Q3 2020 Encore Wire Corp Earnings Call
Welcome to Encore wire reports third quarter results Conference call. My name is self you cannot be operator for today's call. At this time all participants are not listen only mode. Later, we'll conduct a question and answer session during.
During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded.
I will now turn the call over to Daniel Jones, Mr. Jones, you may begin.
Thank you Sylvia and good morning, and welcome to the Encore Wire Corporation quarterly conference call.
I am Daniel Jones, President CEO, and chairman of the board of Encore wire and with me. This morning is Bret Eckert, our Chief Financial Officer.
Thank you for joining us on the call and your interest in encore wire.
I appreciate your continued investment confidence and support during these uncertain times.
Health and safety of our employees and their families remains our top priority and we're following CDC guidelines and maintaining safe working conditions, while we continue to serve our customers. During this critical time.
As the country reopens economy begins to recover.
The strong earnings posted in the third quarter ended September 32020, attest to the strength of our business model to weather uncertain times.
Balance sheet remains strong with $217.1 million of cash on hand at.
At September Thirtyth to fund our growth and expansion plans.
I'm very proud of how our employees are responding to the current crisis, allowing us to remain fully operational to serve our customers and drive value for our shareholders.
In addition, our one location model allowed us to allowed us the agility and flexibility.
To adapt to the changing market conditions during the quarter.
Detailed lower some key items to note in the quarter.
Copper unit volumes increased 14.3% on a sequential quarter basis, as we experienced a renewed optimism from our customers during the third quarter as order volumes started to normalize in all states reopened for construction.
On a comparative basis volumes remained suppressed due to due to the pandemic with copper unit volumes declining.
Declining, 7.1% and 8.5% for the three month and nine month periods ended September 32020 versus the three months and nine months periods in 2019.
Comex copper prices experienced a steady rise throughout the third quarter, which had a positive impact on spreads.
Copper spreads increased 17.2% on a comparative quarter basis, and 20.7% on a sequential quarter basis.
Copper spreads increased 3.9% for the nine months ended September thirtyth.
2020, compared to the nine month period in 2019.
The gross profit percentage increased for both the third quarter and nine months ended September 32020, compared to the same periods in 2019, highlighting the strength of our business model.
Aluminum wire represented 9.1% and 9.2% of our net sales in the three month and nine month periods ended September 32020.
As stated for the previous quarter customer buying patterns began to return to more historical levels beginning late in the second quarter and continuing in our third quarter driven by the reopening of many state local economies.
Looking ahead, the duration and severity of the cobot not teen outbreak and its long term impact on our business are uncertain at this time.
Developments surrounding the cobot not seen global pandemic or changing daily we have limited visibility into the extent to which the 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 and continue to serve the markets during the critical time.
As we navigate the near term challenges, we remain focused on long term opportunities for our business. We believe that our superior order fill rates continue to enhance our competitive position.
As orders come in from electrical contractors, our distributors can continue to depend on us for quick deliveries coast to coast.
I'll now turn the call over to Brett to cover our financial results Brett.
Thank you Daniel in a minute, we will review encores financial results for the third quarter and nine months ended September Thirtyth 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 and instead of attempting to identify each particular statement as forward looking we had.
Buys 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.
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.
Net sales for the third quarter ended September 32020, with $339.7 million compared to $321.2 million for the third quarter of 2019.
Copper unit volume measured in pounds of copper contained in the wire sold decreased 7.1% in the third quarter of 2020 versus the third quarter 2019.
Stated for the previous quarter customer buying patterns begin to return to more storage will level beginning late in the second quarter and continuing in our third quarter driven by the reopening of many state and local economies grow.
Gross profit percentage for the third quarter of 2020 was 15.7% compared to 13.4% in the third quarter of 2019.
The average selling price of wire per copper pound sold increased 12% in the third quarter of 2020 versus the third quarter 2019, while the average cost of copper per pound purchase increased 9.4%.
