Q2 2022 Encore Wire Corp Earnings Call
Yeah.
Welcome to the Encore wire reports second quarter 2022 results Conference call. My name is Richard and 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. If you have a question. Please press zero one.
On your Touchtone phone as a reminder, this conference is being recorded I'll now turn the call over to Bret Eckert. Mr. Accurate you may begin.
Thanks, Richard 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 second quarter ended June 32022 after.
For 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 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 them.
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 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 Encore wire.
Appreciate your continued investment confidence and support.
The results for the second quarter of 2020 to establish another high watermark, both financially and operationally for encore wire.
Our continued strong earnings in 2020 to validate that.
But our single site campus model is a strategic competitive advantage in the market today.
Giving us unmatched flexibility to quickly pivot and adapt to ever changing market dynamics.
Our manufacturing scale and flexibility couple.
Coupled with our value added services continued to drop job site efficiency stable demand, coupled with global uncertainties persisted tightness and the availability of certain raw materials.
And the general inability of this sector to meet demand for the timely delivery of finished goods.
Spreads strong throughout the first half of 2022.
By continuing to execute on our core values of providing unbeatable customer service and high order fill rates, we were able to increase both copper and aluminum volumes shipped in the second quarter and.
And year to date periods in 2022 over 2021 levels.
Volumes shipped were also up over first quarter 2022 levels.
This marks the third consecutive quarter of volume growth driven.
Driven by continued increased demand for data center healthcare and renewable product solutions.
We believe the existing market conditions and the current outlook support existing volume levels as well as support gross margin abatement, continuing at a gradual pace.
Copper unit volumes increased two 7% on a comparative quarter basis, and five 5% on a year to date basis comex prices decreased gradually throughout the second quarter, while other raw material cost inputs continue to rise copper spreads increase.
22% on a year to date basis decreased four 4% on a comparative basis aluminum spreads increased for both the quarter and year to date periods in 2022 compared to 2021.
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.
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 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.
Net sales for the second quarter ended June 32022 were $838 2 million compared to $744 4 million for the second quarter of 2021 copper unit volume measured in pounds of copper contained in the wire sold increased two 7% in the second quarter of <unk>.
<unk> two versus the second quarter of 2021 gross profit percentage for the second quarter of 2022 was 38, 3% compared to 37, 3% in the second quarter of 2021.
The average selling price of wire per copper pound sold decreased <unk>, 7% in the second quarter of 'twenty two versus the second quarter of 2021, while the average cost of copper per pound purchased increased three 2% net income for the second quarter of 2022 was $210 5 million.
Versus $183 1 million in the second quarter of 2021.
Fully diluted earnings per common share were $10 71.
In the second quarter of 2022 versus $8 82 in the second quarter of 2021.
On a sequential quarter basis fully diluted earnings per common share of $10 71 in.
In the second quarter of 2022 exceeded fully diluted earnings per common share of $7 96 in the first quarter of 2022 net sales for the first six months ended June 32022, we're 156 billion compared to one $1 <unk> 9 billion for the first six months.
2021.
Copper unit volume measured in pounds of copper contained in the wire sold increased five 5% and the six months ended June 32022 versus the six months ended June 32021.
Most profit percentage for the first for the six months ended June 32022 was 36, 2% compared to 34% for the first six months of 2021, the average selling price of wire per copper pound sold increased 15, 6% in the first six months of 2000.
22 versus the six months ended June 32021.
While the average cost of copper per pound purchased increased 10, 2% for the same period comparison net.
Net income for the six months ended June 32022 was $372 1 million versus $224 2 million in the six months ended June 32021.
Fully diluted earnings per common share were $18 62 in.
In the six months ended June 32022 versus $10 81.
And the six months ended June 32021, aluminum wire represented 15% and 13, 4% respectively of our net sales in the quarter and six months ended June 32022, aluminum wire volumes and spreads have increased for both the quarter and six months ended June <unk>.
<unk> 2022 compared to the.
Comparative periods in the prior year the favorable market conditions for the second quarter ended June 32022 were driven by stable demand for our products persistent tightness and the availability of certain raw materials ongoing global uncertainties and suppressed availability of skilled labor kept spreads strong through the second quarter two.
22, this marks the fifth consecutive quarter of elevated margins and spreads our balance sheet remains very strong we have no long term debt our revolving line of credit remains untapped.
We had $469 $5 million in cash at the end of the quarter during the second quarter, we repurchased 600000.
607105 shares of our common stock.
