Q4 2020 Encore Wire Corp Earnings Call
Welcome to the Encore wire reports fourth quarter and for year 2020 of results Conference call. My name is Johnny I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session and we have the question. Please press Star then one on your cash.
Hong Kong. Please note that this conference is being recorded and will now turn the call over to Daniel Jones. Mr. Jones, you may begin.
Thank you Judy and good morning, and welcome to the Encore Wire Corporation quarterly conference call.
I'm, Daniel Jones, President and 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 for your interest and encore wire.
We appreciate your continued investment confidence and support during these uncertain times.
The health and safety of our employees and their families and remains our top priority and we are following CDC guidelines and maintaining safe working conditions, while we continue to serve our customers. During this critical time.
Our strong earnings and 2020 again exhibits the strength and resiliency of our business model to deliver exceptional results and challenging times.
Our balance sheet remains strong with the $183 $1 million of cash on hand at December 31.
To fund our growth and expansion plans.
I remain proud of how our employees of responding to the current crashes and allowing us to remain fully operational to serve our customers and drive value for our shareholders.
<unk> are one location model allowed us the agility and flexibility to adapt to the changing market conditions during the year.
Detailed blow or some key items to note for the fourth quarter and full year results.
Copper unit volumes increased four 3% on a comparative quarter basis, and three 2% on a sequential quarter basis. As we finished 2020 is strong.
On a full year basis copper unit volumes decreased five 4% year over year.
Comex copper prices, which began to experience the steady rise in late March of 2020.
To increase throughout the fourth quarter, which had a positive impact on spreads.
Copper spreads increased 25, 3% on a comparative quarter basis, and seven 3% on a sequential quarter basis.
Copper spreads increased eight 9% for the year ended December 31, 2020 compared to 2019.
The gross profit percentage increased for both the fourth quarter and year ended December 31 2020.
Compared to the same periods in 2019, highlighting the strength of our business model.
Aluminum wire represented eight 7% and nine 1% of our net sales and the three months and 12 months ended December 31 2020.
As stated previously customer buying patterns began to return to more historical levels beginning late in the second quarter and the restored optimism and accelerated into the second half of 2020.
Looking ahead, the duration and severity of COVID-19 outbreak and its long term impact on our business is uncertain at this time.
Although we continue to adapt to COVID-19 related developments, we have limited visibility into the extent to which market demand for our products as well as sector manufacturing and distribution capacity may be impacted.
We believe encore wire is well positioned to weather the storm and we will continue to serve the markets. During this critical time.
As we navigate the near term challenges, we remain focused on the long term opportunities for our business and we believed 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 will now turn the call over to Brett to cover our financial results Brett. Thank you Daniel and a minute and we will review encores financial results for the fourth quarter and year ended December 31 2020 after.
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 and 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 today.
And 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 generally accepted accounting principles, including EBITDA, which we believe to be useful supplemental information for investors are posted on our website.
Net sales for the fourth quarter ended December 31, 2020 for $380 8 million compared to $302 3 million for the fourth quarter of 2019.
Copper unit volume measured in pounds of copper contained and the wire sold increased four 3% and the fourth quarter of 2020 versus the fourth quarter of 2019.
Gross profit percentage for the fourth quarter of 2020 was 15, 4% compared to 11, 8% and the fourth quarter of 2019, the average selling price of wire per copper pound sold increased 21, 1% and the fourth quarter of 2020 versus the first and fourth quarter of two.
2019, while the average cost of copper per pound purchased increased 18, 9%.
Net income for the fourth quarter of 2020 was $24 1 million versus $10 5 million and the fourth quarter of 2019.
Fully diluted net earnings per common share were $1 17, and the fourth quarter of 2020 versus 50, and the fourth quarter of 2019.
Net sales for the 12 months ended December 31, 2020, or one $2 77 billion compared to $1 $2 75 billion during the same period and 2019.
Copper unit volume measured in pounds of copper contained in the wire sold decreased five 4% and the 12 months ended December 31, 2020 versus the 12 months ended December 31 2019.
Gross profit percentage for the 12 months ended the December 31, 2020 was 15, 2% compared to 13% during the same period and 2019.
The average selling price of wire per copper pound sold increased four 7% and the 12 months ended December 31, 2020 versus the 12 months ended December 31, 2019, while the average cost of top of per pound purchased increased two 6%.
