Q3 2021 Encore Wire Corp Earnings Call
Good morning, and welcome to the Encore wire reports third quarter results Conference. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer testing during which you will be telling star. One if you have a question. Please.
Please note. This conference is being recorded I will now turn it over to Bret Eckert you may begin sir.
Thanks, Brandon Good morning, and welcome to the Encore Wire Corporation quarterly Conference call. My name is Bret Eckert Chief Financial Officer of Encore wire with me. This morning is Daniel Jones, President CEO and chairman of the board in a minute. We will review encores financial results for the three months and nine months ended September 30.
2021.
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 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 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.
I'll turn the call over to Daniel for some opening remarks Daniel.
Good morning, everyone. Thank you for joining us on the call if you're interested in encore wire. We appreciate your continued investment confidence and support.
The health and safety of our employees and their families remains our top priority.
And we are following CDC guidelines and maintaining safe working conditions, while we continue to serve our customers.
The strong earnings in the third quarter ended September 32021.
Estimate to the grit and determination of our employees to serve our customers.
With the exceptional performance by our suppliers and vendors.
We remain laser focused on fulfilling the core values of our company.
Unbeatable customer service nimble operations and quick deliveries coast to coast.
Encores, one location vertically integrated business models strong management team and deep raw materials supplier relationships.
Have allowed us to remain fully operational while mount while maintaining our high standard for fill rates to meet customer demand.
While continuing to adapt to the evolving needs of our customers.
We were able to increase copper volumes so both over the third quarter of 2020.
As well as on a year to date basis over 2020 comparative levels.
We believe we can sustain this volume growth compared to prior period levels for the remainder of 2021.
Copper unit volumes increased seven 9% and 13, 3%.
For the three month and nine month periods ended September 32021, compared to the commensurate periods in the prior year.
Comex copper prices remain fairly stable throughout the quarter before pulling back slightly to end the quarter.
However, all other raw material costs continue to rise during the quarter.
The upward volatility positively impacted and supported current market spreads.
Copper spreads increased 181, 1%.
On a comparative quarter basis, and 155, 1%.
On a year to date basis.
We believe encore wire remains well positioned to capture market share.
And incremental growth in the current economic environment.
As we address the near term challenges, we remain focused on the long term opportunities for our business, we believe that our superior order fill rates.
And deep vertical integration continue to enhance our competitive position.
As customers as orders come in from electrical contractors, our distributors can continue to depend on us for quick deliveries.
I'll now turn the call over to Brent to cover our financial results Brett.
Thank you Daniel.
Net sales for the third quarter ended September 32021 were $716 3 million compared to $339 7 million for the third quarter of 2020 comp.
Copper unit volume measured in pounds of copper contained in the wire sold increased seven 9% in the third quarter of 'twenty, one versus the third quarter of 2020.
Gross profit percentage for the third quarter of 2021 was 37, 8% compared to 15, 7% in the third quarter of 2020.
The average selling price of wire per copper pound sold increased 95, 5% in the third quarter of 'twenty, one versus the third quarter of 'twenty, while the average cost of copper per pound purchased increased 48%.
Net income for the third quarter of 2021 was 175 5 million versus 21 million in the third quarter of 2020.
Fully diluted net earnings per common share were $8 51 in the third quarter of 2021 versus $1 two in the third quarter of 2020.
Net sales for the nine months ended September 32021 were 190 5 billion compared to $896 1 million for the nine months ended September 32020.
Copper unit volume measured in pounds of copper contained in the wire sold increased 13, 3% in the nine months ended September 32021 versus the nine months ended September 32020.
Gross profit percentage for the nine months ended September 32021 was 33, 2% compared to 15, 1% for the nine months ended September 32020.
The average selling price of wire per copper pound sold increased 91% in the nine months ended 2021 versus the nine months ended September 32020, while the average cost of copper per pound purchased increased 55, 6% for the same period comparison.
Net income for the nine months ended September 32021 was $399 8 million versus $52 million in the nine months ended September 32020.
Fully diluted net earnings per common share were $19.31 and the nine months ended September 32021 versus $2 51 and.
In the nine months ended September 32020.
Aluminum wire represented nine 1% and seven 5% respectively of our net sales in the quarter and nine months ended September 32021.
Aluminum wire volumes have increased for both the quarter and nine months ended September 32021, compared to the comparative periods in the prior year.
