Q1 2020 Earnings Call

[noise] welcome to the Encore wire reports first quarter results Conference call. My name is Adrian and I'll be your operator for today's call.

At this time, all participants I didn't listen only mode later, well conduct a question answer session.

During the question answer session. If you have a question. Please press Star then one on your Touchtone phone. Please note. This conference call is being recorded.

Now turn the call Daniel Jones, Daniel you May begin.

Thank you Adrian good morning, ladies and gentlemen, and welcome to the Encore Wire Corporation quarterly conference call.

Daniel Jones, the President CEO and chairman of the board of Encore wire with me. This morning, as Bret Eckert, our Chief Financial Officer.

The cobot Nazi pandemic in the economic uncertainty it has created requires us to pull together to women spot.

We appreciate your continued investment and support during these difficult times health and safety of our employees and their families remains our top priority and we were falling CDC guidelines to maintain shape working conditions.

We're very proud that some of the products, we manufacturer being utilized to power temporary buildings in pop up medical facilities in the filed against Tobin not team.

Our distributors remain very thankful, we continue to serve during this critical time.

The strong earnings posted in the first quarter ended March 31, 2027 inch the strength of our balance sheet and the resiliency of our business model to weather tough times.

I'm very pleased by our first quarter results. Despite the unprecedented times, we're facing this country.

There's some key items to note.

Copper unit volumes increased 1% in the first quarter of 2020 versus the corps first quarter of 2019 and increased 1.4% on a sequential quarter basis gross profit margins increased despite a drop in combat copper prices versus last years first quarter as well.

As for <unk> first quarter of 2019.

One of the key metrics to our earnings is the spread between the process copper wire sold and the cost of raw copper purchased in any given period.

The copper spread increased 6% on a sequential quarter comparison.

He will be pleased with how we finished the quarter. Despite a significant decrease in comex copper daily prices in March we were able to maintain average selling prices in the month, which lifted gross profit margins for the quarter.

This represented a slight shift to a sellers market as some manufacturing and distribution constraints in the sector kept pricing strong.

Finally aluminum wire represented 8.6% of our net sales in the first quarter of 2020.

Looking ahead, the duration and severity the co did not teen outbreak in its long term impact on our business are uncertain at this time some of our distributors as well as the end users of our products are experiencing varying levels of disruption related to this crisis.

Developments surrounding the cobot not team global pandemic are changing daily and we have limited visibility into the extent to which market demand for our products as well as sector manufacturing and distribution capacity will be impacted.

We believe encore wire is well positioned to weather the storm continuing to serve the markets. During this critical time.

As we navigate the near term challenges, we remain focused on the long long term opportunities for our business.

We also believe our superior order fill rates, which is not fall through during this crisis continue to enhance our competitive position.

As owners come in from electrical contractors to distributors and continue to count on our order fill rates to ensure quick deliveries from coast to coast.

Ill now turn the call over to Brett to cover our financial results, but thank you Daniel in a minute. We will review encores financial results for the first quarter ended March 30, Onest 2020. 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 be making certain statements that might be considered to be forward looking.

In order to comply with certain securities legislation 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 and those discuss today.

I refer 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 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 our website now the financial results.

Sales for the first quarter ended March 30, Onest 2020 were 302.8 million compared to 314.7 million for the first quarter 2019.

Copper unit volume measured in pounds of copper contained in the wires sold increased 1% in the first quarter 2020 versus the first quarter 2019, the average selling price of wire per copper pound sold decreased 5.6% in the first quarter 2020 versus the first quarter 2019, while the average.

Cost of copper pound purchases decreased 8.2%.

Net income for the first quarter 2020 increased 38.7% to 18.6 million versus 13.4 million in the first quarter 2019 fully diluted net earnings per common share were 89 cents in the first quarter 2020.

First the 64 cents in the first quarter 2019, you look at it on a sequential quarter comparison basis net sales for the first quarter 2020, 302.8 million versus 302.3 million during the fourth quarter 2019.

Sales dollars increased due to 1.4% unit volume increase of copper building wire sold offset slightly by a 0.7% decrease in the average selling price per copper pound by FERC pound of copper wire sold on a sequential quarter basis.

Copper wire sales prices decreased 0.7%, while the price of copper purchased decreased 4.2%.

Net income for the first quarter 2020, with 18.6 million versus 10.5 million in the fourth quarter of 2019.

Fully diluted net income per common share was 89 cents in the first quarter 2020 versus 50 cents in the fourth quarter of 2019.

