Q3 2019 Earnings Call
We will conduct a question and answer session. During the question answer session. If you ever question.
Please press Star then one under Touchtone phone. Please note that this conference call is being recorded I will now turn the call over to Daniel Jones, Chairman, President and CEO , Sir you may begin.
Thank you Sheryl and good morning, ladies and gentlemen, and welcome to the Encore Wire Corporation quarterly conference call.
Stated on Daniel Jones, the President CEO , and chairman of the board of Encore wire.
With me this morning, as Frank Bilban, our Chief Financial Officer.
Our business remains strong as evidenced by our results from the third quarter nine months ended September 30.
Were some key items to note.
Unit volumes increased in the third quarter and yesterday comparisons of 2019 to 2018.
Copper unit volumes increased.
0.2% in the third quarter of 2019 versus third quarter of 2018 and increased 6% in the nine month comparison. The unit volume increase was achieved even though we passed on orders that did not meet our margin targets. Despite the strong U.S. construction market in demand for building or margins.
Well restrained by competitive crushing in third quarter of 2019 versus third quarter 2018.
Gross profit margins fell in concert with the drop in copper prices versus last year's third quarter in first nine months, along with the competitive pressure noted above.
One of the key metrics to our earnings is the spread between the price of copper wire sold in the cost of raw copper purchased in any given period.
The copper spread decreased 9% in the third quarter of 2019 versus the third quarter 2018, while decreasing 2.8% in the nine month comparison.
The copper spread also decreased 3% on a sequential quarter comparison.
The copper spread contributed 9% as the average price of copper purchased decreased 4.2% in the third quarter 2019 versus the third quarter 2018, while the average selling process wire sold decreased 5.9%.
It should be noted that the spreads in the third quarter 2018 were the highest in over a decade. However, we believe the currently strong end markets can support those margin levels.
Mm wire, which represented 7.7% of our net sales in the third quarter 2019.
We continue to enforce our rights under the U.S. trade remedy laws.
On October the 18th 2019, U.S. Commerce Department signed its final anti dumping and countervailing duty determinations, resulting in combining shady CBD duty rates ranging from 81.27.
218 point, 42% aluminum wire and cable imported from China.
The final step in these investigations as a vote from U.S. International Trade Commission, which is not expected until approximately November twentyth 2019.
Yes economy appears strong as this construction activity based on discussions with our distributor customers and their contractor customers. We believe there's a good outlook for construction projects for the next year.
We believe our superior order fill rates and service solutions continue to enhance our competitive position.
We thank our employees and shareholders.
Associates for the tremendous efforts.
Before turning the call over to Frank.
Take a few more moments in comment.
As we announced in September Frank is retiring and stepping down as CFO effective deep at December 31st of this year.
So this will be his last earnings call in that role.
His successor, Bret Eckert is on this call and the transition has been going exceptionally well.
Frank it's been a vital member of our executive team.
Forever Grateful for the amounts contributions made to the growth and success of this great company.
By the time he retires you have been our CFO for 20 years.
He deserves more time to spend with his family playing golf hunting and traveling.
All of US an encore wire wish Frank along and happy retirement.
Although we hate to see framed go delighted to have Brett I'm confident bretts abilities, along with the great leadership team. We have an encore continue unsuccessful path. We've enjoyed Frank take us through our financial results were more time.
Thank you Daniel in a minute will review encores financial results for the quarter. After the financial review will take any questions you may have.
Each of you Should've received a copy of this press release covering encores financial results.
Releases available on our website also or you can call Dennis Mccarthy at 809, six to 9473, and we'll be glad to get your copy.
Before we review the financials, let me indicate that throughout this conference call. We may make certain statements that might be considered to be forward looking.
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 FCC reports a 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 gas including EBITDA.
Which we believed to be useful supplemental information for investors are posted on www encore wire dotcom.
Now the financial results.
Net sales for the third quarter ended September Thirtyth 29 team were $321.2 million compared to 340.7 million for the third quarter of 2018.
