Q4 2019 Earnings Call
Welcome to the Encore wire reports fourth quarter full year Twain actual results conference call.
My name is Adrian and help your operator for today's call at this time, all participants kinda listen only mode later, well conduct a question and answer session.
During the question answer session. If you have a question. Please press Star then one on your Touchtone phone.
No. This conference is being recorded I'm not trying to call Daniel John.
And your chunks you may begin.
Yes, ma'am, thank you Adrian and good morning, ladies and gentlemen, and welcome to the Encore Wire Corporation quarterly conference call.
Daniel Jones, the President Chief Executive Officer, and Chairman of the board of Encore wire with me. This morning, as Bret Eckert, our Chief Financial Officer.
The business in the markets for our products remained strong as evidenced by 4.1% increasing unit volumes in 2019 compared to 2018.
The unit volume increase was achieved even though we continue to face vigorous competition in the marketplace.
But the strong U.S. construction market and demand for building wire margins were restrained by competitive crashing into fourth quarter 2000, and not gene.
Versus the <unk> fourth quarter 2018.
Gross profit margins fell in concert with the drop in copper prices versus 2018 fourth quarter and full year basis, along with the competitive pressure noted above.
What are the key metrics to our earnings is the spread between the price of copper wire sold and the cost of Walcott the purchase to need given period.
The copper spread decreased 11.2%.
Fourth quarter 2019 versus the fourth quarter 2018.
While decreasing 4.9% in the full year comparison.
The copper spread contracted 11.2% as the average price of copper purchased decreased 2.8% in the fourth quarter 2019 versus the fourth quarter 2018, while the average selling price of worst <unk> decreased 5.8%.
It should be noted that the spreads in the fourth quarter 2018, with a higher system over a decade.
However, we still believe he currently strong end markets can support those margin levels again.
In aluminum wire, which represented 8% of our net sales in 2019.
We successfully enforced our rights under the U.S. trade remedy laws.
As a result of the international Trade Commission spinal affirmative decision.
<unk> imports of aluminum wire and cable from China will be required to pay anti dumping duties at rates ranging from 47.83% to 52.79%.
Plus countervailing duties at rates ranging from 33.44%.
265.63%, depending upon the Chinese export or supplier.
You asked economy appears strong and as is construction activity based on discussions with our distributor customers and their contractor customers. We believe there was a continued good outlook for construction projects for the next year.
We believe our superior order fill rates continue to enhance our competitive position.
As orders come in from electrical contractors, the distributors can count on our order fill rates to ensure a quick deliveries from coast to coast. We also have some exciting news to share about our expansion plans, but first let's cover our financial results Brett.
Thank you Daniel.
In a minute, we will review encores financial results for the quarter in your ended December 30, Onest 2019.
After the financial review, we will take any questions you may have.
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.
In order to comply with securities 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 both discussed today.
I refer each of you to the company's FCC reports and news releases for more detailed discussion of these risks and uncertainties also reconciliations of non-GAAP financial measures discussed during this conference call. The most directly comparable financial measures presented in accordance with gap, including EBIT da which we believed to be useful supplemental.
Information for investors are posted on our website.
Now the financial results.
Net sales for the fourth quarter ended December 30, Onest 2019 were 302.3 million compared to 319.7 million for the fourth quarter of 2018.
Copper unit volume measured in pounds of copper contained in the wire sold decreased 1.6% in the fourth quarter of 2019 versus the fourth quarter of 2018.
The average selling price of wire per copper pound sold decreased 5.8% in the fourth quarter of 2019 versus the fourth quarter 2018.
Net income for the fourth quarter of 29 cream team decreased to 10.5 million versus 25 million in the fourth quarter of 2018.
Fully diluted net earnings per common share were 50 cents in the fourth quarter of 29 team versus the dollar 20 in the fourth quarter of 2018.
Net sales for the year ended December 30, Onest 2019 were 1.275 billion compared to 1.289 billion for the year ended December 30, Onest 2018.
Copper unit volume measured in pounds of copper contained in the wires sold increased 4.1% in the year ended December 30, Onest 2019 versus the year ended December 30, Onest 2018.
The average selling price of the wire per copper pound sold decreased 5.8% in the year ended December 31st 2019 versus the year ended December 30, Onest 2018 more than offsetting the unit volume impact on sales dollars.
