Q1 2021 Encore Wire Corp Earnings Call
One of the Encore wire reports first quarter results Conference call. My name is Adrian and I'll be your operator for today's call.
At the time, all participants are in a listen only mode.
Later, we'll have a question and answer the question during.
During the question and answer session. If you of a question. Please press Star then one on your touch on phone. Please note. The conference is being recorded I'll now turn the call over to Daniel Jones, Daniel You may begin.
Thank you Adrian and good morning, and welcome to the Encore Wire Corporation quarterly conference call.
As stated I'm, Daniel Jones, President CEO, and chairman of the board of Encore wire.
With me. This morning is Bret Eckert, our Chief Financial Officer.
Thank you for joining us on the call and for your interest in Encore wire and we appreciate your continued investment confidence and support during these uncertain times.
The health and safety of our employees and their families remains our top priority.
And we are following CDC guidelines of maintaining safe working conditions, while we continue to serve our customers. During this critical time.
The momentum in the second half of 2020 continued in 2021 with favorable market conditions driving exceptional results for our first quarter ended March 31.
Our balance sheet remains strong with $155 million of cash on hand at March 31 to fund our growth and expansion plans.
We also expanded our credit facility, which increased borrowing capacity on the line of credit enhancing our liquidity and further strengthening our financial position.
The earnings in the first quarter of 2021 further highlight the advantage of our one location business model and strong management team in place of Encore.
During the quarter our team successfully navigated the extreme weather in February while ensuring of just consistent flow of raw materials throughout the quarter to keep our manufacturing facilities fully operational.
Detailed below are some key items to note for the first quarter ended March 31.
Copper unit volumes increased one 1% on a comparative quarter basis, but decreased one 8% on a sequential quarter basis.
Items in the current quarter were slightly impacted by closures due to the winter storm in mid February.
Comex copper prices experienced a steady rise throughout the first quarter, which had a positive impact on spreads.
Copper spreads increased 45, 9% on a comparative quarter basis, and 23, 4% from a sequential quarter basis.
Gross profit percentage for the first quarter of 2021 was 19% compared to 15, 1% in the first quarter of 2020.
The average selling price of wire per copper pound sold increased 46, 8% in the first quarter of 2021 versus the first quarter of 2020, while the average cost of copper per pound purchased increased 47, 3%.
Net income for the first quarter of 2021 was $41 2 million for.
Versus $18 6 million in the first quarter of 2020.
Fully diluted net earnings per common share for $1 90, non in the first quarter of 2021 versus <unk> 89 in the first quarter of 2020.
The favorable market conditions in the first quarter were partially driven by rising copper prices and demand recovery is.
The country continues to reopen.
In addition production challenges across the sector, including inconsistent access to raw materials disruptions in the distribution network.
And access to skilled labor created unique market conditions in the first quarter of 2021.
Although we were largely able to avoid these factors during the quarter. We do expect these disruptions will begin to abate during the remainder of 2021.
Looking ahead, the duration and severity of the COVID-19 outbreak as.
For this long term impact on our business is uncertain at this time, although we continue to adapt to the 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.
To be impacted.
We believe encore wire is well positioned to weather the storm and we will continue to serve the markets. During the critical time as we navigate the near term challenges we remain focused on the 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 Brent to cover our financial results Brett.
Thank you Daniel and the minute, we will review encores financial results for the first quarter ended March 31 2021.
After the financial review, we will take 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 advise.
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 reconciliations of non-GAAP financial measures discussed during this conference call for 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 first quarter ended March 31, 2021 for $444 1 million compared to three of $302 8 million for the first quarter of 2020 copper unit volume measured in the pounds of copper contained in the wire sold increased one 1% in the first quarter of 2021.
Versus the first quarter of 2020.
Gross profit percentage for the first quarter of 2021 was 19% compared to 15, 1% in the first quarter of 2020 the.
The average selling price of wire per pound per copper pound sold increased 46, 8% in the first quarter of 2021 versus the first quarter of 2020, while the average cost of copper per pound purchase increased 47, 3%.
Net income for the first quarter of 2021 was $41 2 million versus $18 six day and in the first quarter of 2020.
Fully diluted net earnings per common share were $1 99 in the first quarter of 2021 versus <unk> 89.