Net income for the 12 months ended 2020 with $76 1 million versus $58 million and the same period and 2019 fully diluted net earnings per common share were $3 68 and.
And 2020 versus $2 77, and the same period and 2019.
On a sequential quarter comparison net sales for the fourth quarter of 2020 were $388 million versus $339 7 million during the third quarter of 2020.
Sales dollars increased due to a three 2% unit volume increase and copper building wire sold combined with a nine 1% increase and the average selling price per copper pound for pound of copper wire sold and a sequential quarter basis.
Gross profit for the fourth quarter of 2020 was 15, 4% compared to 15, 7% and the third quarter of 2020.
Copper wire sales prices increased nine 1%, while the price of copper purchased increased 10, 2% net income for the fourth quarter of 2020 was $24 1 million versus $21 million and the third quarter of 2020 fully diluted net income per common share was $1 17, and the fourth quarter.
2020 versus $1, two and the third quarter of 2020 of.
Aluminum wire represented eight 7% and nine 1% respectively of our net sales and the three month and 12 month periods ended December 31 2020.
Our balance sheet remains very strong we have no long term debt and our revolving line of credit is paid down to zero on February nine 2020, we entered into a new credit agreement with our existing lenders to provide for a $200 million five year revolving credit and letter of credit facility through February 19, 2026.
Replacing the company's prior $150 million revolving credit and letter of credit facility and.
In addition, he had $183 1 million of cash at the end of the year predominantly during the first quarter of 2020, we repurchased 441250 shares of our common stock from the open market.
Also the declared of <unk> cash dividend during the quarter.
Our two phased expansion plan announced earlier this year continues in earnest and remains on schedule and the construction of the new service centers progressing well with the planned opening and the second quarter of 2021.
Phase two of our expansion plans will focus on repurposing of our existing distribution center to expand manufacturing capacity and extend our market reach and spending that phase II is already commenced as we've accelerated the timing of orders with manufacturers due to the increased lead times required for certain machinery and equipment and the current environment.
Phase two completion is anticipated in early 2022.
Total capital expenditures were $86 million and 2020, we expect total capex to range from $100 million to $120 million and 2021.
<unk> $50 million to $70 million, and 2022 and $40 million to $60 million and 2023.
Our strong balance sheet and the ability to consistently generate high levels of operating cash flow should provide ample allowance to fund planned capital expenditures.
I will now turn the floor over to Daniel for a few final remarks.
Thank you Brett as we highlighted encore performed very well and the fourth quarter and year ended December 31 2020.
Our low cost structure, one location model and strong balance sheet have enabled us to withstand difficult periods in the past and they are continuing to prove valuable to them.
Very proud of how each of our employees of rally during this crisis and.
And I want to thank our employees and associates for their tremendous efforts.
Also thank our stockholders for their continued support.
Judy will now take questions from our listeners.
Thank you and we have a question. Please press Star then one on your Touchtone phone.
To be removed from the queue. Please press the pound sign are the hash key.
Is there and using a speaker from you may need the pickup handset first before pressing the numbers.
Once again and we have a question. Please press Star then one on your Touchtone phone.
And our first question comes from Brent Thielman from D. A Davidson. Please go ahead.
Thank you and good morning, Daniel.
Hey, Brent.
And congrats on a great quarter Daniel.
Love to just get your assessment of.
And the current demand environment is today and I suspect, we could see some issues with the weather across the country here and the first quarter, but and maybe what are your customers telling you about beyond that.
Yeah.
You're talking about.
Currently and Q1.
Well I think yes, maybe maybe in terms of what's happening across the country and Q1 fiscal of the business, but maybe just sort of generally speaking what what your customers are saying about the demand environment.
Yes.
I guess back in March or so of 2020 the.
Feeling was.
There was a huge uncertainty, obviously with COVID-19 and the effects and what have you.
As the states that were closed and.
Metropolitan areas that were closed down to construction deliveries opened back up.
You can see that we did very well.
Later in the year Q3.
Q Q4, specifically and so.
And that demand really.
Is good it's continuing to be good there is no question that the current.
And whether that's impacting.
Texas, along with many other states.
He's going to have some type of effect.
For sure on slowing some stuff down for this week, but it'll simply pushed this week stuff into the following week and the sense of urgency will be there and.
And without saying too many forward looking things I.
Expect it to continue.
Residential was really strong and 2020.