Year to date basis, we repurchased $1 million 108022 shares of our common stock for a total cash outlay of $131 $9 million since the first quarter of 2020, we have repurchased $2 million 224829 shares of our common stock at an average price of 90.
$6 71.
We also declared a <unk> <unk> cash dividend during the quarter.
The repurposing of our vacated distribution center to expand manufacturing capacity and extend our market reach was substantially completed in the second quarter of 2022.
The incremental investments announced in July of 2021 continue in earnest focused on broadening our position as a low cost sustainable manufacturing sector, and increasing manufacturing capacity to drive growth.
Capital spending in 2022 through 2024 will expand through vertical integration and our manufacturing processes to reduce costs as well as modernize select manufacturing facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible company in our industry.
Total capital expenditures were $75 million in the first half of 2022 compared to $118 million for the full year of 2021.
We expect total capital expenditures to range from $150 million to $170 million in 2020 to $150 million to $170 million in 2023, and $80 million to $100 million in 2024, those ranges remain unchanged from last quarter. We expect to continue 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.
Strong performance in the second quarter ended June 32022, further attests to the strength of our one campus vertically integrated low cost business model.
Which continues to thrive under current market conditions.
We wouldn't have this level of success without the consistent exceptional performance of our long term suppliers.
Our deep relationships and strong internal management team couple.
Coupled with consistent execution positioned 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 our company.
Beautiful customer service nimble operations and quick deliveries coast to coast.
In addition, we have the best distributor partners and Rep force in the industry.
I want to close by recognizing our employees for their hard work and commitment to safety and excellence our performance over the past five quarters could not happen without their 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 this sector.
Also wanted to thank our shareholders for their continued support.
Richard will now take questions from our listeners.
Thank you.
We will now begin our question and answer session. If you have a question. Please press zero one on your Touchtone phone if you wish to be removed from the queue. Please press zero two.
If youre using a speakerphone, meaning to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press <unk> one on your Touchtone phone and our first question comes from Mr. Brent Thielman continued Davidson.
Yeah.
Hey, Thanks, Good morning, Daniel Bret.
Hello, Brett.
Daniel maybe first can you just talk about the aluminum business I don't think we've seen that product at <unk>.
15% of revenue before.
What's behind the strength there.
The widening spreads.
Yes, there were.
A large number of projects.
That came online.
Acquiring the aluminum conductors.
Some of those moves copper in an effort to reduce some cost.
From the perspective by the time the product was shipped to the PEO was less.
Additionally, we have some utility projects that included upgrades.
Named expansions consume some of the domestic aluminum wire capacity.
And there were some lockdowns in China that.
Maybe prevented some of the import of aluminum wire.
Ocean freight shipping cost port congestion.
We were one of the things that led to the to the aluminum.
Yes.
Growth for us.
No.
Those factors that we spoke about created an environment to where.
We could we could ship on time and leverage it.
And our.
<unk> and our service level to meet the demand.
Okay.
Okay. Okay I appreciate that.
The way you guys talk about the supply side as some of these inputs I guess in particular copper it sort of seems at odds with what we're seeing in.
Market prices today, I mean, any additional perspective as we sort.
Think about those conditions persisting.
Yes, there's a couple of things specific the consumption side of copper outlook.
We see it is outpacing the supply side.
By a number.
Yes.
And what we had in the second quarter when you have copper.
Prices decreasing towards the end of the quarter like we had.
With this pretty strong pace on the demand side.
And a few of the sectors.
Typically see a halt.
Lack of commitment for inventory on the distribution side, so it really feeds into our model.
Having to just in time delivery and we take on.
The added pressure to deliver maybe a few more job sites rather than into distributor inventory.
We welcome that it fits our flexibility on the production side.
It really.
Puts the new service center.
Added services and whatever to test.
One of those 88 dock doors.
We saw some of that in Q2.
The demand side is still good and a lot of sectors.
And it puts the pressure on that on that.
Copper consumption side, we still see it as being pretty strong.
And hopefully the process.
Reflect that going forward.
Okay I appreciate that and then.
On the demand side, I mean, I guess historically.
Think of Encore wire is focused within the core of a house or a building, but it seems like the product.
<unk> has its place and some infrastructure applications whether that.
Related to the electrical grid or even EDI infrastructure can you talk about some of those demand drivers whether those can be a meaningful place.
For encore within all of that.
Yeah.
Great question, Brent what what.
We are seeing.
As everybody has seen the pressure on the residential numbers and starts there is a lot of conflicting data and the market when it comes to residential.
