Encore Wire Corp (WIRE) 2013 Q4 法說會逐字稿

Welcome to the Encore Wire fourth Quarter Conference Call. My name is Helen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Daniel Jones, President and Chief Executive Officer. Mr. Jones, you may begin.

Thank you, Helen and good morning ladies and gentlemen and 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.

Continuing the positive trend we saw developing earlier this year; the fourth quarter was encouraging to us from both the volume and margin perspective. Unit volumes were up in all building wire products. We believe our expansion of product offerings to our existing customer base over the last several years has been critical to maintaining and perhaps boosting our market share as capital expenditures helped to drive increase sales.

As we've repeatedly noted, one of the key metrics to our earnings is the spread between the price of copper wire sold and the cost of raw copper purchased in any given period. The spread increased 3.7% in 2013 versus 2012, while our copper unit volumes shipped in 2013 increased 9.5% versus 2012. Along with the continued success of our aluminum building wire launch, the increase in copper unit volumes and spreads helped drive earnings per share in 2013 to the second highest yearly total ever.

Our new aluminum building wire plant finished its first full year of operations during which we sold $79.8 million of aluminum building wire. We also believe our ability to perform on aluminum wire has resulted in increased copper sales.

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 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've 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 stockholders for their continued support.

Frank Bilban, our Chief Financial Officer, will now discuss our financial results. Frank?

Thank you, Daniel. In a minute, we'll review the financial results for the quarter. After the review, we'll take any questions you may have. Each of you should have received a copy of our press release, covering Encore's financial results. This release is also available on the Internet or you can call [Melissa Robby] at 800-962-9473 and we will 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 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 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.

Net sales for the fourth quarter of 2013 increased to $293.5 million compared to $258 million during the fourth quarter of 2012. Unit volume, measured in copper pounds contained in the wire sold, increased 18.4% in the fourth quarter of 2013 versus the fourth quarter of 2012. The volume increase was offset somewhat by a 6.8% decrease in the average selling price per copper pound sold in the fourth quarter of 2013 versus 2012. Sales prices declined primarily due to lower copper prices, which declined 8.6% versus the fourth quarter of 2012.

Aluminum building wire sales continued their growth pattern, constituting 8% of net sales dollars for the fourth quarter of 2013 versus 5.1% in the fourth quarter of 2012.

Net income for the fourth quarter of 2013 increased to $11.2 million versus $5.2 million in the fourth quarter of 2012. Fully diluted net earnings per common share were $0.54 in the fourth quarter of 2013 versus $0.25 in the fourth quarter of 2012. Net sales for the year ended December 31, 2013 increased to $1.158 billion compared to $1.072 billion during the same period in 2012.

Unit volume measured in copper pounds contained in the wire sold increased 9.5% in 2013 versus 2012. The volume increase was offset somewhat by a 4.7% decrease in average selling prices for copper pounds sold in 2013 versus 2012. Sales prices declined primarily due to lower copper prices, which declined 7.5% in 2013 versus 2012.

Aluminum building wire sales continued to grow, constituting 6.9% of net sales dollars during 2013 versus 3.6% in 2012.

Net income for the year ended December 31, 2013 was $46.9 million versus $19.8 million in 2012. Fully diluted net earnings per common share increased to $2.26 per share for the year ended December 31, 2013 versus $0.91 per share in 2012.

On a sequential quarter comparison, net sales for the fourth quarter of 2013 were $293.5 million versus $309.9 million during the third quarter of 2013. Copper unit volume decreased 6.7% on a sequential quarter comparison.

The fourth quarter is generally a slower quarter in the construction and building wire industries. Net income for the fourth quarter of 2013 was $11.2 million versus $13.8 million in the third quarter of 2013. Fully diluted net income per common share was $0.54 in the fourth quarter of 2013 versus $0.66 in the third quarter of 2013.

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 $36.8 million in cash at the end of the quarter. We also declared another cash dividend during the quarter.

This conference call will be available for replay, as Helen mentioned earlier, after the conclusion of this session. If you wish to hear the taped replay, please dial 888-843-7419 and enter the conference reference number 6194224 and the pound sign.

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

Thank you. As Frank highlighted, Encore performed well in the past quarter and we believe we're well positioned for the future.

Helen, will now take questions from listeners.

(Operator Instructions) Brent Thielman, D. A. Davidson.

Hi, good morning guys.

Hi, Brent.

Frank, can you give us the percentage difference in spread for Q4 versus last year and in Q4 versus the third quarter?

Sure. In the copper spread, Q4 versus Q4 of last year, we were just down marginally 1.7%. So it's [above] flat and on a sequential quarter basis, was that your second question?

Yes.

It was down about the same, 1.5%.

Okay. So I mean the lower gross margin on a sequential quarter basis that's probably a little bit to do with spread and just a little less volume throughput, is that fair?

It's fair, yes.

Okay. And then the aluminum wire continued to grow pretty quickly here. Can you kind of remind us the current metal prices, what sort of revenue capacity you think you have in there right now?

