Q1 2022 Encore Wire Corp Earnings Call
Phone. Please note that this conference is being recorded I will now turn the call over to Bret Eckert, Sir you may begin thanks.
Thanks, Sheryl good morning, and welcome to the Encore Wire Corporation quarterly conference call I'm, Brett <unk>, 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 quarter ended March 31, 2022 after the financial.
To 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 there.
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 comparable 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 will now turn the call over to Daniel for some opening remarks Daniel.
Good morning, everyone and thank you for joining us on the call and for your interest in noncore wire. We appreciate your continued investment confidence and support.
The continued strong results in the first quarter ended March 31, 2020 to Mark the fourth consecutive quarter of elevated margins and spreads.
Stable demand, coupled with developing global uncertainties, and persistent tightness and the availability of certain raw materials drove copper aluminum and other key raw material prices higher in the quarter.
Because of this trend we were able to increase average sales price for our products keeping spreads strong strong throughout the first quarter of 2022.
We still believe our one campus model is a strategic competitive advantage in the market today, giving us unmatched flexibility to quickly pivot and adapt to dynamic external market forces.
By continuing to execute.
Upon our core values of providing unbeatable customer service and high order fill rates, we were able to increase both copper and aluminum volumes shift on a comparative quarter basis over 2021 levels.
Volumes shipped were also up sequentially over fourth quarter of 2021 levels.
We believe existing market conditions and the current outlook should support gross margin abatement, continuing at a gradual pace.
Copper unit volumes increased eight 6% on a comparative quarter basis.
Comex copper prices increased steadily throughout the first quarter, along with increases in other key raw material cost.
The upward volatility positively impacted and supported market spreads.
Copper spreads increased 86, 1% on a comparative quarter basis with.
With the new capacity coming online this year.
We believe encore wire remains well positioned to capture incremental market share and volume growth in the current economic environment.
As we address the near term challenges, we remain focused on the long term opportunities for our business, including improving our position as a sustainable environmentally responsible leader in our industry.
We believe that our superior order fill rates and deep vertical integration will 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.
Net sales for the first quarter ended March 31, 2022 were $723 1 million compared to $444 1 million for the first quarter of 2021 copper unit volume measured in pounds of copper contained in the wire sold increased eight 6% in the first.
Order of 2022 versus the first quarter of 2021.
Profit percentage for the first quarter of 2022 was 33, 7% compared to 19% in the first quarter of 2021, the average selling price of wire per copper pound sold increased 43, 3% in the first quarter of 2022 versus the first quarter of 2021.
While the average cost of copper per pound purchased increased 19, 3% net.
Net income for the first quarter of 2022 was 161 5 million versus $41 2 million in the first quarter of 2021 fully diluted net earnings per common share were $7 96.
In the first quarter of 2022 versus $1 99 in the first quarter of 2021 aluminum wire represented 11, 5% of our net sales in the quarter ended March 31 two.
Aluminum wire volumes increase for the quarter ended March 31, 2022 compared to the comparative period in the prior year.
The favorable market conditions in the first quarter ended March 31, 2022 were driven by consistent demand for our products persistent tightness and the availability of certain raw materials, developing global uncertainties and suppressed availability of skilled labor drove copper aluminum and other key raw material prices higher in the <unk>.
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Because of these trends, we were able to increase average sales prices for our products keeping spreads strong throughout the first quarter of 2022 <unk>.
This marks the fourth consecutive quarter of elevated margins and spreads.
We expect these conditions will abate in the future, but we are unable to predict the timing of that statement. However, we do believe the existing market conditions and the current outlets should support gross margin abatement continuing at a gradual pace.
Our balance sheet remains very strong we have no long term debt and our revolving line of credit remains untapped.
We had $466 $1 million in cash at the end of the quarter. During the first quarter, we repurchased 500917 shares of our common stock at an average price of $116 55 for.
For a total cash outlay of $58 4 million, we also declared a <unk> cash dividend during the quarter.
The New service Center opened in mid May 2021, that's fully operational today, the repurposing of our vacated distribution center into a newly formed plant seven will expand manufacturing capacity and extend our market reach we expect this transition will be completed in the second quarter of 2022.
Incremental investments announced in July of 2021 continue in earnest focused on broadening our position as a low cost sustainable manufacturer in the sector and increasing manufacturing capacity to drive growth.
<unk> spending in 2022 through 2024 will expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible leader in our industry.
Total capital expenditures were $32 million in the first quarter of 2022 and $118 million for the full year. In 2021, we expect total capital expenditures to range from $150 million to $170 million in 2020 to $150 million to $170 million in 2020.