Our balance sheet remains very strong we have no long term debt and our revolving line of credit is paid down zero. In addition, we had 206.8 million in cash on hand at the ended the quarter during the quarter, we did repurchase 439112 shares in the open market.

We also declared to send cash dividend during the quarter.

Our recently announced two phase expansion plans continue as we started initial grading and site development work on schedule. This quarter, we reaffirm our previously announced capital expenditure ranges of 85 to 95 main in 2000, 2070 to 90 million in 2021 and $60 million to $80 million.

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.

A replay of this conference call will be accessible and the investors section of our website I'll now turn the floor over to Daniel for a few final remarks.

Thank you Brett as we highlighted encore performed well in the first quarter ended March 31 2020.

Our low cost structure and strong balance sheet have enabled us to withstand difficult periods in the past.

Continuing to prove valuable now.

We believe we're well positioned for future growth. This is country overcomes as global pandemic.

I'm very proud about each of our employees have rallied during this crisis and I want to thank our employees in associates for their tremendous efforts. We also think our stockholders for their continued support.

During will now take questions from our listeners.

Thank you you will now begin the question and answer session.

Your next question. Please press Star then one on your Touchtone phone.

If you wish to be in those from the Q. Please press the pound cyanide hash key.

Using speaker phone you may need to pick up to answer first a quick question the number.

Give me an audio quest.

Please press Star then one on your Touchtone phone.

First question comes from same Karmini from D.A. Davidson Your line is helping.

Congratulations on the quarter.

Thank you.

So first off I was kind of wondering what are you seeing with regard to demand of aluminum.

Relative to the copper and historically how is this split or ratio change.

With a market slowdown.

Really had changed that much.

Dip in and out of both markets with existing distribution distribution.

And.

There is there some of the larger jobs.

Start copper maybe.

Changed over to aluminum on specific occasions, but for the most part.

Really didnt see anything to change that up too much in the first quarter.

Okay, and then can you give us a deep.

Okay. Thank you.

Can you speak to the trends within the industry, particularly read the averse nonresidential demand and what you kind of song the first quarter versus the so far through April.

The.

Again, it's it's similar to the aluminum piece there's.

Existing jobs.

We have significant volume that can move the percentage.

A point or two one way or the other.

What we did see strength and the residential demand piece.

In the first quarter.

A lot of times, the residential development sites will be.

We'll shift from maybe one month of next based on weather issues, we really didnt have significant delays.

In that market segment at all in the first quarter. So.

There are some strengthen the resi.

It's it's sort of consistent not.

It's not great, but it really was solid and its and its that's pretty good demand at this point.

Okay. Thank you.

Regionally speaking wearing to what degree of covered been the most impactful the our customers and fell in the suppliers and distributors.

Yes regionally our geographically, we obviously the northeast was hit.

And there were.

Some job delays and what have you in some distributors customers whatever.

That were closed.

In the first quarter, but.

We were still shipping some of the as we mentioned in the press release.

We're still shipping some of the temporary hook up cables and whatever for.

The temporary medical sites and what have you but.

For the most part.

In the East and then the Pacific Northwest there was disruption in a little bit in California.

Okay.

Thank you.

And then assume anchored entered the Q. Please press Star then Brian on your touched on phone.

And your next question comes to three Alimera from Darien Company. Your line is open.

Hey, good afternoon.

Well.

So.

I was hoping you could elaborate on what part of the value chain is seeing those those disruptions you mentioned.

No I don't know if you could talk through may be competitive landscape customers suppliers or limitation on trade I mean, if you could highlight maybe where you see the most notable.

Constraints.

Yes.

During the third there were disruptions in every category.

Two different degrees.

Trucking company that we used to the fantastic job.

The service was fantastic some of the drivers has mentioned.

In a lack of support on the road with with.

Maybe some of their normal spots along.

The route to be closed or what have you, but the service from the carriers that we use were fantastic.

Distributors worked with us on deliveries to get the trucks unloaded and Offloaded.

I'll tell you where the disruptions.

We are coming in you also saw an equal or and exceeding effort.

On the service side.

There was a seriousness to the deliveries a lot of the drama.

Mitch It's normal went away there was forced disciplined if you will.

In the entire chain I mean, so from the perspective.

Disruptions.

I think they were exceeded with the efforts and the contributions from the people that were involved that realize the seriousness and situation.

The additional there were lot less hassles, if you will.