Net income for the third quarter of 2020 was $21 million versus $16.4 million in the third quarter of 2019.
Fully diluted net earnings per common share were dollar two in the third quarter of 2020 versus 78 cents in the third quarter of 2019.
Net sales for the nine months ended September Thirtyth, 2020 were $896.1 million compared to $972.7 million. During the same period in 2019 copper unit volume measured in pounds of copper contained in the wire sold decreased 8.5% in the nine months ended September Thirtyth 2000.
Play versus the nine months ended in 2019.
Gross profit percentage for the nine months ended September Thirtyth, 2020 was 15.1% compared to 13.4% during the same period in 2019.
The average selling price of wire per copper pound sold decreased 0.9% in the nine months ended September Thirtyth 2020 versus the nine months ended September Thirtyth 2019, while the average cost of copper per pound purchased decreased 3.3%.
Net income for the nine months ended September Thirtyth, 2020, with $52 million versus $47.6 million in the same period in 2019.
Fully diluted net earnings per common share were $2 of 51 cents in the nine months ended September 32020 versus $2.27 in the same period in 2019.
On a sequential quarter comparison net sales for the third quarter 2020 were 339.7 million versus $253.6 million during the second quarter of 2020.
Sales dollars increased due to a 14.3% unit volume increase in copper building wire sold combined with an 18.4% increase in the average selling price per pound of copper wire sold on a sequential quarter comparison.
Gross profit percentage for the third quarter of 2020 was 15.7% compared to 14.4% in the second quarter of 2020.
Copper wire sales prices increased 18.4% or the price of copper purchased increased 17.1% net.
Net income for the third quarter, 2020 is $21 million versus $12.3 million in the second quarter of 2024.
Fully diluted net income per common share was one dollar two in the third quarter of 2020 versus 60 cents in the second quarter of 2020, our balance sheet remains very strong we have no long term debt a revolving line of credit is paid down to zero. In addition, as Daniel said, we had $217.1 million in cash at the end.
The quarter during the first nine months of 2020, we repurchased 441200 50250 shares of our common stock on the open market.
We also declared a two cents cash dividend during the quarter.
Our two phase expansion plans announced earlier this year continue in earnest.
Due to the increased lead times required for certain machinery and equipment in the current environment, we've accelerated the timing of orders with manufacturers, which has shifted spending between years.
We now expect capital expenditures to range from 95 to 100.002 million 20.
100 to 120 million in 2021, and $30 million to $50 million in 2022.
A 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 in the investors section of our website I will now turn the floor over to Daniel for a few final remarks. Thank you Brett as we highlighted encore performed well in the third quarter and nine months ended September 32020.
Our low cost structure, one location model and strong balance sheet have enabled us to withstand difficult periods in the past and they're continuing to prove valuable now.
I'm very proud of how our employees have rallied during this crisis and I want to thank our employees and associates for their tremendous efforts. We also thank our shareholders for their continued support.
Sylvia we'll now take questions from our listeners.
But we.
We will now begin the question and answer session. If you have a question. Please press Star then one on your pets Tom Paul.
Let me speak about you may need to pick up the handset burst, we purposely and then price once again if you have a question. Please press Star then one on you touched compound.
And our first question comes from Jane carried from D.A. Davidson.
Daniel Brett congratulations on the strong quarter.
Thanks Blake.
So first off I was hoping to dive a little more into that campus. Construction currently underway, particularly what are you guys feeling or thinking earnings or revenue contributions might start to occur and then given the market environment are you able to further exploit the capex spend and or are there even in market.
Sure opportunities for you guys. If you do so.
Yep.
The current construction project. The service center is the four walls are up the roof is on there.
They are starting to pay off on the inside and outside.
It's going along.
About as we expected on the timeline basis.
There's certainly.
Ways that we can speed that up and we're doing those things as quickly as possible.
As most of the expansions around here are.
Probably should have started debt when sooner.
But it's going very well, we've got a great team over there.