Copper unit volume measured in pounds of copper contained in the wires sold increased 0.2% in the third quarter of 2019 versus the third quarter of 2080.
The average selling price of wire per copper pound sold decreased 5.9% in the third quarter of 29 team versus the third quarter 2080.
Net income for the third quarter of 2019 decreased to 16.4 million versus 23.7 million in the third quarter of 2018.
Fully diluted net earnings per common share was 78 cents in the third quarter 2019.
Versus a $1.13 in the third quarter of 28.
Net sales for the nine month ended September Thirtyth were $972.7 million compared to 969 million during the same period in 2018.
Copper unit volume measured in pounds of copper contained in the wires sold increased 6% in the nine months ended September Thirtyth 29 team versus the nine months ended September Thirtyth 2080.
The average selling price of wire per copper pound sold decreased 5.8% in the nine months ended September Thirtyth 2090 versus the nine months ended September Thirtyth 2018, offsetting the unit volume impact on sales dollars.
Net income for the nine months ended September Thirtyth 2019 decreased to 47.6 million versus 53.1 million in the same period of 2018.
Fully diluted net earnings per common share were $2.27 in the nine months ended September Thirtyth 2019 versus $2.54 in the same period in 2018.
On a sequential quarter comparison net sales for the third quarter of 29 team were 321.2 million versus 336.9 million during the second quarter of 2019.
Sales dollars decrease due to all 4.4% decrease in the average selling price per copper pound of wire sold offset slightly by 8.1 unit volume increase of copper building wire sold on a sequential quarter comparison.
Copper wire sales decreased 4.4%, while the price of copper purchase decreased 5.1%.
Net income for the third quarter of 2019 was 16.4 million versus $17.8 million in the second quarter of 2019.
Fully diluted net income per common share was 78 cents in the third quarter of 29 team versus 85 cents in the second quarter of 29 team.
Our balance sheet is very strong we have no long term debt and our revolving line of credit is paid down to zero. In addition, we had $203.9 million in cash at the end of the quarter.
We continue to refine our plans for significant capital expenditures, but these plans remain delayed by issues arising in connection with a proposed new highway project, which may bisect our property.
We also declared a cash dividend during the quarter.
A replay of this call will be available.
The Investor section of our website.
Now turning to flowed back over to Daniel Jones, Our chairman President and CEO Daniel.
Thank you Frank as we highlighted an encore performed well in the past quarter, we believe we're well positioned for the future.
Cheryl will now take questions from our listeners.
Thank you well now begin the question and answer session. If you ever question. Please press Star then one I know touched on phone. If you are using your speakerphone. Please pick up your hands that before pricing any numbers once again, if you'd like to ask a question. Please press Star then one I know Touchtone phone. Our first question comes from Julio.
Merrell Your line is now open.
Hi, good morning, everyone.
Leo flow Julio.
First off Frank congratulations on the retirement.
I Miss him.
Thank you I'll Miss you as well.
[laughter].
First question I have is on average selling prices on the copper side.
They seem to a decline somewhat more than the price of copper purchased.
Can you just maybe parse that out how much of that is due to competitive pricing the timing of price increases.
Versus say, maybe more of a normalization of one dollar amount of the spread.
Yeah, who you all take part of the question. This is Daniel.
You know that's not abnormal for the industry. When you have the volatility that we had in truck quarter.
On the downside typically prices or selling process exaggerated on downside as you lose some traction from comex on copper.
Same is true on the upside we tend to do better.
Bias or trend.
On the upside for sure because it does maybe overcorrect in both directions.
On sale price.
As far as the spreads goal as we outlined.
Our third quarter to third quarter basis.
They did 9% that's a big drop.
And had we had the same spreads in the third quarter of 29 team, but we had and copper spreads in the third quarter and aluminum, although it's obviously most of the copper business.
If we have the same spreads and 29 team that we had in the third quarter of 2018 Julio.
We would have made net of the commissions and.
Cash discounts, we netted it all out we would have made.