The favorable market conditions in the third quarter and nine months ended September 30th were driven by rising raw material prices and continued demand for our products. In addition production challenges across the sector, including income inconsistent access to raw material disruptions in the distribution network and access to <unk>.
<unk> labor created unique market conditions in the second and third quarter of 2021, we expect.
These conditions will abate in the future, but we are unable to predict the timing of that abatement or whether such abatement will be gradual or abrupt.
Our balance sheet remains very strong we have no long term debt and our revolving line of credit remains untapped.
In addition, we repurchased 393379 shares in the open market during the quarter and declared a <unk> <unk> cash dividend.
Our two phased expansion plans announced last year remain on schedule.
The New service Center opened in Med Bay and its fully operational today.
As to which is focused on repurposing, our now vacated distribution center to expand manufacturing capacity and extend our market reach is on schedule for an early 2022 openings.
As announced in July 2021, current market conditions have afforded us the opportunity to accelerate our capital expenditure plans and incrementally invest across our campus. We believe these investments will broaden our position as a low cost manufacturer in this sector and further increase manufacturing capacity to accelerate growth.
The incremental spending in 2021 through 2023 will expand vertical integration and our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency capped.
Capital expenditures are now expected to range from $115 million to $125 million in 2021 <unk>.
$150 million to $170 million in 2022, and $120 million to $140 million in 2023, we expect to fund these investments with existing cash reserves and operating cash flows I will now turn the floor over to Daniel for a few final remarks.
Thank you Brett.
Also in the third quarter ended September 32021.
Further attests to the strength of our one campus vertically integrated low cost business model, which has proven successful successful since inception and a <unk>.
Driving the current market conditions.
We remain focused and nimble adapting to changing customer needs and fluid market dynamics.
Throughout the third quarter of 2021 sales prices and margins remained strong as we successively successfully navigated raw material price volatility and.
Our steady enduring relationships with suppliers and vendors positioned us favorably in the market.
And us to maintain our overall LOE cost structure.
When we take a brief moment to recognize our employees and associates for their hard work.
Perseverance and hustle during these unprecedented times.
Our performance this year could not have happened without their extraordinary efforts and contributions these.
These results have allowed us the opportunity to incrementally invest in our team as we continue to position encore as an employer of choice in this sector.
I'll also want to thank our stockholders for their continued support.
Brandon, we'll now take questions from listeners.
Thank you Sir we will now begin the question and answers.
A question Star one on your phone keypad, if you'd like to be removed from the queue. Please tell the pound sign.
If youre on a speakerphone, please pick up your handset before daylight.
Once again, if you have a question. Please tell star one on your phone keypad.
And from Sidoti <unk> Company, we have Julio Romero. Please go ahead.
Thank you good morning, Daniel and Brett.
Hey, good morning.
So my first question would be on pricing can you speak to the selling prices you realized as you exited the September quarter and.
Maybe talk about if selling prices as you exited the quarter or <unk>.
Higher or lower than the overall quarter average.
Oh, yes.
And we take that one Brett let me I'll start and then I'll jump it to you if that if that works for you Oh, Yeah. A great question I think as you navigated through the quarter and we had said in the last call. We were you felt that you know margins probably peaked in June and as I stick with that statement, although it was gradual.
If you looked at what copper did overall during the quarter I think that align pretty consistently what sales price had done over the quarter. So it was.
Fairly steady with with a with a gradual.
Gradual change from the peak in June.
Yeah.
Okay.
I was hoping you could speak to the competitive environment a bit.
Obviously, the reliability piece is working well for you guys I mean is there a.
Our sense of urgency for some of your other competitors to maybe try to improve their reliability or is that just not the way that they operate.
The overall market Julio is.
Still dealing with quite a few challenges as far as you know.
Labor shortages throughout the industry.
There's a persistent supply chain issues.
Yeah.
Input cost across the board.
And then to speak just a little bit to the.
Pricing in the quarter.
When you start the <unk>.
Month off and you can pick any of the three months of the quarter and you see the volatility as much as 35 or 40 cents a pound on just copper.
In the past.
Obviously copper is the biggest.
Are the easiest thing for folks to track and what have you.
But the pricing piece of it.
It's more.
Today and continues to be focused on the delivery side. So.
When you look at what the competitors are doing or not doing.
We're more focused really on what we're able to do more than what theyre doing in the market.
We've built some.