Net income for the year ended December 30, Onest 2019 decreased to 58.1 million versus 78.2 million in the same period in 2018.
Fully diluted net earnings per common share were $2.77 and the current period versus $3.74 and the same period in 2018.
On a sequential quarter basis.
Sales for the fourth quarter of 2019 were 302.3 million versus 321.2 million during the third quarter of 2018.
Sales dollars decrease due to an 8.1% unit volume decrease of copper building wire sold on a sequential quarter comparison.
Copper wire sales prices increased 1% or the price of copper purchased increased 1.4%.
Net income for the fourth quarter of 2019 was 10.5 million versus 16.4 million of third quarter of 2018.
Fully diluted net income per common share was 50 cents in the fourth quarter 2019 versus 78 cents in the third quarter of 2019.
Our balance sheet remains very strong we have no long term debt and our revolving line of credit is paid down to zero.
In addition, we had 231 million in cash at the end of year. We also declared a cash dividend during the quarter.
A replay of this conference call will be accessible in the Investor section of our website.
I'll now turn the floor over to Daniel Jones, Our Chairman, President and Chief Executive Officer, Daniel Thanks, Brett as we highlighted encore performed well in the past quarter before year basis. We believe we're well positioned for continued growth in future. We also have some news to share about continued expansion plans, which we expect to proceed in two phases.
Phase one will began in the first quarter 2020 with construction of a new 720000 square foot facility located the north end of our existing campus.
Facility will act as a service center modernizing our logistics to allow for increased throughput provide the bandwidth necessary to capture incremental sales volumes.
One allow us to compete at a higher level in the marketplace, while further strengthening our industry, leading customer service in order fill rates.
Aspect to complete construction in the second quarter of 2021.
Phase two of our expansion plans will commence following phase one and we will focus on repurchasing our existing distribution center to expanding manufacturing capacity significantly and extend our market reach phase two completion is anticipated in 2022.
It's an exciting time from cores employees customers and stakeholders, we've been under construction since inception, we continue to grow today.
Our two phase expansion plans will extend our reach an increased manufacturing capacity to meet the growing needs of our customers. We anticipate total capital expenditures to range from 85 to 95 million in 2020.
70 to 90 million 2021, and 60 to 80 million in 2022.
Our strong balance sheet and ability to consistently generate high levels of operating cash flow should provide ample allowance to fund planned capital expenditures in closing.
We announced yesterday that Don Courtney is retiring from our board after 31 years of outstanding service.
You will serve the remainder of his current term on the board will not stand for reelection at the company's 2020 annual meeting of stockholders.
We've identified individual that bring diversity to our board with more information forthcoming in our proxy filing in March.
We thank our employees and associates for the tremendous efforts. We also think our stockholders for their continued support.
We'll now take questions from our listeners Adrian.
Thank you well now begin the question and answer session.
If you have a question. Please press Star then one on your Touchtone phone.
If you wish TPV listen the Kim please pass to sign or the ASCII.
You can use the speaker phone you may need to pick up the first question. The numbers. Once again, if you have a question. Please press Star then one on your Touchtone phone.
And our first question Qasim Hotel room era of Sidoti Your line is open.
Hey, good morning, Dan Good morning, Brett.
Marty Leo.
As far as the fourth quarter wanted to ask if you have seen any inflation in many of your in any of your semi fixed components, such as labor overhead or maybe on the cost of materials other copper and and if so where any of those kind of notable on a year over year basis.
We had an increase.
In labor.
It took us a few increase price increases to work that and get that covered but yes labor was more expensive.
We saw some increases in benzene.
And then you also.
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Had something to lesser extent, we had some increase in diesel fuel there were some things that.
Ticked up in the quarter that we just weren't allowed really in the market.
To get those price increases to pass through.
Okay. That's helpful.
Kind of turning to the capital allocation.
And what you're doing there I mean.
Can you maybe talk about what that you service Center does for you from a logistics standpoint are there any efficiencies that.
Might be able to help you bring down costs and if so maybe what would those be.
We're in the process now obviously.
Trying to find a lot of some of those numbers, but.
We're looking at turn in the orders much faster than we currently are our fill rates running.
Right at 100% on a consistent basis.
Really tip and turn and.