The RV market is still relatively strong Bolton.
Parked rfps in total rvs motorized rvs and what have you.
But what we're really seeing the consistent.
Demand.
Data centers health.
<unk> care.
And institutions schools.
Universities whatever.
The industrial side is pretty strong.
From an energy perspective, and then.
Also in the renewable sector.
Lot of strength in each one of those markets.
You do see a little bit of the.
Aluminum.
Demand.
Versus copper and then back and forth.
<unk>.
It's all pretty good across the board.
And you mentioned those four five sectors and so.
We're busy and incredibly busy.
The second quarter was very busy for us.
And really.
Okay.
Regardless of what happens in that residential sector for us.
We're doing other things in.
The products going out the door.
The residential numbers are what they are.
Okay appreciate that but just last one from me just.
It doesn't look like any changes to the capex outlook from what you can relate last quarter.
How are you approaching any sort of future plans that sort of it could be additive to what you've already laid out just come out with the backdrop of.
Well it looks like some softening in the economy here in the last few months, how do you how do you sort of assess site youre going forward.
Yes, we keep an eye on it Brent.
We're moving ahead with with our projects.
Each one of the projects will either.
Lower our cost or increase our service model.
So we're moving forward.
We're spending.
In that Capex category.
About as fast as we want to.
Some of the projects are a little slower than what we would like.
But we're moving ahead I mean, you've got you've got.
Nonresidential construction.
Sectors that are.
<unk>.
We're moving we're moving ahead.
The commitment to service and the.
Constant.
Yes.
Striving to lower costs and finding ways to.
Be better environmentally all those things play into these expansions.
Capex projects and so we're moving we're going to continue to move and adapt to the way the demand has shifted a little bit more maybe away from residential specifically, but when you talk about.
The manufacturing and mining and hotels commercial.
A lot of the industrial projects I mean, we're moving.
Pretty quickly on all of our projects.
Okay. Thanks, guys I'll pass it on.
Thanks, Brent Thanks, Brett.
Thank you. Our next question on line comes from Romero Sidoti <unk> Company. Please go ahead.
Yes.
Hey, good morning, Danielle O'brien.
Martin the earlier.
So you guys talked about the end market demand being driven by data centers education, renewables de carbonization and being a little bit.
More disconnected from like headline residential and nonresidential so to speak.
Yes, I was hoping you could speak on how does that translate the product mix like what product lines are now.
As a result of that seeing increased demand as.
As a result of those increased data center, a renewable as being a bit apart bigger part of your mix.
Fantastic. So it's the industrial cable commercial tables that we make.
Basically the non res plants the armored cable.
Plant.
We're busy in all categories.
And as you know Julio from from.
Visiting here in the past we're super flexible.
With our capacity so.
As the market continues to adapt and change in the demand comes in for the other categories.
It's more commercial and industrial products.
Traditional categories.
We can quickly adapt our residential capacities to meet.
Manufacture the products that we need to continue the high service level, which seems to be driving most of this.
I'll just add to that Julio These data center projects are increasing in size feed the completion has never been higher.
And diversity and so it's a lot more of the same that goes into that but but the key is more of it in faster right.
One campus model allows us to pivot and serve that very very well.
So we've seen expansion there we talked about the healthcare side, namely low voltage so whether that's expansion, whether that's new health care or whether that's powering lifesaving equipment in our wire plays very well in that space and then from a renewable side Green connect products power generation distribution solutions for solar.
Vehicle charging and battery storage utility applications.
A lot of what we've done I think this market is just when you look at it and you go back two years.
Five consecutive quarters, now, though elevated margins and spreads three consecutive quarters of volume growth as you go through this.
This market changes right, not just changing quarterly or monthly or weekly can change daily.
And speed and who the SaaS be slow and so you look at our ability and we talked about this one campus model. How we were built from a service standpoint.
Taken orders ship in order.
We're we're able to move very very quickly and that's that's been a differentiator and continues to be a differentiator in the market. We're in today and then when you overlay persistent tightness in raw materials that continues today, a very tight labor market.
We're able to continue to adapt pivot.
Move in the direction, we need to move in.
And that those raw material costs are going up or down and we kind of saw the opposite strategy. So what copper data solid aluminum did.
In the quarter.
The results were still very strong and that's just a testament to our ability to respond to what the market needs.
Great No that's a great comprehensive answer.
So you are able to kind of flex there.
Your manufacturing capacity across product lines, if if needed.
I guess my.