Really don't want to talk about capacities over there. I'm looking at the attendee list on the screen, Brent, and even now they don't identify their self. It looks like all of our competitors are on there. But current metal prices, we've got some room. We ended up -- as Frank mentioned, or in the numbers, we mentioned about $80 million in revenues. There is plenty of room there. I'm not concerned at all about the capacity.

Okay, that's fair. And then just lastly, do you have the mix between resi and kind of non-residential in the quarter?

In the fourth quarter, the residential wire in the copper sales constituted 21.3% of copper pounds.

Got it. Okay. Thanks guys.

Thank you.

(Operator Instructions) Bob Kelly, Sidoti & Co.

Hi Daniel, hi Frank, good morning.

Bob, how are you? Good morning.

Great. A question on the volumes. Two consecutive quarters now of high-teen volume growth. Haven't seen that for couple of years now. Is this real demand flowing through due to better coordinating and bidding activity on the field? Can you just talk about the inflection point you saw in second half of 2013 on the volume side?

That's the feel, Bob. We're going into the quotes with more information really than before, real information, real data to help to get a decision or get a business decision made on the quotes and the lead time from quote to purchase order has shortened. The work leading up to the actual quote has stretched out a little bit, but the actual quote to purchase or lead time has shortened a little bit. So it feels like it's real growth. As you know, we are cautious about talking about it too openly, but the business itself looks like it's going along pretty well. It definitely feels like it's positive.

Great. Good to hear. As far as -- thus far in 1Q weather has been pretty poor most of the country. Has that impacted your business in a material way?

It has. In the transportation side, losing trucks going out for a day or two or actually trucks even getting empty and coming back this direction, both because anything heading to the East, there were issues with getting things delivered and actually getting trucks back in to get them reloaded. But overall, the timing of the weather issues in February I think actually ended up -- maybe complement some of the things we were doing, but specifically to the fourth quarter, what didn't happen maybe in late October and November weather wise, surprisingly December was pretty strong.

Okay, fair enough. The aluminum business has been really solid growth in 2013. What has been the response from your competitors? Are you seeing new entrants into the aluminum niche? Is it pretty steady on the competitive front there? Just curious to what's going on there, given your success in 2013.

Yeah, very fair question. In the beginning, we were accused of all sorts of things from the competitors that are actually in the field with customers and making calls and whatever. They'll confirm that that's not our approach to business. For the ones who really aren't involved and somewhat out of touch with the market and the customers themselves, there were all kinds of excuses made. But at the end of the day, the model is the same for us. We offer a very quick turnaround on the orders, a very high service level commitment to the customer and distributor and for those reasons we want a fair price for that.

But, overall, not much different than what you normally hear in the market. Most sales people believe that they lose an order because somebody else had a better price. They think they win the orders because they have the best relationship and that's typical for sales people. But in the end, aluminum is doing the things that we wanted it to do in our opinion. It's not that we're out there trying to take over the aluminum market. We just don't want to lose the copper business, it's typically attached to an aluminum order.

Great. And one final one, spreads, you had said in the release up 4% year-on-year. Could you give us some idea of where spread is relative to what you've done historically? I know you had some pretty banner years back in 2005, 2006. Where is spread now compared to the peak?

It's still -- if you look at the peak, if you want to look at our peak quarter of Q2 of 2006, when spread was above $1.90 a pound, I can tell you we are significantly short of that. As you know, we do a lot of detailing of our spreads in terms of percentage increases and decrease. Again, to Daniel's point of who is looking on the call, we don't announce exactly what the dollar spread is and not to be coy, Bob, but spreads on a historic basis are slightly above average and our earnings are reflecting that.

We always think they should be a little better and as we've consistently indicated, if you gave us a choice between increasing our sales 10% next quarter or increasing our spreads 10%, we will always take the spread. So, spread is where it's all about. But on a historic basis, we are doing good, not great. Is that fair?

Yeah, great answer. Thanks very much guys. Keep up the good work.

You bet. Thank you.

Kerry Rigdon, Mcpherson & Mayberry.

Thank you. Good morning.

Hi, Kerry.

Real quick question. Could you comment on how the more all-inclusive quarter trend is having on margins, is that having any kind of material impact?

Well, I guess it's relative. Any time we think we can get a half a point or a point on our volume of sales, Kerry, that's -- it's significant to us, but I don't know that we're able to charge any type of premium, if that's what you're asking. But it certainly allows us to not have to match some road short line competitor that may be off the price sheet by 8% or 9% low. If that helps answer that. We just don't have to match the lower numbers, but we don't necessarily get a premium either.

Not so much as a premium, but are you seeing, because of the larger size of the order that it becomes a more [efficient] order, thus maybe your expense side is lower, which is possibly impacting your margin?

I think you could make an argument for that. Yes.

Okay. Thanks.

We have no further questions at this time. I'd like to turn the call back to Mr. Jones for closing remarks.

Well, thank you Helen and thank you folks for the participation in the call and look forward to seeing you guys next quarter.

Thank you, ladies and gentlemen. This concludes Encore Wire's fourth quarter conference call. Thank you for participating. You may now disconnect.