Encore Wire Corp (WIRE) 2012 Q4 法說會逐字稿

Welcome to the Encore Wire Fourth Quarter Earnings Conference Call. Starting the presentation will be Mr. Daniel Jones, President and Chief Executive Officer. Please go ahead.

Hey, thank you, John. Good morning, ladies and gentlemen and welcome to the Encore Wire Corporation's Quarterly Conference Call. I'm Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer.

The fourth quarter of this year was another fairly steady volume quarter, considering the time of the year and the current economic and construction industry environment. We believe our expansion of product offerings over the last few years to our existing customer base has been critical to maintaining and boosting our market share.

As we have previously noted, one of the key metrics to our earnings is the spread between the price of wire sold and cost of raw copper purchased in any given period. The spread increased 6.4% in the fourth quarter of 2012, versus the third quarter of 2012. Our copper unit volume shipped in the fourth quarter of 2012 decreased 9.4% versus the third quarter of 2012. The spread increase helped us to produce similar earnings in both of the last two quarters despite the volume decrease. Volumes in the fourth quarter are generally at their winter and holiday low point. Relatively small movements in the spread can affect our earnings per share and were a positive influence on a sequential quarterly comparison.

Conversely, spreads were down 17% in the fourth quarter of 2012, versus the fourth quarter of 2011, and down 9.4% on an annual basis in 2012 versus 2011.

Our new aluminum building wire plant began to produce wire in the fourth quarter. The last of the equipment is being delivered and installed in the first quarter of 2013. We're expanding our distribution of aluminum wire to all of our sales reps and customers in the first quarter and expect to see sales of these products to gradually increase over the course of 2013.

We continue to support industry price increases in an effort to maintain and increase margins and we believe our superior order fill rates continue to enhance our competitive position, as our electrical distributor customers are holding lean inventories.

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've been able to accomplish this despite holding lean inventories ourselves.

we believe 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 in advance. This release is available on the Internet, or you can call Natalie Seelbach at 800-962-9473 and we'll get you a copy.

Before we review financials, let me indicate 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.encorewire.com.

Now, the financial results. Net sales for the fourth quarter ended December 31, 2012 were $258 million, compared to $248.3 million during the fourth quarter of 2011.

Prices for copper building wire sold in the quarter declined 1.8% versus the fourth quarter of 2011. However, the average price of copper purchased during the quarter rose 4.9% in the fourth quarter of 2012 versus the fourth quarter of 2011.

Copper unit volume, measured in pounds of copper contained in the wire sold, increased 2.2% in the fourth quarter of 2012, versus the fourth quarter of 2011.

Aluminum building wire sales constituted 5.1% of net sales dollars for the fourth quarter of 2012.

Net income for the fourth quarter of 2012 was $5.2 million, versus $16.3 million in the fourth quarter of 2011.

Fully diluted net earnings per common share were $0.25 in the fourth quarter of 2012, versus $0.69 in the fourth quarter of 2011. Net sales for the year ended December 31, 2012 were $1.072 billion, compared to $1.180 billion during the same period in 2011. Lower building prices for building wire sold in the year ended December 31, 2012 accounted for most of the decrease in net sales dollars, decreasing 10.4% per copper pound versus the same period in 2011.

Copper unit volume in the year ended December 31, 2012 decreased 1.3% versus the same period in 2011. The average price of copper purchased during the year fell 10.7% in 2012 versus 2011, albeit on a lower absolute value than building wire prices. Aluminum building wire sales constituted 3.6% of net sales dollars for the year.

Net income for the year ended December 31, 2012 was $19.8 million versus $50.1 million in the same period in 2011. Fully diluted net earnings per common share were $0.91 for the full year ended December 31, 2012, versus $2.14 in 2011.

On a sequential quarter comparison, net sales for the fourth quarter of 2012 were $258 million versus $269.2 million during the third quarter of 2012. Copper unit volume decreased 9.4% on a sequential quarter comparison. Net income for the fourth quarter of 2012 was $5.2 million versus $5.5 million in the third quarter of 2012. Fully diluted net income per common share was $0.25 in the fourth quarter of 2012, versus $0.27 in the third quarter of 2012.

Our balance sheet continues to remain strong. We have no long-term debt and our revolving line of credit is paid down to zero. In addition, we had $33.9 million in cash at the end of the quarter. We also declared another quarterly cash dividend during the quarter.

I'd like to remind you 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 877-764-8714 and enter the conference reference 336661and the pound sign.

I'll now turn the call back over to Daniel Jones, our President and Chief Executive Officer, Daniel?

Thanks, Frank. All things considered, Encore performed well in the past quarter. We believe we're well positioned for the future. And, John, we'll now take questions from our listeners.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Anthony Kure, KeyBanc.

Good morning, gentlemen. This is Ben Karbowski on for Tony Kure. How you are?

Okay, good, Ben.

Good. So I'll [just jump into] the questions, I guess. Could you give me your mix of commercial versus residential in the fourth quarter?