Follow up to that would be kind of your competitors do that can your competitors flex capacity to.
To the extent that you guys can.
Yeah.
Probably so.
Sure.
Mechanism of <unk> and <unk>.
Decades ago.
I used to let me go through their plans.
I've been through most of our competitors.
Locations, but.
It's been quite some time.
I. Thank all of our competitors are running their plants.
Everybody's busy.
I'm sure they've got some way of reacting.
I leave it at that.
Julia.
Can you hear me now.
So again you back okay.
Just on spreads if you could just speak to how they've trended sequentially.
As you exited June how did that spread compared to maybe the spread for the second quarter overall.
Well, let's just look sequentially fantastic question I appreciate you, bringing that up I mean net sales was up almost 16% over the first quarter gross profit 38, three in the second quarter versus $33 seven in the first quarter.
And then go back to the underlying dynamic that we've talked about which is the volatility in the raw material.
And it highlighted it's a lot more like we've been saying throughout this pandemic is just the metal right you still got insulated Cablet jacketed and arm right you got to put it out of real right and you've got to get it you got to get it to the job site or to our to the distributor and all that goes into it with the labor component of making a finished good.
Gross profit move almost five points.
And the inputs from the sector for the first and second quarter net income was up 30% our earnings per share was up 34, 6%.
Copper pounds shipped second quarter over the first it's up eight 8% and the spreads up about seven 5% and so take what you will from those trends.
It continues to be <unk>.
Taking what the market gives you and adapting and pivoting and do what we need to do to continue to serve our customers.
Great well very nice job and thanks very much for taking the questions.
Thank you Julio.
Thank you once again for any questions that zero one on your Touchtone phone. Our next question comes from <unk> Patel private Investor. Please go ahead.
Hey, guys. How are you doing this morning.
Good how are you how are you doing.
Doing great.
So I just had a couple of quick questions Oh, the first one being.
Related to the <unk> balance.
Thank you.
No.
Maybe just if.
If you could just provide a little bit of color about the growing balance and about.
Accounts receivable turnover.
Hum.
Individual investor like me kind of understand that cycle I guess.
Yes, Great question I'll tell you we ended June with about $605 million.
So in accounts receivable.
<unk> balance remains 99.8% current.
We had no write offs during the quarter.
Our receivables typically turn.
It's in the low to mid sixties, but all in you're looking at about a 70 or so they turn it ebbs and flows based based on that receivable, but that balance every single quarter is poured out into cash and then you replace it.
With.
With the next quarter sales I'll tell you all in it is nothing within that that concerns me is very consistent with what sales has been doing so it grew as sales grew in the quarter, but nothing to report there.
No that makes sense.
Thanks, Thanks for that clarification, the 60 day cycle definitely helps out.
And.
My next question is related to capital allocation. So you guys have been doing.
Pretty healthy buyback.
And the pace of at the current pace.
You're likely to exhaust the cause.
Is it existing plan that was put in actually fairly recently.
What are your thoughts kind of on when that runs out is the plan to refresh. It for are you guys thinking more dividend.
I'll tell you. This I mean, if you said this consistently every single time, we sit down with the board and Daniel and I talk we go through what's the highest and best use of cash in that capital and cash allocation and the triggers we have our capital expenditures and Daniel has been very clear it's about.
Either taking cost out of the system, we're improving our service levels.
And we continue to execute on that plan.
Stock buybacks has always been one and we did announce the extended expanded stock buyback of up to 2 million shares through March of 2023, and we bought back about $1 1 million under that authorization.
When we meet with the board again will go through the same exercise in discussion and refresh again, what is the highest and best use of that cash.
And then act accordingly, so we look at it every time, we meet and Daniel and I talk about it constantly and we will continue to evaluate it.
Those three triggers the dividend being the lesser the three I still think the focus will be on the first two.
Okay.
Thanks.
And then my last question is related to just.
You guys have a great story, and it's probably one of the.
At least the known story for how great. It is.
Any plans to kind of get.
Yes, that's for you out there grew.
Conference participation this year or any other means.
Yes, great question.
Investor outreach continues to be very significant we had $10 conferences. We can one of the things. We are in the process of doing this tees up well if folks didn't take notice. If you look at the bottom of the second page of the press release, where we say encore wire or the company's description that was deliberately changed.
And that wording is different than what it has historically been.
We will continue to push that out we're getting ready to launch an updated investor deck that will be available this week.
And it gets a little bit more into the markets we've talked about.
Data centers renewable what commercial industrial and residential looks like in.