34, more sense in earnings in the quarter or above 12, which is remarkably close to the dollar 13 that we made last quarter, which as Daniel emphasized in his comments goes to show that our manufacturing costs, our distribution costs, our DNA cost.
Tend to be remarkably consistent and the real.
You know dealmaker.
Or deal breaker is the spread and that is somewhat beyond our control.
Okay. That's helpful. I guess my follow up for that would be that.
You know if maybe.
Other quarters, maybe to queue of 19, maybe a little bit more reflective of a normalized dollar spread than I mean.
Comex, that's kind of trended up in the third quarter.
In the fourth quarter I should say, yes, how likely already you to get that price came above raw copper back.
Going forward.
Yes. Good question. This is Daniel again Julio.
We had 12345678 almost nine.
Swings of more than five cents one of the swings was 17 cents and eight days in Q3, and so depending on the timing of those swings of comex.
You put a price increase through or the industry puts a price increase through.
To to recoup that 17 cents and then.
You know.
Four or five days business days into that.
You get a drop of 12 cents in the following 10 days and so theres theres, there's timing on those price increases and the discounting.
You know what happened to be.
Basically one competitor in Q3 for whatever reason.
They led down and.
I don't know what their motivation would be or wouldn't be to lead down but.
The minute the copper had a bias of two or three days or a trend. If you recall seven days of trend on the downside.
The discounting was exaggerated.
They were doing it by email and.
Whatever the usual stuff that we see but the good thing is when it turns.
The next week and you get the upside on Comex, It forces and discipline. So.
Speaking, specifically just Q3.
The volatility and.
The.
I don't have.
Be two critical or whatever.
I don't know why they're doing what they're doing but.
It was specific to one competitor that volume was pretty significant and we passed on.
Several orders it just didnt meet the test for us and made no sense whatsoever from a business perspective, but it.
Can't really speak to Q4, yet, but as you mentioned.
Trend on call next is changed some of that the upside normally forces discipline.
Which is a good thing.
Okay got it and just last one from me here is.
On that.
Competitive landscape I mean, just a quick refresher on.
How many of those players that maybe discounting can can do what you guys do in terms of the order fill rates the quick delivery.
The reliability that sort of volume value proposition you guys have from can you just talk about.
Who in that industry can kind of.
Do what you guys do so to speak.
Yes, there's a couple.
You know that can somewhat.
Do those things.
We do things a little bit differently here than our competitors and.
There's only two things that shell building large price and delivery.
Yeah, I've said that forever and it still remains the case and there's things that we're doing that helps us too.
Be able to hold the price and get repeat business. It doesn't go out to quote and those kind of things and so.
We had a good quarter.
78 cents was really good with the volatility that we had again we had.
Eight or non swings of more than five cents a pound on comex within four or five business days and Thats, just a really volatile environment to try to sustain any kind of predicted posted price increase but overall business was good.
There's a couple of guys that can keep up with that there's some that cannot and.
Again, though you know if you get.
One or two of the right folks doing some.
Crazy things run business perspective.
We all tend to catch the disease, a little bit and here. We go so we definitely had some of that and as Frank highlighted.
It was reflected in the spread.
We got a very good control here of what we're doing.
One of the things we fight as we fall in the past is the pricing issue in the market for whatever reason, but delivery at some point kicks in and again, you get a bias or trend on the upside and comex in it.
Forces disciplined on the price side, and then two can deliver and so thats when we really can thrive so.
To do what we do.
Out of one location in service the accounts and our manner.
Obviously think that we're doing the best and I think there's one or two that.
Keep us up on a regular basis.
And maybe.
Two maybe three that lead with price only and have.
Pretty ridiculous delivery.
Got it I appreciate the color.
Thank you I'll hop on Q I would you be names, who we opened I'm looking at the screen and pretty much all of them around here.
So I don't want to say Oh on segments.
Great. Thanks very much.
Our next question comes from Zane Carine. Your line is now open.
Hey, good morning, gentlemen.
Morning.