Certainly. In the fourth quarter, our residential pounds constituted 19.2% of our total volume.

Okay. And given that the residential mix continues to get a little bit higher and that the residential numbers have been picking up recently, do you feel that the non-residential construction market is lagging the residential trends by any specific timeframe?

We don't see that in the marketplace. What we're seeing, Ben, is a very slow and gradual uptick in the residential side, but not so much the others lagging, it's actually more positive numbers.

Okay, that makes sense. And then what do you think about the non-residential numbers coming out with ABI being up consecutively the past couple of months? Do you think it'll start to recover to more normalized levels maybe in the quarter or maybe pushed out towards the third or fourth?

The only caveat I would add before I answer is what is normal, but a more specific answer would be is, yes, we're seeing some positive feedback in the market on maybe pent-up jobs that are coming out. Again, with the volatility in copper, you'll get one started and then it stops or what have you, but for the most part the feeling is in the market that it is positive, yes.

And then one last question for you. Could you tell me what the LIFO adjustments are to the COGS line?

In the fourth quarter, the LIFO was almost nothing. It was just under $1 million of credit or decrements to cost of goods sold and that meant, for the year, we took a hit or expense to cost of goods sold of $10.7 million.

All right, thank you, gentlemen. I appreciate it.

You're welcome.

Thank you.

Bob Kelly, Sidoti & Company.

Good morning, guys.

Hey, Bob, how are you doing?

Doing well, thank you. I had a question on the orders. You had referenced over the past couple of quarters walking away from some low margin bids. Was that still the case in 4Q? Did that continue into 2013? Any comments on that?

Yes, we still continue to see some -- and I just have to be careful, because it all has to do with price, but I guess the best answer I can give you, Bob, is yes, we still continue to see attempts from -- for whatever reason for folks to try to buy their way in on an order or what have you. It's better, the quarter was better than what we've seen, but it still does continue to some extent, yes.

Okay. As far as the conversations with your customers go for bids and maybe the quarter just ended and what's going on today, I saw some bullish commentary out of some of the miners about demand for copper. Are the price expectations moving up into the right as far as your customers? Do they expect copper increases? I mean, what's the lay of the land as far as their expectations for 2013?

Well, we try to do as much as we can to separate the demand for building wire and the demand for copper. But, obviously, copper gets all of the attention, I guess that's the [Romanic] piece to our business. But the feel currently is on the jobs that they're going ahead. Folks are active, they are in the market to buy, they are still a little bit cautious. But then, you know, if someone is right on the cusp of placing a purchase order for a significant job and copper drops $0.07 or $0.08, there's times when they hold back and there's times when they go ahead and move forward. It's better, the feel is better, but there's still some of that apprehension because of the volatility in copper and I don't want to get too deep into '13, because the call is about Q4, and I apologize for that.

Right. Yeah, very positive development. Thanks for that. As far as the mix, Encore is 80%, 20%, give or take, but your competitors are not necessarily weighted that much towards commercial. I mean is that a fair statement? And is there some sense with [RAS] getting better that more and more of your competitors are doing less of the price drops to win business and getting more disciplined?

Yes, it's hard to say. I mean we've got a decent feel for our competitors, how the commercial residential piece breaks down, but with none of the guys that we compete with being public, it's hard to say with any certainty. But based on what we think internally and what we see in the marketplace, I think it's got to be close or at least similar to the breakdown in the market. But, again, I don't know enough about their approach to the market, other than I'm sure they have their reasons or what have you, I'd love to hear them some time. But I don't understand why you would cut the price to get an order with all the cost. And as you mentioned earlier, the copper miners, as bullish as they are and the volatility that's in the market, it's confusing, maybe a little bit, more so than anything it's frustrating. That's the best answer I can give you on that.

Thanks. And just one final one. Aluminum 5% of sales in 4Q. Is that sort of mix a good metric for modeling 2013-2014, to say aluminum is going to be 5% of your sales? I know you don't want to give forward guidance, but any help into how we should think about the contribution from aluminum in the next couple of years?

Yeah, I would say more specifically, Bob, that aluminum, going forward, will be a little bit bigger piece than 5%.

Okay, thanks very much.

You bet. Thank you for the support.

(Operator Instructions). Anthony Kure, KeyBanc.

Yeah, gentlemen, just had two more questions for you. I guess, when looking at the residential market for the buildout of your wire, when does that typically go into a home? Is that going to be earlier in the process or that will be a little bit later?

Once the concrete is poured, if it's a slab, house walls go up, roof goes on, wire is pulled in. So depending on which part of the country you're in that's affected by weather or what have you, it might be little faster, a little slower, but typically this time of the year the walls are up, the roof is on, and our product needs to be protected from weather, moisture and what have you.

So it's early in the timing of a construction project residentially, but depending on if you're the builder or the seller, I guess, you could change that timing. But basically, it's pretty early. To finish up on a house would take a little bit longer than getting the rough in.