Meeting the demands of the customers today in the field.
On a speed basis and reliability basis is what we have to have more room for.
Obviously.
These two will be as quickly as possible right behind it.
Along with our.
Consistent upgrades to existing equipment, we're going to add some capacity in the.
Going deal distributions and with more capacity.
Got it and.
Any color on what the product lines would be that you'd like to expand capacity for would be.
Something in the current portfolio or maybe something adjacent to we currently offer.
There will be.
Some additions, but it will all be under the same umbrella.
We're still consistently servicing.
The electrical distributor market.
The requirements in the field.
For the speed reliability piece, it's worked in service and we'll address and maybe additional capacity will give us some machine time and some flexibility to add.
Some fringe products that come up from Tom Tom on the job sites that are necessary from service standpoint.
Got it.
Thanks for taking the questions I'll hop back in Q.
I appreciate you thanks and support thank Julio.
Your next question comes from Brent Thielman from D.A. Davidson Your line is open.
Great. Thanks, good morning.
Hi, Brad Brad.
Hi, Daniel I guess now that you're able to speak a little more openly about these investments that you can you talk about why these reprioritize there were other things you could be doing with the cash and.
How do we start to think about the financial implications of that.
Well the markets demanding our service.
To our existing customer base is pushing us in this direction. There's no question the speed reliability piece that comes from.
The room to move and the services that are in addition to just the product itself the required today to handle these accounts.
Some of the end user.
Requirements are coming in.
We need more space to move removing a lot faster with orders you can see the finished goods turns that we're putting out.
I like 12.
Gene Fourteens too fast.
It's really a speed reliability.
Measurement to continue to.
Compete and try to maintain that one or 2%.
Premium that we shoot for in the marketplace.
We were successful in DC.
In the fourth quarters I'd like to have been but.
We clearly have to have some.
Some bandwidth for speed and reliability on these on these end user job sides to continue to compete.
And do you think bids can help you capture additional premium over what you've done historically and also do you think you can capture additional market share with us.
We do.
We think that if we continue to.
Service the way that were able to do and the improvements that were.
Investing in we can potentially keep these things from going out to bid.
On an auction Todd basis, and maybe hang onto a point or to the market is changing its dynamically changing.
Only two things that sell building wire. So does for 30 years, its its price and delivery and we the prices the easy one anybody can cut the price. We're after the delivery side to kind of maintain a one or 2%.
Advantage in the marketplace.
Okay and are there are pockets of the country I.
I mean, historically I've always thought of encore is able to hit really all areas of the country, but their pockets that you feel your underpenetrated. This would allow you to reach a little further entail.
There is a couple of geographical areas that we don't do as well as we would like and we have made some strategic changes in 2019 it should.
Hey off for Us in early 2020 and.
We are going to have to have that speed reliability.
You know access to some flexible machine time access to some distribution and service time to me.
It's it's some of the unpredictable.
Product category surprises if you will on some of these job sites that are not necessarily.
The planning and the volume that comes from.
Some of that is a little less predictable. So we're we're building in.
Wait to support a couple of those areas that that speed reliability is not what it should be from our perspective and so it will definitely help us in a couple of years I want to name them, specifically, but there are too.
They are both top.
Five or six.
Consumers in the country area wise and so it will definitely help us.
Yes, Okay, and then just on the quarter itself I mean, looking at the average selling price down around 6% gross margins.
I thought I guess, it all kind of implies competitive conditions got pretty bad.
This last quarter can you talk a little bit more about what happened one bad actors that of actors and what what went on there.
Yes.
What we saw Brett is.
Early October 1st three or four days in October yet comex at about 250 mid 250 to 54, I think is where it was and then.
As it continue to rise historically, that's a fantastic event for US you put the price increase out in front of that we were able to do that.
Mid October in the low to 60.
To 63 to 65 range on Comex.
And that was basically the last successful price increase that we were able.
To hang onto and.
You know unit up the month in October Comex was in the mid to high to Sixtys and you start off November around that range with price increases that didn't stick because in went from 262.
About a 260 number.
You lose the ability to hold that price increase that was announced and you go back to discounting at old levels and then it runs right back up into the 270 range. So you start the process over again put out a price increase announcement in roll into December in the low two sixties.
Mid two sixtys and we're going around to 17.