So first off can you talk about a little bit more on what we're talking about with the competitive pricing pressure and how the softness in copper.
This is a competitive bidding hasn't pathway this quarter as well as a little bit more color on the percent of orders that are not me the targets and margin target you guys have relative to prior quarters, how much of a jump with this and how should we be thinking about this moving forward.
Was there and Thats a mouthful.
From the bottom up the orders as a percentage of the ones that we passed.
Okay.
It's hard to gauge exactly what that percentage would be if it's on a unit.
Or poundage basis.
Nine maybe maybe somewhere between eight and 12%.
Of the overall volume of quotes that we see.
We did an intentional hard pass I'm, just because of pricing and discounting this too deep on the front end.
There's a lot of posturing in the market in Q3.
A lot of.
Loyalty.
Changeover, there's just a lot going on in the market.
From a positive perspective, but again the volatility.
Led to.
For whatever reason.
Some odd behavior from the folks third usually pretty disciplined.
I don't want to.
Go too deep into the names or anything but you have.
You know a swing of 17 cents on comex.
In six or seven business days, and then right behind that you have five days, where swings 12 cents the other way.
It's tough to substantiate across increase from the copper perspective right. So.
When folks we believe it or not we have competitors that we'll post we're comex opens and closes on their website, which is one of the most ridiculous things I've seen in 30 years, but they do it we're not selling copper, we're selling building wire and so when you have the volatility that we have.
And you get a bias or trend on the upside posting comex supports the argument for a price increase.
But the reverse is true on the downside so posting comex on a corporate website basically feeds the frenzy, one way or the other so it's pretty ridiculous in our opinion, but in that.
Orders come by.
We'd love to have them on a delivery basis, our price, but when they're significantly below market levels, and they're trying to outpace or beat the downside pressure on comex.
If it's if the conditions or not.
Met based on our criteria, it's a hard pass and Thats not unlike what we've done in the past and so.
You look at Q3, and you do a little mapping on where comex opens and closes starting we mid week in in the week, you've got seven or eight cents swaying within that week, our folks did a fantastic job of maintaining that discipline in the marketplace and again, we look.
He said and or followed four or five price increases in Q3, and just again, if you lose copper you lose the supported that price increase and so that's what led to the hard pass on some jobs I want to every order that comes by here if its with the right customer and so.
It's hard to watching go buy but listen if they're not up to our standards.
It's a hard pass.
There's a good chance, we'll get it back anyway, when the deliveries not there.
We should good chance, we'll get that order back anyway.
Okay. Thank you for that business is good.
Thank you there and then are there any particular market there are pockets in the U.S. right now with a stronger more robust demand for your products or is it doesn't general strength from the market.
There is some really good pockets you know as Texas market is strong the Pacific northwest is pretty strong.
South East is strong and.
You know coming out of some of the weather issues that occurred in Q2 and started out.
Q3, the Midwest is picked up.
Theres really not a week area. The northeast is going pretty well for US right. Now I mean is really just not a dead spot.
They're all doing pretty well most of major metropolitan areas all have cranes in the air.
Movie theaters your full airports are full gas stations are busy.
I don't know where there's a.
I don't know, there's a slow spot or did areas. It all looks pretty good in my travels.
Okay. Thank you and then one final one here.
Can you talk a little bit more about the highway building plans, how that in preceding relative to your expectations and your hopes.
Yeah, it's going pretty well I had at a very productive meeting yesterday.
We have acreage to the north than we have acreage to the east and this particular project is.
Involves the property to the east and so we're hashing out some details and had a really good.
Working meeting yesterday, and it's progressing like it should and.
Phil.
Very confident that will have.
You know.
Everything wrapped up by the end this year and move forward.
Great.
Thank you gentlemen.
Yes, Sir thanks. Thanks.
Our next question comes from Tom from Preston Capital Management. Your line is now open.
Thank you good morning, gentlemen.
Brian .
Thank you for your service, it's been a great pleasure working with you for the past 20 years.
Oh, you, how and and so all of you certainly nationwide and specially locally.