Three and $80 million to $100 million in 2024, we expect to continue to fund these investments with existing cash reserves and operating cash flows I'll now turn the floor over to Daniel for a few final remarks.
Thank you Brett.
Our strong performance in the first quarter ended March 31, 2022 further attests to the strength of our one campus vertically integrated low cost business model, which continues to drive them to current market conditions.
Wouldn't have this level of success with ups consistent exceptional performance of our long term suppliers.
Our deep relationships and strong internal management team, coupled with consistent execution positions us favorably in the market, allowing us to maintain our overall LOE cost structure.
Looking ahead, we remain solely committed to execute upon the core values of the company unbeatable customer service nimble operations and quick deliveries coast to coast.
I want to close by recognizing our outstanding and dedicated employees for their hard work tenacity and commitment to safety and excellence.
Our performance over the past four quarters could not have happened without the extraordinary efforts.
Our success in the market continues to allow us the opportunity to incrementally invest in our team as we position encore as an employer of choice in sector.
Also want to thank our shareholders for their continued support.
Cheryl will now take questions from our listeners.
Thank you we will now begin the question and answer session. If you have a question. Please press zero one on your Touchtone phone.
You wish to be removed from the queue. Please press zero too.
Once again, if you would like to ask a question. Please press <unk> one on your Touchtone phone.
Our first question comes from Brent Thielman from D. A Davidson your line is now open.
Hey, Thank you good morning, congrats on another great quarter.
Thanks, Brett.
Hey, Hey, Daniel I think historically your unit volume.
Yeah, typically slow in the first quarter, but it sounds like they were up from four Q.
You got to find that interesting just wondering if thats a function of sort of continued tightness and a desire to get materials onto a job site as fast as possible whether you are starting to see the demand environment gapping up in the fourth quarter what are your thoughts around that.
Yes, I think I think you are right on track with the breadth.
We've seen pretty pretty steady.
Demand coming from all the sectors.
Residential is still strong.
Commercial side is strong and the industrial side.
Is strongest for us.
The amount of quotes that we're seeing in the.
Execution on the delivery side.
Our fill rate is significantly improved.
In the first quarter.
There's a lot of things that occurred kind of came together, but from a demand perspective.
We're continuing to see.
Each of the sectors.
To be pretty strong.
Including the aluminum piece.
Okay.
And Daniel are you.
Look at that.
Yeah.
Strong spread increase are you seeing larger spreads your premiums.
For certain of your products.
Relative to the whole portfolio, just based on industry demand for those products or just the lack of availability I'm. Just wondering if there is a few.
Select products that are really moving the needle here or is this just really across the entire portfolio.
It's really across the entire portfolio of products. The sales team's done a really fantastic job of managing that intake. So they were able to execute perform.
The production team operations teams really back to Mark.
There's not one particular category.
Over the others, if you had to.
Pick one.
For whatever reason it could be.
The aluminum push has been good the residential push has been good the commercial side has been really good.
And industrial is strong as well so there's really not.
One it's just outpacing your outperforming the other the overall market itself has been really good for us.
Yeah.
Okay.
And then Daniel just beyond.
Copper, which we can all see is still pretty tight in the market.
What other things still kind of contributing to this sort of a supply constrained environment for the industry that they.
There might be prohibiting others from meeting that kind of lead times that you are able to meet.
We've got as we mentioned in the prepared statements we've got fantastic support.
And partners.
With our vendor situations so.
All those things are tight and they have to be managed incredibly well.
The execution of our team has been fantastic, but I really think that one location model has allowed us the opportunity to perform maybe.
Maybe a little better than that.
Some of the competitors in the market from that perspective.
Theres still a tightness in the market pretty much across the board.
Sure.
Aluminum tight copper side.
Some of the PVC raw materials are tied pretty much across the board freight side.
There is still that that pressure, if you will to really pay attention to what's happening.
We were really aggressive enable to perform real well in the first quarter on cost controls.
Actual usage controls.
Maximizing the trucks that do show up on time.
It's really not.
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There's not one particular item that stands out as being a problem as far as the supply chain piece goes it's all still relatively tight.
Brent is.
Just a real focused push.
A lot of pressure on the people side here.
And everybody's responding the way that they should at this point so.
It's actually it's actually going along pretty well you do feel the pressure when you when you come in.
Through the plant.
It's incredibly clean.
The people are showing up on time and doing a great job.
Okay, well, thanks for taking the questions I'll get back in queue best of luck.
You bet. Thank you Brad.
Thank you. Our next question comes from Julio Romero from Sidoti <unk> Company. Your line is now open.