In the first quarter of 2020.
On a sequential quarter comparison net sales for the fourth quarter of 2021 of $444 1 million versus $308 8 million during the fourth quarter of 2020 sales.
Sales dollars increased due to a 24% increase in the average selling price per pound of copper wire sold.
All set by a one 8% unit volume decrease of copper building wire sold on a sequential quarter comparison.
Gross profit percentage for the first quarter of 2021 was 19% compared to 15, 4% in the fourth quarter of 2020 copper wire sales prices increased 24%, while the price of copper purchased increased 18, 8% net.
Net income for the first quarter of 2021 was $41 2 million versus $24 1 million in the fourth quarter of 2020.
Fully diluted net income per common share was $1 99 in the first quarter of 2021 versus the $1 17 in the first for the fourth quarter of 2020.
Aluminum wire represented seven 5% of our net sales in the three months ended March 31, 2020 volume compared to eight 6% of sales in the first quarter of 2020.
Our balance sheet remains very strong we have no long term debt our revolving line of credit is paid down to zero on February nine 2021, 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 to February 19, 2026 Ripley.
From the company's prior $150 million revolving credit and letter of credit facility and.
In addition, we had $155 million in cash at the end of the first quarter. We also declared at <unk> cash dividend during the quarter. Our two phased expansion plan announced last year remains on schedule with the New service center expected to come online in mid second quarter of this year.
Few of our expansion plan will focus of Repurposing of our existing distribution center to expand manufacturing capacity and extend our market reach.
Spending of Phase II has already commenced as we've accelerated the timing of orders with manufacturers due to the increased lead times required for certain machinery and equipment in the current environment.
Phase II completion is anticipated in early 2022.
Capital expenditures are expected to range from $100 million to $120 million in 2021 $50 million to $70 million in 2022, and $40 million to $60 million in 2023 of <unk>.
<unk> 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 in the first quarter ended March 31 2021.
Our low cost structure one location.
Business model and strong balance sheet position us well to compete in the market, we believe that our vertical integration supply chain strength.
The ability to quickly shift complete orders are differentiators in the current environment.
I want to thank our employees and associates for the tremendous efforts and thank our stockholders for the continued support.
Adrian will now take questions from the listeners.
Thank you we will now begin the question and answer session.
If you have a question please press star and line on your Touchtone phone.
If you wish to be the most of the queue. Please press the pound sign or the ASCII.
If you use the speaker phone you may need to pick up the handset first before pressing the numbers once again for your question. Please press Star then one on your Touchtone phone.
And our first question comes from Brent Thielman from D. A Davidson your line is open.
Great. Thanks, good morning.
Good morning, Brian.
Hey, Daniel just curious if you are able to recapture all of the business that that might have been delayed because of some of the issues in taxes in the current quarter.
Some of that falls into the second quarter.
I think some of it is going to fall into the second quarter and continue really through the end of the year.
It was quite a few large jobs that were delayed.
Sure.
And then some of them were already delayed from COVID-19 lack of labor lack of materials, whatever it might be but.
I definitely think it pushes out into the second half.
Okay, and maybe you could just walk us through some of the end market, you're seeing the most strength than today.
I guess, particularly after that event and what you might be seeing around the country, that's really driving the business right now.
Yes, the residential piece has been very strong.
With Texas, leading the way and then also we're seeing.
Of our saw some upticks.
In the commercial and industrial that come in and support.
Right behind the residential growth.
Sure.
More specifically to the nonresidential.
Warehouses.
Schools universities started to pick back up some.
Some of the hospitals continued on a pretty.
Rapid pace, but for the most part of the residential was hottest and in the commercial industrial is starting to kind of fill in behind it.
Okay.
And I guess beyond sort of tightness in that the copper market.
Are you seeing any other supply disruptions other areas of the business there.
The things that are challenged and you had to work through.
Yes, Brent I mean.
Everything that we buy is more expensive.
And everything that we buy.
Raw materials pallets.
Wouldn't reals whatever it might be plastics pools, everything that we're buying today is more expensive of a little harder to get.
And that was true also obviously in the first quarter. So.
With that type of.
Expense right in front of you.
Current.
I think our team.
And of fantastic job from a disciplined standpoint.