Looks like theirs.
Quite a bit.
Timeframe left and and that grew.
The area the commercial industrial piece.
We're seeing positive results and.
And the aluminum piece.
Sure and some positive signs and so.
And.
With the tightness of.
Raw materials and specific to copper, but not too for.
Again, our diminish your discount and the other raw materials Theres a true tightness.
And so it forces some discipline and the market, which as you know Brent and being with us for many years.
We performed incredibly well when there's.
Pos and discipline in the market.
Daniel with copper and running.
Have you seen any.
And that benefited the aluminum piece to any degree.
I think theres always some sentiment.
And that would support that for sure.
Though.
And as copper gets super expensive there is a lot of discussions around of theirs.
Many times, there's discussions around substituting the aluminum and what have you.
The good thing and this scenario has been.
And for Us any way that there's a nice mix of both the.
And the demand has been strong enough in 2020 to support.
The higher prices on the copper we hadn't seen.
A really tremendous amount of substitution, even we ran.
Guests Brent.
Maybe March was the comex slow.
Round 211 of 210, something like that and then we ran up to.
We ended up the year.
It looks like the average and December was over 350. So when you have that type of run on Comex and we also had some price increases along the way with the aluminum.
And then the supply chain disruptions what have you the focus on the metal itself is less intense which is counterintuitive, but.
It's more about who has the product and who can get the delivered.
And when it's needed so the.
Price and delivery of equation.
And there's still predominant and the industry and one without the other is no good.
Okay.
And I guess the question is the ramp up the <unk>.
Service Center, starting up here in the the first half of the year.
How should we think about the impact.
You're caught Scott's of goods, so of SG&A and Thats expect it's going to take a few quarters to come.
And be running at an optimal level.
Yes, I would think so.
And we've already.
Committed to some training and employee was people head count whatever we've already started that process.
For the move in to get people up and running a little bit quicker, but.
Where we were with the service piece and the requirements on a lot of the.
The market demands that we're in and fight with today.
You still have to have that delivery piece and.
And the order complexion and request and the market today are significantly more complicated than they were.
And there's three or four years ago.
From the way that the product needs to be delivered there's a few services that we offer on the front end.
And just for five years ago, and they have been performed at some other step and the supply chain.
Change so.
We had to have.
Some loosening up if you will and some flexibility and some floor space to process some of the larger jobs and have come around.
Thank you.
With the fantastic job that the sales team and the operations folks.
And have done and.
The second half of 2020 end of Q4, I think the thats going to continue.
And what that means is we charge for those services, it's a fair amount.
I think we will be able to pay for.
Those loans.
The extended cost if you will a little quicker than what we might have otherwise and then being able to charge a little bit more for the product and having support of the raw materials and.
On the upside if that's a trend or a bias one of or might be timelines, but.
And I think we're going to I think we're going to see the benefits start a little quicker than.
We would have expected otherwise just because of the market conditions and you've already.
Discuss some of the service things that we do.
Don't really want to draw roadmap for everybody, but.
I think it's going to be a little bit better than and flat hopefully we'll see some contribution.
Maybe quicker than that six month periods of Youre looking at we will actually physically be shipping out of there the.
D C or the new service center until late in the second quarter. So.
There'll be some things that we'll learn on the move and.
But there'll also be some jobs that we'll be able to handle a little bit more efficiently and be able to charge for those services.
And kind of dancing around what we're going to be doing with the old distribution center, but.
We're fully aware of that service centers don't necessarily pay for themselves.
We'll be we'll.
And we'll be watching it carefully Brent and.
And we're trying to charge for those services the best we can.
Okay Fair enough last question for me.
Copper Keith.
Moving out and you mentioned that it sounds as though for us and some discipline around the industry Daniel I Wonder if it.
Allowing you to be.
More selective and the types of borders and John you want to take on and allowing you to.
Put up the <unk>.
The hoping you put up for the margins here, but in that period of day.
Yes, I think Thats a fair assumption.
We always try to be Super selective we have fantastic customer base.
Our distribution.
The model lends itself to the higher quality distributors.
And.
I think it's important to point out the.
Our receivables as high as the are they are all current.
Which is a testament to the quality of the customers that we've had through the COVID-19.
And 2020 of the challenges that they have they are still paying their bills on time so.
And the quality of the customer and the quality of the individual job itself that we go after.