Hey, good morning, Thanks for taking my questions.
You bet.
So you guys talked about stable demand and persistent tightness on the supply side how is the.
Operating environment changed if at all over the last two months.
Uptake.
It's evolving right.
It's probably a lot what you see in your in your personal life.
It just ebbs and flows something they'll get a little bit better in one month and then it tightens up the next month.
I still think throughout the supply chain you have seen the impact of Underinvestment during the pandemic.
And and reactionary.
Terminations or layoffs that you kind of build back your forest and get that investment dollars flowing again, and thats still kind of trickles through what we see today. So one thing gets a little better.
Thats up for the month and three others go the other direction, but.
It is still a lot of effort.
Executing exceptionally well our suppliers are executing exceptionally well.
But they're doing it in a continued tough environment. So it seems like when they fix one link of the supply chain put strain on three others.
And that's what's consistent last year in that same pattern held through the first quarter.
Okay very good.
Speak to the end market mix, how much of your sale of these days are coming from non residential versus residential and then secondly on the nonresidential side, if you could talk about.
Or the.
At the same sub sectors that have driven growth in the past data centers hospitals warehouse is still the key the key drivers of growth today.
Yeah I'll take the first one is danielle once we get into the detail on the second but from a residential standpoint for the quarter was about 31%.
That compares to 32% for the first quarter of last year. So it's pretty consistent just look at like the first quarter compared to the fourth quarter you were at 31% residential in the first quarter. We were at 29, 5% residential in the fourth quarter. So it stayed fairly steady and consistent.
Between those two.
Yeah.
How do you want me to frame the answer Julio what was your question.
Yes, just asking on the nonresidential side.
Our which subsectors are driving growth today.
Okay.
On the commercial piece.
Overall, it's good categorically.
Without getting too deep into the details.
There is some changes on the demand side.
Good some.
The differences on the approach on the <unk>.
<unk> has changed a little bit seems to be more.
Driven toward.
The service side, which we thrive with.
The timing of the deliveries which is.
One of our strengths.
That has really paid off for us in the last quarter.
The approach to the commercial cold side.
The timing of from the quote to delivery.
Shrunk dramatically the volatility in raw materials with volatility in finished good deliveries in the industry.
Have helped to drive that.
But when.
The once that closes given.
Purchase orders placed and the delivery that whole timeframe is really compressed and causing a.
A little bit of chaos Thats, a good payoffs for us because we're able to step in and make those deliveries.
The industrial side is not too far from that.
We've also seen.
Solar projects really were.
A nice pickup in volume in the first quarter.
Again, a lot of those are.
Not custom products, but custom delivery concerns potentially.
And so we were able to charge for that service.
It was good it was good volume in the quarter. So.
Those two would stand out from a volume perspective.
Over maybe some of the others so.
The discussions and prep around.
Yeah.
The upgrade to the grid has been really good discussions.
Theres actual orders.
In the pipeline, but.
I would say solar in data and in the grid upgrade has been the.
Something that kind of stands out as b.
From a volume perspective.
Q1, specifically.
Okay.
Very helpful and then.
Just last one for me.
Talk about the expanded stock repurchase plan, you've gotten much more aggressive with buybacks, which.
To me it looks like you have good confidence in the underlying business.
How are you thinking about capital allocation going forward.
Thank you.
Great question Julio.
We know that expanded buyback increasing the authorization to 2 million shares through March ended March 2023, as you know we've now repurchased 500000 of those in the first quarter. If you go back to the repurchases even going back to when we started this buyback in March April of 2020.
We've purchased over one 4 million shares over that period, and so we continue to see after capex.
And the growth in the Capex focused on deepening our vertical integration to take costs out to help us with our order fill and speed of a shipment and then and then environmental and things are associated with that but the next highest and best use continues to be the share buyback.
And I think the boards authorization in the execution on that in the first quarter give you a good indication as to what we think of the stock.
Great. Thanks, very much for taking the questions.
Thanks Julia.
Thank you once again, if you have a question. Please press <unk> one on your Touchtone phone. Our next question comes from Ron Vitol Private Investor. Your line is now open.
Hey, guys.
Im going to follow up on the question that was just asked regarding share buyback.
So as you mentioned you bought back a ton of shares in the last quarter.
And average price of $116.
The Doc from what I can tell currently.
It's trading below that price.
<unk>.
What do you think gives you the confidence to deploy capital in that manner.
That potential investors and wall Street may not be understanding or appreciating and what are your plans in terms of delivering that message in terms of increasing.
Better awareness.
And potentially increasing analyst coverage.
Good question Ron.