You end up finish it up.
I think the December high was to 86, yet can you got 30, some odd sense of volatility from the first week of October to Christmas day, basically when everybody kind of.
Stops the selling or what have you and.
It really wasn't a volume issue as much as it was you just had cost rod in your face going up on a consistent basis, and just know traction on the price increases whatsoever and.
I don't know that I should name.
One or two of the bad actors I mean, I think there is only five or six of us left in the industry really but.
It was more of a timing I think.
I think is more of the timing of the way the volatility and Comex was hitting you announced a price increase and the day you announce it you lose six or seven cents, a pound and comex you just don't have the ability to hang onto that price increase and towards the end of the year. The some inventory maneuvering.
Posturing with maybe some of the folks in the market what have you for year end programs or what it might be but.
It was pretty brutal and again it was not relative to the feel in the market to fill in the market is we're very busy in shipments are.
Trucks are full and people are paying their bills on time and you get to we're in a word a busy time and that did not match. The lack of discipline. If you will in December I mean at the risk of wining. When you look at Comex going from 254 to 286.
And you are able to get a four may be a 5% price increase in early October let's just not just that's on sustainable and Doug. It Doesnt cover the cost and you do you catch the disease with the industry pellet need it.
And that's kind of what happened in in the fourth quarter.
That's helpful commentary I appreciate that Daniel I guess my last one is particularly as you think about this market dialogue you have with your customers contractors distributors and so forth how how did the environment feel this year, maybe relative to the last couple of years at this point.
And does it feel like market's going to be pretty busy. This year is bigger than last couple of years setting aside the year industry trends itself.
It does from the perspective that we have we're spending more time and there's more dialogue back and forth with the end users or and distributor partners on planning.
You know, it's it's matured well past the cycle of just.
Check in three or four prices and and we want the lowest one in the marketplace those days.
Our.
Hopefully behind us for the most part but.
Theres a lot more planning going into.
The job site itself and.
As far as having the timeframe from when you quote something or bid something to one that actually becomes an order.
That's narrowed quite a bit and so when you have those.
Conversations ongoing and you invest some resources on the front end going into the space.
Massive jobs that are coming out of the ground.
It's actually works something today in the past it might be.
Auction, one way or the other but.
Through lack of service.
In the second half of 20, not teen specifically we saw some.
Some real service issues in the marketplace.
Both quality and delivery and whatever and so we've got some people's attention I mean in the industry and it did swing the pendulum little bit in favor of the delivery side versus just the low price.
Okay. Thanks, so much of the commentary I appreciate it.
You bet. Thanks appreciate it.
And as a reminder, nets. The Q. Please press Star then one to ask a question.
Your next question is to Bill Baldwin Crescent Your line is open.
Hi, good morning, Daniela Brett.
The Sir.
Bye.
Couple of housekeeping items hair.
Can you indicate to us what the LIFO.
Situation was for the fiscal year 2019.
Bill This is Brad so LIFO was pretty much the non event. It was a lot of 500000 dollar.
Decrease to.
Cost of sales.
For the year.
Okay.
And can you tell us Brad.
How much of your.
Shipments went into the residential markets.
And the Q4.
And then for the full year.
Sure Bill so on on up on the Q4 basis is just sort of.
21% and then on a full year basis it was about.
21.8%, so pretty consistent okay.
Pretty flat.
For year end tighter.
And.
Daniel.
How do you decide time wise plan to announce a.
A price increase.
Is that a function of copper baby copper prices or is that a parts to that they have a week or.
What dictates the timing on announcement of a price increase.
Yes, or a lot of the timing has to do.
With any type of cost not just copper.
But as you know throughout the years.
We'd love to just put a price increase job because we think we deserve it.
Without the support of copper Comex, it's super visual in the market as you know.
Without the bias or the trend on the upside on the consistent basis.
They just don't stick.
Go back over the years.
Point out non copper related items.
Certainly help but for the most part in general you have to have a trend or a bias with comex.
The Danes following the announcement of the price increase.
We we have.
It's a pretty quick.
Mechanism to get that price increase visually.
Accepted in the marketplace, but the actual.
Execution of the orders.
Yes.
For us.
And I want to go too deep into this but.
For us we don't have.
Forwards.
