort. If you have copper going against you on a price increase, not only do you lose that opportunity of the increase, but we do have a few competitors that will maybe run ahead of the game, and discount a little deeper than the actual event or the actual daily trading of copper. But overall, for the most part, the competitors I believe have been very disciplined.

Good to hear. One final one. Was there -- or -- what was the working capital use in 2Q, Frank, if you would?

Cash flow from operations in Q2 was a negative $25.25 million, and that's because accounts receivable went up by $12 million again, and due to timing accounts payable went down by $13 million and inventory went up by $7 million. So net-net, with a few other items, including net income of almost $10 million, it netted out to a use of cash going into the working capital [about] $25 million.

Thanks so much.

(Operator Instructions). Eric Marshall.

Yes guys. One quick question I have is -- and forgive me if you've already talked about this, but could you go over what the LIFO reserve was in the quarter?

LIFO in the quarter was a $6.8 million credit, or decrement to cost of sales. And for the six months ended June, it almost washed itself out. It's down to $1.4 million hit. So as Daniel indicated, copper trended up in the first quarter during which you normally take a bit of a hit, and as copper trended down a little in the second quarter, we gave it back. So net-net we are almost at zero for the six months.

Okay, thanks.

There are no other questions at this time.

Give them just a second, I'm sure there will be one or two, Angie.

(Operator Instructions). [Kerry Rigdon].

Good morning gentlemen. A quick question. Could you give a quick breakdown in terms of the residential versus commercial for the quarter?

For the second quarter, our residential wire in copper pounds constituted about 17.5% of the pounds shipped, leaving about 82.5 to the commercial and industrial.

Terrific, thanks. Okay, no, go ahead.

I was just going to say, for the six months if you wanted it, it's about the same. Residential was 16.4 for the six months.

Great, thank you.

[Tom Brashear].

Good morning gentlemen, great quarter. Are you seeing any new copper mining capacity come online anytime soon the next 2 to 4 years that could amend or change the dynamic of copper supply and prices?

Nothing of any real significance, Tom. There's a few properties that have been operational for the last couple of years or whatever that might be considered new. But for the most part, nothing huge, nothing significant.

Very good, thank you so much. Look forward to seeing you guys soon, and really enjoyed the analyst day.

(Operator Instructions). We do not have any questions at this time.

Okay, Angie, thank you very much for handling the call for us, and thank you ladies and gentlemen for the participation and the questions, and we look forward to speaking with you next quarter.

Thank you ladies and gentlemen, this conference call has been concluded.