The analyst coverage side, I mean, Julio at Odeon, Brent at da Davidson of long covered us they are both very very solid.
Analysts and I think do a great job.
As you navigate through repurchases you can go back in history, we've typically bought back the stock closer to book value and Thats really what you'd evidence when you look at the buybacks in March 2020 in April of 2020, when we got about 441000 shares.
Subsequent to that point in time.
We started to experience the growth we had last year and it started to look at the triggers we utilize as far as the best and highest and best use of cash.
Generally when youre buying back at these levels.
Is almost more of a return of capital to shareholders.
It shows the confidence we have in the stock.
If you look at our P/e.
Sitting below four right now.
So with the trailing 12 months earnings.
32 that little over $32 and so.
We all feel including the board confidence in the value of the stock and think that the buybacks at these levels are very much still warranted.
You see the board's intention and the direction, we've got with the authorization of up to 2 million shares through the end of March next year.
With the 500000 that we repurchased this quarter again, I think that was a very good use of cash.
Even with the $58 million that we spent in the first quarter on buybacks. The 32 million that we spent on capex.
We still grew cash $27 million so.
From a cash perspective, the balance sheet remains very very strong with sufficient resources to fund all of our Capex growth.
Without leveraging the company and still have the opportunity to to.
To look to other uses so that's what the alignment in the announcement that came out in February related to.
Awesome awesome.
And then you mentioned.
As far as.
Gross margin.
In the future could could potentially.
Potentially drop off.
And when I look at.
Forward estimate.
They consistently show.
Earnings potential going through a drop off.
Uh huh.
And I apologize that my questions are probably not a Polish.
Britain Julio's, but.
Essentially I'm just wondering do you see that drop off in gross margin anytime in the near future.
And if.
If not what kind of gives you.
That visibility.
Okay.
Good question Ron is the tough one we've always said you know if you could tell me exactly what copper at all other raw material costs.
Access to skilled labor distribution and freight costs right I could give you a better indication.
And it's a difficult this is a different world. We're in today a lot of constraints across the board on the raw materials and you need them all to be able to make residential and commercial building wire.
And Nick the pandemic and the shortages in the tightness of supply chain is really highlighted.
The significant component that each one plays in and producing a finished good and the final product.
We had I think gross margin of around 15% in 2020.
And then you looked at gross margin on a year to date basis last year.
33, 5%.
Obviously as we look towards this weeks, we really said all last year that we thought fit from a copper perspective. It probably peaked in June and we expect it to abate and most of last year. We always said, we just didn't know when it would abate we didn't know if it would be abrupt or gradual.
Four quarters in now we feel more comfortable with that gradual abatement and I think if you look at the margins as to what they did for last year for the fourth quarter, and then where we came out in the first quarter. It has shown its abating at that slower pace, but there is still as you look at this we look at the outlook we looked at the tightened.
That still exists and you look at the demand.
And those are the factors that we are considering as we kind of look out we don't give guidance, Ron and but it's based on what we're seeing right now we see it continuing to trim it a more gradual pace.
Okay. Okay, that's fair.
And my last question is related to.
So you mentioned that you have seen some pickup in orders related to the upgrading of the grid and <unk>.
<unk> installations.
<unk>.
With the passing of the bipartisan infrastructure, Bill and the upgrading of rural broadband broadband and.
The.
With the upgrading of the grid.
I imagine there is there are some.
Upgrading for the wiring and peoples residential houses as well.
Does that put some Florida, where there might be concerned of new home sales falling off does that put in some sort of floor with passing on that.
Infrastructure Bill going forward into the future just love to get your perspective on that.
Yes, good question.
<unk>.
As far as the residential piece each house based on a square footage.
Measurement, which show that Theres more copper going into our house definitely with the upgrades that we're having.
The broadband piece.
We strictly manufacturer 600 volt building wire.
As the grid is upgraded.
There is service entrants cables, all kinds of products that will contribute.
To that end with the.
The increase in demand and increased volume.
Categorically, we will see.
<unk> demand coming from.
Even.
As Youll see you might see some number of houses the building permits wherever it might be.
I'm trying to kind of.
Not to get too deep into it and it's hard to answer that but.
There should be demand coming.
Yes.
From these quotes that we're already seeing.
We will we will be able to participate.
At a higher volume.
And maybe too vague.
But.
It's not a bad thing.
For our 600 volt cable category.
For this to go forward.
Okay.
Great.
I will jump back in queue.
Thanks, Ron Good question.
Okay.
And presenters at this time I show no further questions in queue.
Well. Thank you everybody. Appreciate your time. This morning appreciate your investment in encore and enjoy your day.
<unk>.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.