Brand preference if you will as much as can be built based on the service piece.
And that's where we are.
Making it happen I mean the execution.
At the distributor level and the contractor jobs side level.
It is where we're making it happen and new quite frankly.
It's just not as.
Hollywood topic to talk about what the competitors are doing or not doing at this moment I mean, we just.
We're just doing our thing and the execution is really where it's at.
Okay.
Got it got it so I guess, maybe if I could ask that another way I mean if.
What part of the reliability value prop would you say is the most difficult for your competitors to replicate.
Yeah.
Question here I don't know I don't know what they are.
I don't think it's any one issue.
For them to address really I think they're all doing very well.
I haven't heard of any.
We'll complete shutdowns or walk out so you know really havent heard anything in the market.
Leading to any issues at all could speak to I think they're all doing very well.
You know I am sure there.
Right and orders and shipping and doing the things that they do in.
You know, it's a pretty robust market for the residential piece as you know and.
As that starts to kind of.
Maybe drift.
Sure.
More normal numbers.
It's time for the commercial.
Commercial to take off in the industrial piece has been pretty strong with.
Crude oil coming back to about 80 Bucks.
I don't know specifically what to tell you I don't have anything bad to say about any of them I think they're all probably doing real well in this market.
Okay. I guess just last one for me is you know it was very nice to see you.
Repurchased some shares at these levels if you could give us a quick refresher of how you think about your purchases and then more broadly.
Refresher on your overall capital allocation priorities.
You want me to take that one Daniel.
Yeah, So just kicking it off Julio Great question, you know as we said before you know when we look at our highest and best use of cash you know we continue to look towards three triggers and and first this capex can we take out costs from the system from the process.
<unk> can we expand manufacturing capacity and efficiency and so that continues that's what we've done from the very start in inception, and how this campus was built under Daniels leadership and and that is the continued focus today yeah. The next step would be looking at you know are in no particular order share repurchases.
And then something with the dividend those really are the three uses of cash the debt that we've always focused on given the fact that we've never done an acquisition in our history.
As you are it was disclosed in the 10-Q.
We had authorized through the board its in the 10-K as well for the repurchase of up to a million shares I think that authorization expires in March of 2022.
Yeah.
Okay, very nice quarter, gentlemen, I'll hop back in queue.
I appreciate the support.
From D. A Davidson we have Brent Thielman. Please go ahead.
Thank you good morning.
Hey, Daniel maybe on the supply of raw materials side, I mean anything whether it's purchasing topper resins or anything else that you use manufacturing process.
Are you seeing anything he's up for you in particular right now or is it all pretty tight.
You know.
It's better than it was but there is still pockets of.
Obviously challenges to get things in here.
You know as we mentioned in the prepared remarks, we've got a fantastic.
No.
Purchasing department and they're very good at what they do.
We've built relationships over many years.
And we rely on it and push it and you know Oh.
All of those things and then.
One of the things that sticks out is.
On the supply chain execution piece.
We're really good at matching.
Each quote.
Real time.
We're.
Our personality is not to put a price out there.
And wait and see what happens.
Every close that comes through as a real time quote.
Quote that were matching up to.
<unk>.
Up to the moment.
Supply chain.
Cost increases.
You know a penny here opinion there.
Aluminum I think year to date is up almost.
60 cents a pound.
Natural gas has doubled.
Plasticizers up 40, or 50 cents, a pound I mean, everything that we touch diesels up 60, 70 cents a gallon everything is more expensive.
Brent So it forces discipline in this industry, which you've heard me say before.
You can you can dilly dally with some quotes and put a price out there and leave it for a couple of days, if you want to but in this market.
That's not what we do and it doesn't work for us.
The.
The challenge each day of getting.
Raw materials in here.
Down too.
Shipping expense items stretch film pallets reels and whatever it might be.
We're just super attendant to detail, we've got a fantastic team we've got one campus.
And.
You just do what you gotta do to get the stuff in here and.
Yes.
It's not a.
Really sleeves up and get after Brett <unk> spin.
Part of our time during the day chasing things down and making certain to get here.
Fair parks for equipment.
Anything you can think of propane for the forklifts whatever it might be so.
It's a team effort.
And again you know.
We go in and try to support.
Purchasing team and see what we can do to help them.
Quite frankly with our balance sheet.
With our cash position, we're able to do some things that maybe other folks are not able to do and we take advantage of that any chance that we can.