From the construction team throughout.
Throughout the construction trailer.
They all understand the importance of getting that thing built and opened up and allowing us to service the customers from from that new building.
As far as when we will see contributions from that.
Should be.
Late second quarter early third quarter next year 2021.
We are going to add some.
Yeah.
Equipment, and some capacity rationalization to some of the market demand as it changes.
There's several different categories that were fantastic a few years ago.
They've been replaced by other categories Theres different products that it will take.
From our offerings that we currently have.
To service those customers needs and those construction sites and projects.
And as far as the.
Opportunities for new product categories.
We're constantly looking at what we can do to enhance our product offering we've got some things that were working on.
Not ready to announce those currently for no other reason than just market Intel, but yes. We've got we've got some things that were working on.
Should be.
Last part of 2021, maybe first half of 2022.
We start to see some of that additional capacity.
Come on line for Us.
Okay copies.
And I guess, we saw copper volumes decline a little bit year over year can you speak to the relative economic activity or shortcomings, there and that most largely impacted this result, specifically with regards to the states reopening are you seeing more activity in certain regions or states and are there any regions that have opened but you're still think create.
Depressed demands from what you consider more of a normalized rate just trying to think about expectations in the market strength moving into the fourth quarter.
Yes specific to the product issues.
I'd say the industrial products got hit the hardest.
The oil and gas and energy sector.
Obviously was hit very hard.
Which.
You can tie that to come.
A couple of different regions, where their heaviest.
One of them, specifically being south, Texas, but Houston market.
Over into Louisiana, South, Louisiana or whatever.
The energy piece was hit pretty hard.
There were some specific categories that were down as much as.
Over 50% in volume from one year to the next.
We're starting to see some come back in those markets.
As long as the hurricanes allow them to keep their head up and keep working.
The residential market was up pretty good.
The only area that we really didnt see happening the way that it happened was maybe in that armored cable segment, we had some competitors not as disciplined as probably they should have been with the cost of the materials going away that they were going.
King.
Which makes no sense, but we've been through before you hit the market with a fantastic idea on a new product and the first thing you do is cut the price on it which is.
Beyond my comprehension, but I've seen it before.
And then specific to.
Obviously, I think I think it's obvious the hotel.
Sector construction was project loss was hit pretty hard.
Hospitals was hit.
Hospitals were hit pretty early and then and then bounced back a little bit.
We saw an.
An uptick.
Also probably for obvious reasons and.
Some of the.
Municipal buildings fire police courthouses whatever.
And then.
There is a pretty good push right now and we're doing very well.
In some of the utility.
Areas as it relates to water and sewer and so.
But as each one of those segments kind of starts to return to normal.
Numbers that we've seen in the past.
The only one that.
Really stands out is that that arm cable sectors for whatever reason just get.
Hammered on the margin side, but.
That won't last.
The strong copper as you saw through the quarter.
It's one of the few times, where we began the quarter at a low mark on Comex.
That is helpful.
And when copper climbs and aluminum even had a pretty decent climb in cost raw material wise as those things continue it forces discipline and so I'm looking for good things in Q4 for that armored cable sector, but over.
Overall.
Things really kind of bottomed out and started to.
Bounce around the bottom some of them came right back a little stronger than others, but for the most part.
It looks pretty positive.
Well I definitely appreciate the feedback there and once again, congratulations on the strong quarter and margins and everything that.
Yes, thank you Nigel to support yet.
Our following question comes from Julio Romero from Sidoti and company.
Hey, good morning, Hope Youre all well.
Yes, Sir Gordon Julio.
So I guess I wanted to ask about the.
The spreads in the quarter.
We saw a significant jump both year over year and sequentially and I struggled to find a similar rise and your historical quarters.
Hey, guys to go back the last cycle to find something similar there so.
Maybe if you could talk about the drivers of the spread in the quarter and maybe what I think you spoke about the competitive landscape, but if you can speak to what.
Encore wire is executing on better compared to the prior year.