Forward pricing with folks unless it's off the normal price sheet path in some manner, but.
For us it's a daily situation I mean, we look at each day, where we are.
What has a lot to do with the market itself and Intel in the market as you know.
There's four or five of us here.
Include me the travel with customers quite a bit we have customers into the office several a week and.
The discussions back and forth and whatever about market conditions.
Each time, we see a cost creep or.
Heading into.
Busy time frame, there's a lot of deals into it.
Bill, but the timing of itself once you post.
That price increase.
I mean, you can I have to set let it.
Settle in minutes, sometimes it's a quick answer.
Sometimes it takes a couple of days, maybe three days of pretty strict discipline.
You know you can imagine the way some of the calls with goal but.
It's that two or three day window, where you have to have the support.
That's visual each day of comex copper of a bias or trend.
Unfortunately in Q4.
It will for maybe five price increase attempts that once they were put out.
We lost six or seven cents.
Pretty quickly on comex right behind it in the next two or three days after the increase and that just undermines the price increase that you put out in the market for US specifically as you know in the past will sit and wait and see what happens but.
For some folks that are super fast to pull the trigger and not just go back to the old sheet, but they'll actually discount further.
That issue has existed for 31 years I don't know how to correct what other companies do or don't do but.
Again, we used to have 30, some odd competitors.
So I guess it takes care of itself in the long run.
Well I appreciate the insight there Daniela.
I know it's difficult to call talk on these calls because you've got your competitors aren't here.
Yes, Sir.
A lot of importantly, none of these other competitors are probably we don't get to see if any of their data.
Right and.
The way they perform and.
I don't marketing comment or not but the way they perform in the marketplace.
Thank you very they've got a lot of unused capacity out there.
Your your person that the same is try to satisfy your customers on a timely basis services and these guys are out there to netscout unlock copper prices are going up.
I mean.
Have they got a ton of excess capacity that they got to fail.
You have any feel for that.
Hi.
As far as I know all plants are running I don't know who has a ton a.
Capacity, maybe they're trying to run to some budget number but I don't know I mean, I don't know I mean, it's been this way from okay. So.
It's just hard to get approval from our capacity is because you don't have any property numbers there. So.
I understand thank you for your time and.
Congratulations on your capital projects there.
It seems to me like Ted Daniela you might not use the word but looks like to me. This is the transformational event or walk for encore wire as far as like it out over the next that five to 10 years.
Yes, so we're pretty excited about it bill I appreciate the support Yep.
I would think so.
Your next question comes to Julio Amira Sidoti Your line is open.
Hey, Thanks for taking the follow up just how should we think about incremental sales volumes post expansion in 2022.
Should that kind of allied to grow a certain percentage kind of above market or or should I think about that as an incremental X amount of units per year.
Well.
I'd like to stick to 29 team in Q4, if we can and I don't want to say too much about.
Anything exact yet.
We've been Super cautious about putting this news out to begin with.
But as close as I can give you two a fair answer Julio is.
We're going to go after.
Some areas, where we think we can do a fantastic job and make a little bit of money.
Yes.
We're not interested to get larger and poor that's not the case, we're going to we're going to use the service center for speed and reliability.
I'm going to pick up our pace on turning these orders around and the reliability piece, we're pretty good that we're going to be great at.
As far as the additional capacity that we add in the existing distribution center building.
It's going to be under the same umbrella that we currently operate.
With a few fringe items to add to that service piece, which allows us to charge a little bit more in the marketplace.
Historically, we've been able to be one maybe 2%.
Premium in the marketplace for that service and that delivery.
Thats going to be our approach again, we're not going to do is going in the marketplace and try to gain any type of volume in some standpoint from cutting prices.
30 years of watching other people do that it just doesn't work that way. So it's more on the speed and reliability piece in phase one.
Flexibility of additional machine time in phase two with some added fringe products and we're hoping that those today.
Based on the facts as we norm today.
We think we can pick up a couple of percentage points on the existing and the new volume that will be picking up.
Fair enough. Thanks for taking the questions and the best of luck in 2020.
Yes, Sir thank you.
And we have no further questions I'll turn the call back for final remarks.
Okay.
Brett you have anything.
Adrian Thank you for handling a call. We appreciate the support of you folks have been pace.
While we answered the questions. Thank you to tuck in export.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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