Certainly don't mind spending money as long as it's going to lower cost or increase our service level, where we can charge more so.
Yes.
It's a long answer to your question, but the supply chain piece.
Really when it comes down to.
Again is it execution on matching up that.
Our supply side to that to that real time quote.
Okay I appreciate that Daniel.
I guess when I look at the volume growth over the last couple of quarters that it's a little challenging I think from our side because it's so much disruption a year ago, when you try to compare it.
And then you've also got the service center investment, which presumably is kind of helping you out right now too.
Yes.
You just take a step back that way.
What does the market feel like today, I mean, what sectors are strong and driving the growth how much is the service center investments sort of helping you today I mean any.
Qualitative commentary you can offer on that I think would be really helpful.
Yes.
The backlog in the quote volume remains.
Remarkably high.
Our success rate or hit.
Right on the quotes is fantastic.
The residential market.
I think we'll probably get closer to normal, but it's still a very robust market for US you know and then.
Yeah, again, with you know crude being $83 or so whatever it is a barrel.
And industrial sectors picked up pretty strong.
<unk>.
You know the commercial construction market.
Even though I don't think you see it yet in some of the reports that are lagging maybe.
That commercial.
Continues to.
Gain some momentum.
That's really a good use of some of our larger products and from a pounds.
For foot standpoint.
Every market that we ship into.
Seems to have some type of supply chain.
Disruption.
<unk>.
Structural steel.
Switch gear, we've even mentioned an experienced challenges for PVC raw materials, I mean, everything we ship into us.
Experiencing volatility.
With some forced discipline, which is allowing us to execute and charge for it.
The solar photovoltaic market is really hot right now it's a good market.
The utility market is.
Gearing up obviously for Fluor.
Grid upgrades.
Grades.
We're seeing you know.
We're seeing good numbers come in really across the board. If you had to pick one that was not as good as others that would be the commercial piece, which as you know.
A veiled positive because when it comes it comes pretty quickly typically right behind that residential industrial piece and so.
Really kind of across the board we're seeing.
Good things happen.
That's great Daniel maybe a last question that I think I know what kind of answer I'm going to get here, but you've got a war chest here in terms of the balance sheet and probably going to get even bigger.
Yes.
That different things Youre already doing right now in terms of putting money to work in the business.
Are you evaluating to new sectors, you spin off a few there and the utility side.
Are there new areas that youre looking hard at that Youre not in now.
Could present, an opportunity now that you've got a balance sheet with so much cash on it you could go after just any thoughts there would be great.
Yeah.
It's like even sitting in the office up here with us or something but yes.
We're peddling as fast as we can and.
We've got our eyes on some stuff out in front of us.
<unk>.
And moving as quickly as we can is the best way to put it the key for for any of these expansions anytime we.
Spend the money that we're spending.
It's still lower cost or increase maximize our service offering.
All those things are.
Very easily done and the key is getting the right guy or girl in the right spot to make it happen and so.
That's where we're at things are going along great.
You had some fantastic additions to the team and.
That's probably all I should tell you.
That's great congrats on a tremendous quarter.
I appreciate your support.
And once again, if you have a question please don't darn one.
Getting back or anything further.
From Baldwin Securities, We have Bill Baldwin. Please go ahead.
Yeah good morning.
Daniel and breadth.
Fantastic execution again this quarter.
Thank you.
On your yes.
Capex.
Laid out.
The 2020.
'twenty three.
Was increased pretty materially.
Is that kind of pulling things forward that had been scheduled for 2024, but due to the cash flow generation you.
Decided to move that up to 2023 is that kind of what's going on there just acceleration of.
Perhaps longer term plans coming in now to the three year plan.
I'll take that Daniel Bill. It's it's it's great question. It really is just a little bit of balancing you know as we look out and we've got a list of projects. Obviously, we announced some of those are in July.
But as you kind of navigate that cash spend piece of it you know there's always a mouse that is it going to hit you know in November and December or is it going to trickle into January February and so that you'd get your estimate then and kind of clarify those based on lead times for machine orders.
Getting the right contractors in here for the work we need done it was just a little bit of balancing from that standpoint, so it's probably a little of both.
Oh, Okay. Thank you.
Thanks Bill.
And standing by for any further questions.
Well Brendan you've done a great job and I appreciate you folks, calling in and supporting US and look forward to next quarter's call. Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.