Retiring I'm not dying.
They'll come soon [laughter] look forward to that.
My question was on competitive pricing has been answered already so thank you.
Thank you Tom.
Our next question comes from Bill Baldwin from Baldwin Anthony Your line is now open.
Yeah, good morning, everybody.
Okay.
Can you talk a little bit.
Our offer any color to us about.
The aluminum business you know when you talk on volumes and then you talk spreads and things of that nature and.
I don't expect to get into that.
That detail it to do on copper, but can you give us a field, where the alumina benda stands today versus year ago in terms of.
I am in spreads and.
But you're saying.
And as well comes in November is that kind of effect.
The spreads in that business in your opinion.
Hey, Bill this is Daniel.
The aluminum business for us has always been good.
There's times when it's been great and then we ran into a situation competitively we're wasn't so good.
It looked super sketchy and suspicious to us we just some investigating and.
That led to the petition that we filed against.
The government term cheaters and.
That's the China update that we gave in in the prepared statement.
Where's that today, it's better there were some post.
Petition.
Improvement.
You know, it's it's not where we'd like to see it.
Yet I think it's headed into right direction.
I feel I feel.
Good positive about.
All of our meetings that we hadn't DC, we've got the right team in place and I think thats moving around direction.
Aluminum is a good.
Part of our business.
As you know were primarily copper I don't think it's any secret that.
We do you know.
A substantial amount aluminum into market and we've spent a tremendous amount of money here from the service side to be a substantial aluminum.
Yeah.
Manufacturer and we want to do great things from service piece.
Then we'd like to see the return on that significant investment.
And Thats the reason for the petition that we filed but.
To date, it's better.
It's not where it needs to be but it's headed in that direction.
That's good color I appreciate it.
And Frank just a housekeeping can you indicate what the LIFO was in the UK.
LIFO in the third quarter of 29 team was a 4.4 million dollar decrement to cost of sales.
Okay.
Yes.
And.
Yes.
In terms of your.
Your your business or are you beginning to see or do you think the.
Outlook is gonna be a improved on the residential part of the business as we look at 2020, perhaps latter part of this year, but more out into 2021.
Spring season kicks in and so forth.
He that business looking better tell you.
Yes, we this is Daniel again, Bill we've seen some.
You know, there's some good signs on residential piece as.
As you know in our first.
Three or four years in existence, we were 100% residential.
Right.
We're entrenched in that market.
We feel like we're doing a good things there.
We've got a real good.
Manufacturing.
Situation going on with that product category were strong on the delivery piece on the service side, we've got really good.
And.
Distributor partners in the market.
And we're seeing positive signs that I think.
Yes.
In a good spot.
[noise] when you think with the mortgage rates the way. They are we might see we are beginning to see some improvement.
Some of the start members.
I presume you Sir that business nationally. This like you do that Nonres business.
Right. Yes are all yes are all 50 states for us on the residential right.
Thank you very much.
Sure. Thanks this for Bill.
Our next question comes from Kerry Rigdon. Your line is now open.
Good morning, gentlemen, I really don't have a question more of a statement want to echo to send them as they've already been.
Been made and thank Frank for.
His commitment to the highest degree of professionalism, it's been a true pleasure.
Right back at you carry thank you.
[noise] [noise].
As a reminder, if you have a question. Please press Star then one on your Touchtone phone.
And speakers at this time I show no further questions.
A question from Steve Garvin, Steve Your line is now open.
Hi, guys. No question I, just want to Echo, what Tom and carried said Frank than a pleasure working with you over the years and look forward to catching up when maybe we could do some fish center.
Or maybe.
Maybe up around a golf or something but congratulations.
Thank you and I may have to drive my wife up to see beautiful Niagara Falls.
[laughter].
In June or July , though which is.
Yeah, you can give us a tour that guy.
All right. Thank you.
Thank you.
And speakers at this time I show no further questions in queue.
Well, thank you Sheryl for running the call and thank you for the participation in the questions look forward to the next call.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.