On getting those trucks delivered unloaded the rigid delivery appointments or whatever people just went to work and got the job done quite frankly.

It was refreshing to have that type of business approach and discipline.

To to operating.

It saved everybody I believe.

In the delivery chain, everyone became more efficient.

And I think those types of things will last coming out the other side. It was very is very good to see so.

Again some of the.

Problems.

We ran into really had to do with a property or a job side being closed.

If they were open.

People went to work. It was it was really was a good thing to see I think everyone kind of pulled together got the job done.

Got it Thats helpful.

I am just shops, and how are your pricing held up in that environment.

So much better than what I had model but.

Can you maybe discuss the.

Yes.

You know you said your average quite held up well in the quarter, but.

Was there potentially if an outperformance in the relative to expectations and maybe the first two months of the year that.

Hello that average up or.

Was it more a function of price is holding up in the pace of copper copper falling off clip and though.

The last month.

Great question It was a combination.

We we've always tried in made really good effort to be super disciplined when it comes to process Theres only two things.

That sell building wire and its price delivery, we like to focus on the delivery piece of said that repeatedly for about 30 years now.

And we're really good at it.

When you have the balance sheet that we have and the people that we have in the right place at the right time.

Yeah.

It showed in came through pretty well.

Started some in January.

The guys and girls and the sales office did a fantastic job in February and then.

Obviously, there was a lot of uncertainty going into March and.

Every department, we have purchasing sales shipping everybody pulled together and ended the job.

We were just reluctant to.

Lead with low price when you don't know what it is that you're buying.

Which again you know it's been something about harped on for years why cut the price. If you don't know what the order it looks like and why would you cut the price if you can't deliver.

And I can see on the call that there's a few of our competitors on here, so I, probably should stop with that but listen it's a discipline.

It means a lot to us to make sure that we can keep a promise we don't know let people down.

And it takes money to do the things that we do around here from the service perspective, and so we felt that it was wrought thing do and continue to think its throughout thing to do.

We're offering a value and we think it's worth it.

Again, it goes back to really the entire team here.

The sales office was incredibly disciplined our sales reps in the field were fantastic.

A lot of like I said, the drama that goes in with.

The price shopping and all those things.

You could kind of set it aside almost through a little bit and actually run your business like a normal business and it was pretty fantastic to watch and show the credit goes to the folks here I mean, there super disciplined and they just they did a great job.

In a lot of our folks by the way.

I'm guessing we have rollover.

Yes.

Probably 70, 580% of our people are working from home.

Office per se.

Thank you for the color there and.

So some on the capacity expansion plan.

Reaffirmed are spending plans over the next three years.

Maybe discuss how thats best progressing and given that the OTI project that affecting your property.

That potentially gets delayed and that in turn would potentially delay here, especially sites.

I don't see that the last part of the question first I don't see that.

Having an effect and the first part of the question, we're progressing very well we were blessed with.

Some timely rain in.

So sunshine in some more than what have you but.

Our past the job site.

Couple of different times, each day and.

Unfortunately for them, maybe our elected drive through it and take a look around and so.

It's fantastic, it's moving real well, we actually have.

The ability to posts.

Drone photography on our website and will potentially be doing that to kind of give.

A glimpse into whats happening, but it's a it's moving along real well, we've been very fortunate with the weather and timing and we're working with a really good.

Construction group that we've had I don't know 25 26 expansions around here and.

In my 31 years, and we've used these guys several times their pros they know what they're doing.

They obviously have a very robust safety.

Program going and they're doing a fantastic job can't wait to see concrete being poured.

[music].

I will begin to look out for those Sean photos on your on your site.

Thanks for taking my question.

They help invested a lot.

Thank you know there thanks for the support.

And as a reminder to ask a question you're into the queue. Please press Star then one on your Touchtone phone.

Andrew is came back from our questions.

Antonios.

Im going to the question. Please go ahead.

Yes, I guess just one quick follow up is I don't know if I missed capex number in the quarter.

Capex and what's the capex for the quarter.

Yes.

Firstly, we want sector.

On a pullback.

So capex in the.

First quarter was.

Just over 12 man.

Great. Thank Tim.

We're really I mean filings.

Moving some dirt right now.

Daniel set across the across the street, so lot of grading utility work.

Great. Thanks very much.

And we have no further questions.

Okay. Thank you appreciate your time this morning I appreciate your interest in your support your investment an encore and enjoy today yet.

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

Alright.

[music].