Yes, great question.
In the spreads obviously are a function of just a couple of things and.
The easy answer is.
Our guys here in the sales Department and girls did a fantastic job of remaining disciplined.
From the pricing standpoint.
Rather than chasing something if you will because of a competitors claim or whatever it might be.
We remain very disciplined during the quarter and the price.
Pricing environment was was.
It's never easy to get a profit increase but when you substantiate.
A notice of an increase not only with the bias or a trend on the comac side.
You.
Add on to that or add into the conversation.
The PVC piece of that equation.
It substantiates the increase in some manner and so im not going to say that we got ahead of anything on the pricing scenario.
But we did manage our inventory levels extremely well from a sales perspective.
Our service levels improved throughout the quarter, which is significant and allows us to be a little more disciplined and so having.
Having the one location.
And have an access to our resources in one location to hit that 100% fill rate number with customers and to get the product out.
Off the dock on a truck and on the road.
As quickly as possible the.
The execution in the third quarter the team here was fantastic and.
That may be too much detail, but thats really what happens when.
When you have as I mentioned earlier, you entered the quarter at the low point.
Comex and substantiate your price.
Price increases as you go.
With not one, but two and potentially three raw materials.
It's more believable, if you will in the marketplace and so when you have a real cost increase as we experienced.
The hard part is sticking with your price increase long enough.
For it to gain traction and we were able to do that and I think.
Paying attention to what we do here.
And trying to close out some of the noise in the marketplace I.
I think our team was it.
Extremely successful during the third quarter doing that.
No that is good color. So I guess just to to kind of sum that up I mean its.
Sales execution, both on unit, then pricing pricing discipline.
Your your service prop your high fill rates as kind of better.
Better than it was in the prior year.
Yes, I think Thats fair.
Certainly better than the first part of the year.
Got it and.
So on that point right earlier first two quarters, I guess spread was I think down year over year, I mean, how much of the spread.
In this quarter would you kind of categorize it may be mean reversion versus outperformance.
Mm.
That's a difficult one to explain I really believe.
At the risk of repeating some of it.
I just I mean, there's.
Theres some disciplined it occurred in the market obviously, it was forced by the raw material increases.
Copper goes up for us it goes up for everybody. So.
There was some forced discipline.
But our team navigated that is.
Issue.
Of Cove.
Covidien getting trucks unloaded.
Theres a lot that went into.
The disciplined piece of that from our perspective it's.
It's not something as simple as don't take the order if you can't deliver it but it's pretty close to that type of simplicity we.
We ran into core.
Quite a few competitive situations in the market, where there just wasn't true.
We were able to ignore those.
Shocks if you will across the valley continued to perform and that is a team effort.
You know I'm not trying to gain any.
Points here by bragging on sales team, but.
It starts with everybody I mean on the floor.
Everyone improve every department had improvement in the third quarter, we really were attentive.
We were short handed due to covance.
Issues what have you.
But again our team in every department.
Production purchasing everything we didnt, we didnt have a.
Our team is very focused at this at this point.
And I'll just tell you when you have that situation and support in the market of the forced discipline from.
You know again copper was at the low point in the first day of the quarter.
Continued to rise.
You can almost say that it was a trend.
In the third quarter of an increase in those situations.
We do very well and the only area.
We were you know.
It was perplexing to me.
31 years here was that armored cable segment and I have no idea.
You know what was going on in that market or what they were thinking but we did see improvement.
Toward the end of the quarter in that segment and.
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It's a forced discipline and I think with the raw materials as they are.
I think that will straighten itself up.
Got it really appreciate the color there.
I'll hop back into queue.
Thanks, Joe therefore appreciated.
And just to remind you we have a question. Please press star one touch telephone.
And we have no questions at this time.
Okay, Sylvia listen we appreciate the support and appreciate the questions that we did have and look forward to talking to you guys next quarter. Thank you.
Okay, we still have all the almirall back on line with a question.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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