Okay. And then could you provide a little bit of insight around the impact from the new JPMorgan copper ETFs? I know you guys had kind of been out against that and just kind of tell me what you think that impact might be on the copper market?

You know what, I'd love to talk to you about that, but with some things we have going on in the market right now with the attorneys and what have you, I probably should not comment. I'll just give you a little piece.

Okay.

As volatile as copper is today in the market, it's our opinion, basically, that that will increase the volatility, if it's even possible. But we feel it will increase the volatility.

So basically the concept is, if I can ask this, that they're going to be hoarding large reserves of copper, so that will take even more of the supply out of what's available?

Correct.

Okay. All right. I appreciate you making the comments that you can and thank you for answering all my questions.

You bet. Thank you.

Kerry Rigdon, McPherson & Mayberry

Good morning, gentlemen.

Hey, how you're doing?

I'm doing well. Thanks. A quick question on the residential. Are you seeing any kind of trends in specific geographic regions, is it across the board or are there any pockets that are showing a little better metrics than others?

Let me answer it like this. The only area that comes to mind that is not, at least participating in the residential piece is basically the Mid-Atlantic. We've just not seen a whole lot of that area yet. But, again, it could be timing from one month or one quarter to the next, but specifically in Q4 we just didn't see much participation from that area.

Do you anticipate any increase in activity due to Hurricane Sandy? I say that maybe going back to what happened in the Gulf Coast with Katrina and so forth there seem to be a lag effect and eventually when that did kick in you could really kind of see increases based on that. Do you expect, or is that something that you're seeing any hints of currently?

We did. Immediately there was some emergency type shipments to take place and temporary power and there's a lot of things that happened, but the business itself, as far as measurable shipments and orders, really is more spread out over time than it would be in any one quarter. But the answer is yes, as the rebuilding piece picks up and the timing of that again is spread out a little longer term than in any one quarter, if it continues as it is and what we've seen in the past.

Great, thanks.

Thank you.

(Operator Instructions). Tom Brashear, Preston Capital Management.

Morning, Daniel.

Hey, how are you doing?

Doing great. Share with us what indicators you're seeing on the commercial side of -- of building improving there, are you seeing it stable or slowing?

What we saw in Q4, again, was a little bit of copper volatility. If we were in some type of bias, one way or the other, it certainly had an effect on the jobs that we were discussing commercially. So if the bias was on the upside and we had a couple or three days, folks that were ready to go would pull the trigger and place a purchase order. On the other side, when the bias would be down for two or three days on a copper price situation, if they had the luxury of time, they would hold off. But, again, in a bigger picture what we're seeing is that timing in that timeframe at some point the product needs to be shipped and it has to be a decision made, business decision made. So, Q4 was really a little bit better in that sense. That was the feel. The discussions were less lengthy and purchase orders were placed and product was shipped and delivered and obviously installed.

So just to keep it in the Q4 context, the Q4 feeling was, again, it was related to volatility quite a bit, but overall the feel of business was pretty good. We had a few weather events that may have slowed some things down over time, but they'll come back out and the overall feel was it was pretty good.

Very good, thank you.

You bet.

Bob Kelly, Sidoti & Company

Hi, just one follow-up. You referenced a couple of terms, it sounds like there is quite a bit of projects that are just about to move off the sidelines. Could you give us a sense of how big or how strong quoting/bidding activity is? How active is your market in the phases just before we get to the projects being released?

Well, in Q4, we were very active in the sales office, very active with some of the things what we're doing to get in front of the timing of the order itself and there is a lot of things we're doing again before the order happened. So there is a lot of work, Bob, that's gone into the decision-making process on these orders, and it kind of fits into the earlier comments about -- you put this -- you invest your time and effort into getting the job "ready to go" and you might have a competitor swoop in with some ridiculously discounted price level without the knowledge of the investment that was put in prior to -- But, again, in the fourth quarter that was improving. We were working harder and seeing orders come through, shipping them on time. Again, there was a couple of weather-top events that no one can control that may have pushed off a job, because the job site itself just could not physically take the material. But, overall, the feeling was really good in the fourth quarter about the investment of time and effort in getting an order -- or getting a quote really to become an order. And that process, definitely in the last few years has changed, but I think it's changed for the better. There's a lot more value discussion upfront in convincing folks to go ahead and pull the trigger on these jobs that are pent up and -- you know, Bob, there is a lot of activity out there. You travel around, the airports are full, movie theater, parking lots are full of people, restaurants are pretty full. We're getting paid on time. There's a lot of really positive signs out there and you can see it come across the desk as far as business goes. And there is a lot of activity out there, lot of discussion about jobs and it's not so much what if any more. Again, it is more discussions about timing than anything.

Great, thank you very much.

You bet. Thank you.

(Operator Instructions). At the moment I show no questions.

Okay. Well, John, thank you very much for handling the call and the questions and we appreciate the support on the call and the questions are always helpful. Look forward to seeing you guys next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.