To hold the line on the pricing support.
Supported by the manufacturing and purchasing.
Shipping and maintenance everybody kind of had the step up.
And do what they had to do to get the job done.
You can't you can't really.
Quantify how great the team was reacting with shortages and outages.
What have you.
Even with the labor.
Issues that we had tried to get.
The qualified folks of here to do the work and get the product shipped so.
Really a fantastic quarter. If you look at all of those challenges that were in place, but the team responded fantastically well.
Obviously the test in the market is discipline.
Which are folks reacted I think very favorably.
It shows some of those results.
Great.
Okay, well, thank you and congrats on a great quarter and best of luck here in the quarter. Thanks, Brian Thanks for the support.
And as a reminder to enter the queue. Please press Star then one on your Touchtone phone and our next question is from Julio Romero from Sidoti <unk> Company. Your line is open.
Hey, good morning, Daniel and Brad.
O'neill.
Could you give us a little more flavor on the drivers of the copper spread quarter over quarter.
Certainly the copper <unk> diamonds.
Strong as well.
Are there any other unique factors that play within the quarter. I know you mentioned the lack of labor of lack of materials are they any key drivers of the spreads sequentially here.
Yes, without getting too deep into the weeds I'll try to kind of skip across the top Julio.
What it really came down to was a pricing discipline.
The uncertainty on the supply side and the raw material standpoint.
And from a labor standpoint, and so protecting what we had and making certain that we could meet the customer demands.
We were holding the line.
We've got some really fantastic sales reps across the country that had to really work hard towards.
It's price of delivery when it comes to building wire.
The the price is no good without delivery and vice versa. So.
Just kind of a balancing act so we were able to.
And that spread a little bit.
With the discipline of.
Holding the line.
Refusing to cave into the market that had pricing as much as 567 or 8% below of some of your particular order.
Our quote but.
The other folks we're quoting.
Much has 10 of 12 weeks lead time on delivery and Thats not our style.
We prefer to take an order and ship it complete immediately.
Specifically in this type of environment, when you don't know what cost.
Might hit you around the next corner. So it really was about price discipline more than anything the hard work of the sales team inside of encore and the actual sales reps out in the field.
We just we rolled our sleeves that went to work in.
Thought for the orders.
And managed if you will the.
The flow on the orders that we could actually taken ship the raw.
Raw material piece was managed fantastically well.
Normally there is plenty of ample supply of raw materials, the for Fob that we buy and consume.
That was not the case in Q1.
The extremely tight copper continues to be extremely tight in all shapes.
Before it's consumed and so.
It really.
It's not as complicated as I'm, making it sound, but as long as everyone here.
Does the apart and remains disciplined you can see the results that we can throw out.
It Shouldnt. It should also be mentioned that having one location specifically with the volatility in the <unk>.
The supply disruptions of raw materials, certainly benefit us through the through the chaos.
Got it that's helpful. So I guess, if if it's really just price discipline short lead times relative to your competitors and tight raw materials.
Those things sound like Youre, not going away right. So.
I assume the spread you captured this quarter versus or even expense going forward I mean, what of your thoughts.
Regarding that.
Specifically to the the first quarter.
There was a lot of things that.
Reset the behaviors of the disciplines in the hierarchy.
The market there was.
Awesome.
Upgrading.
It also should not go unsaid that.
We're getting paid on time, which is a fantastic testament to the value.
But our customers and the quality of our customers out there are providing also I mean.
Yes.
Selling and shipping it going through what you go through.
And getting paid on time.
Clearly the recipe for us of the menu for us to be successful in pushing those earnings but as far as going forward.
Very optimistic very happy with the way things are going.
Our team here again.
From sales manufacturing purchasing shifting maintenance everybody has.
Stepped up and done the job that they should do our vendors have been fantastic.
Had some.
Even through the weather challenges that we had in February our construction projects continue to be.
Moving along at a great pace.
The vendors.
Yes.
It's been a fantastic.
Folks pulling together and seeing what they are capable of doing we're not the only industry struggling with finding qualified labor.
The construction side.
Hello, Welcome some guys.
Yes.
Part of concrete the world the folks that are doing the job for us on the construction machinery vendors.
It's the team it's a team effort and it's working out.
Pretty well for us.