It's not by accident, we're not blindly chasing and.
And the order that comes across.
Fantastic.
Group of folks here and they do a.
Fantastic job of going after the orders that we specifically want.
And as you know from.
And familiar with us for years.
But really trying to do is maintain that integrity on that order for.
The start to finish and charge for it so.
And there is no question that this type of tightness and.
Delivery expectations and the whole entire supply chain.
And from raw copper all the way through finished goods has been disrupted somewhat so theres no question, you're going to have the.
And the ability to continue to charge and do the things you got to do but.
There is of high little higher quality, we've upgraded.
So the distribution in some markets the sales team upgraded some sales representation and a few markets and we'll continue to do that as best we can.
Okay. Thank you for taking the questions and I'll pass it on.
Thanks, Brad and I appreciate the support stay warm.
As a reminder of you have a question. Please press Star then one on your Touchtone phone. Our next question comes from Julio Romero from Sidoti.
Hey, good morning, Daniel and Brett.
Florida.
So you mentioned and Youll earlier that the potential was very strong and 2020 can you maybe talk to the mix of rest of the versus non resi in the quarter or the year and whether that end market mix continue to 'twenty one.
Yes. Good question Julio this is Brad and the fourth quarter.
He was.
29, 7% and.
And our full year basis.
Residential was about 27% and so on a full year, 27%, whereas the.
Versus $21 eight.
And full year 2019, and then fourth quarter residential of 29, seven versus 27, and the fourth quarter of of.
2019 so.
It's definitely a heavier emphasis.
As Covid kind of took its grips and people started.
By and Rvs, and second homes or remodeling and instead of going to Paris.
Got it and that ready mix of a little bit higher than traditionally I think it's been in the past. So I guess do you think that mix kind of continues the trend upward for.
RSV or steady state to May 2000, and just how do you see that mix evolving.
Yes, I mean sitting here today.
We think.
It's the opinion of our sales leadership also.
Through the end of 2022.
We see it being pretty strong.
Okay.
Uh huh.
Yes, I think.
Brent asked the earlier, but on the Repurposing of service center opening and second quarter.
Just trying to think about how.
Specifically the that impacts of the P&L of the right.
You'd mentioned at the allows you to be more efficient and charge more perhaps for the better service is there a bit of I missed there in terms of <unk>.
P&L impact 'twenty one.
I think you've hit it Julio I mean, obviously, you've got some incremental costs depreciation and otherwise you'll have some incremental heads, but its not a huge add even though the square footage is so much more of it really is the layout.
Much more efficient everything comes in and the south and and it goes out on the.
And the doctors and the north and so.
Is the cut lines are being stage exactly how we want to stage.
And so I think we'll see ourselves touching product less which is which is why you were able to almost double your square footage and and not incrementally add that many heads and so.
Our ability to move more product with the value prop that we hold and the market is something we're going to look to do as we get our feet under us.
The.
The three to six month period so.
I think youre thinking about the right way and our goal is to.
We're always been focused on being the low cost provider and that won't change with the new service Center.
And your inventory dollars of $92 million ending the year.
The ad.
At first glance it looks a little lean on the unit basis, just given where the copper is the fair assumption.
There was a big push EMEA, we grew it a little bit all in and a LIFO and that kind of skews things a bit but.
It's pretty consistent year over year.
There was a lot of demand as you can see and the third and fourth quarter and so.
We were raised and that entire quarter.
The two continue to keep up with orders and so inventory at the end of the day.
Finished fairly constant year over year.
The ball and it was a great quarter one of your <unk>.
Reds rose sequentially.
And so what's typically a seasonally weaker fourth quarter.
And you sound very optimistic is there any reason why the spread you saw in the fourth quarter can continue into.
2021.
Julio.
We talked a little bit about this.
And had a lot of discipline as we approach the market you look at what Comex copper is doing and kind of what you can read out there and see the trends that's always been an environment that has been supportive for us and so we'll continue to be.
Very focused on on that aspect of it and obviously our goal is to continue that certainly seems that the underlying commodity is going to support that.
Great. Thanks for taking the questions.
Thank you and appreciate Leo or opioids.
Opioids and safe out there and.
And the Mckee given the storms of RC.
Thanks for those.
And we have no further questions at this time.
Okay Ginny. Thank you and thank you folks for joining us and we look forward to.
And next call. Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
[music].