In today's world about the infrastructure build of $450 billion infrastructure Bill.
I talked about.
What's been driving some of our gross margin.
Then just from a supply standpoint, the tightness in supply in some of the outlook that you could look out towards from a copper perspective.
Where the fundamentals are just not aligned you got three five days of copper above ground right now and a price that does not supported and so once things ease a little bit or a little bit of good news comes out of China, you could see that swing very quickly so.
What we are going to try to make a conscious effort to really kind of changed a little bit as to maybe understanding where our products are being utilized today compared to what they are utilized previously and how that fits into.
The hardening of the grid modernization and the decarbonization and the renewable world.
Awesome Awesome all of our call music to my ears. So that's all the questions about it.
For your investments there. Thank you.
Thank you. Our next question online comes from Mr. Bill Baldwin Baldwin Anthony Securities. Please go ahead.
Good morning.
Congratulations on continued outstanding execution.
Thank you.
<unk>.
Couple of housekeeping items here.
Bret what percent of the revenues did come out of the residential market here in Q2.
So Q2 residential was right at 30%.
And that compares to about 34% in the second quarter of last year.
If you compare to the first yes.
So 30% for the second quarter 'twenty two.
38% for the first quarter of 'twenty. Two so you can see a little bit and if you went all the way back to the second quarter of 'twenty. One it was 34%, but if you remember the second quarter of 'twenty, one coming out of Covid right. That's when residential was meteoric right. It was a lot of pent up demand and then it went from media.
So just really really hot and it's kind of right in that.
<unk> enough.
Where are you seeing the primary tightness in your raw materials.
Pacific Raw materials continue to be tied and do you expect that to continue.
Through the rest of the year.
Yes, I think it's the world we're in today Bill I do see it continuing.
The players changed right one.
One one gets a little easier and three more get tighter and then those two of those three start to get a little better than for others pop their head up.
Metal remains very very tight.
And that's not changing and it continues to be challenged from that standpoint, and our long term relationship with our partners.
<unk> been phenomenal they continue to perform day in and day out and that's a huge differentiator because we can't deliver finished goods without raw materials, but.
Just about every raw material, we need from the biggest to the smallest.
There is still some level of tightness or challenges right and I'd say as I say, those ebb and flow, but I don't think that's the world. We're in today you still can't buy a car. So can buy a boat, we still waiting for windows and doors and it's just kind of become the norm. So I think this title is here to stay for some time.
Okay.
What trends are you seeing in freight availability and freight rates.
Alright.
Yeah, it's gotten a little bit better okay, it's still higher than what we've seen historically.
But we've been able to high grade a little bit our third party trucking brokers has done a phenomenal job of navigating that market sorry.
Starting to pull in.
Those reductions again, it's still higher than what we've experienced historically, but it's getting a lot better and we're getting to be good.
<unk> realigned with the with the providers.
Providers and truckers that we'd like to be aligned with.
Yes.
Very good.
And.
Lastly, as you get more into.
Large project work.
Things of that nature on the non res side.
Perhaps there's other drivers also.
Are you, where you want to be with you.
Distributor situation in all geographic markets or is there opportunities to.
Either upgrade or add distributors to broaden out your market reach either geographically or customer wise.
Bill This is Daniel we have really good distribution in all markets.
Currently there is one or two.
<unk>.
That will be taken.
Taking on going forward, but for the most part.
We're in a good spot really good spot.
The difficulty from a sales perspective.
A lot of times is taking on some.
Maybe maybe too fast.
<unk>.
But as we've discussed pretty openly as we continue to ramp up.
This capex on our service level and lower cost approach.
We will continue as the market evolves.
Sure.
To upgrade as you know.
Also.
Consistent.
Committed to getting paid on time.
And so we watch that pretty closely.
That's a testament to the quality of.
Our distributor network that we have in place in their <unk>.
Those reps in the field.
Knowing which projects to go after.
We're doing.
They're doing a fantastic job.
As Brett indicated for.
For our receivables to be where they are and to be basically 100% current.
It tells you the quality of the distributor and the sales reps that we've got out there.
Well no question.
Execution has been fantastic across the broad spectrum, obviously of all year.
Facets of your business so.
Congratulations.
Thank you Bill Thanks Bill.
Thank you.
Again for any questions that zero then one on you touched on phone.
And I'm, showing we have no questions in queue.
Alright, Richard well, thank you very much.
Participation and the questions today, and we look forward to.
Third quarter call I appreciate it.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.