Okay, and I guess are there any product lines that are seeing increase strict above market.
Did that play a role in the spread of expansion sequentially.
There's a lot of detail the go into with that but in general.
Again, the residential piece was up the most.
And as the residential goes the commercial industrial typically follows that's been the pattern over the years once you get into the commercial you start to look at.
The circuit size of the intermediate size of the feature size.
Those are never in concert are equal to each other they always kind of hop around.
We saw that in the tail end of.
The Q1 in mid to late March we started to see upticks in the.
Activity around the commercial side.
Starting to see upticks in the second half of Q1 in activity in the energy sector, which feeds into the industrial products that we offer so.
All in all of it looks very positive.
From the second half of Q1 rolling into the current quarter.
Okay, and I guess just last one for me would just be on your current inventory levels of $90 million in inventory, which is about the same you had last year in the first quarter on a dollar basis, but.
Just given where copper is I would assume it would be less on a unit basis. So if you could speak the maybe your inventory levels and if we feel that sufficient.
Or are you going forward.
It feels like it's the right amount.
Our shipping.
The turnover for the finished goods.
A little quicker than I like.
I would prefer to be around 12 were probably running 14 or 15 right now.
So wherever there is some holes, we will try to fill in and continue to offer the service that we do so I wouldn't see it moving a whole lot, we can't afford really to stick it into warehouse and sit on it.
Basically right now everything that we are.
Putting on the floor has a home.
It is being shipped out pretty quickly.
Okay. Thanks for taking the questions and good luck in the second quarter.
I appreciate you Julio Thanks for your support.
And just as a reminder, if you'd like to enter the queue. Please press star one on your Touchtone phone and the next question comes from Bill Baldwin Baldwin Anthony Securities.
Hey, good morning, the breadth and Daniel.
And the Bill.
Can you offer a little color on the.
Part of it looks like this.
Or is the status of your large capital.
The spending programs here in this year as far as the.
Are your.
Vendors.
Time, you think with.
With what they're telling us they're going to deliver as far as the.
Given the good getting the equipment in some of your shop.
Based on the the schedules that you've laid out for them.
Hi belt, Brett, yes, they really everything really remains right on schedule with the service center opening up mid this quarter.
The final practice is being done in that process in the.
The general contractor along with the equipment manufacturers continue to.
Largely stand schedule with regard to the Repurposing of the.
Of the existing distribution center, we accelerated a lot of those orders as we said we placed a good chunk of them in the fourth quarter of last year, and so that acceleration of allowed for us to kind of get ahead and as those machines come in and we get the product in the racks out of the existing distribution center will start to two.
To get those installed so they really are kind of staying on the core of sustained on target capital expenditures in the first quarter.
$26 $5 million. So we're right continually continuing to track towards that 100, the $120 million of Capex estimate for for the year and so.
Things really are everything it takes them a lot more care and feeding bill.
A few extra of phone calls, but largely people are staying on the commitments.
So there are giving you confidence and they've got the.
They've got it under control as far as the capital of equipment for the Repurposing.
Program there.
What kind of.
Part of it excuse me Brad I'm sorry go ahead, not just said we got ahead of it and that was really partly why we accelerate the lot of these our team did a phenomenal job of it.
The infant challenges in the market and the acted upon it.
What's the what's the current thinking on the timing there.
The.
The repurposing of the facility should be able to start.
Given the ramped up you'll get the equipment in place and started the start producing.
Yes, so what we're saying bill as early 2022, we expect that the facility the.
Pretty close to fully up and running as.
As we get machines and later this year, we're not kind of let them sit outside and the range, we're going to get them installed and look to get them online as quickly as we can.
Okay.
So the safe to say that certainly by the first half of 2022.
Absolutely, yes, Sir.
Youre, probably shoot for a little bit earlier than that.
Okay do you know how we route where you are on here.
I understand I understand.
Great job in the.
For your time.
Thanks, Bill I appreciate all your insight.
And just as a reminder, if you'd like to enter the queue. Please press Star then one on your Touchtone phone.
And we're standing by for more questions.
And we have no further questions I will turn the call back over for final remarks.
Thank you Adrian and I appreciate the support and look forward to speaking to you guys next quarter.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
Okay.
Thank you.
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