Q1 2023 Encore Wire Corp Earnings Call
Good morning, My name is Anna and I will be a conference operator today.
At this time I would like to welcome everyone to the Encore Wire Corporation first quarter 2023 earnings conference call.
Things have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question again press Star one thank you.
Bret Eckert you may begin your conference.
Thanks, Dan Good morning, and welcome to the Encore Wire Corporation quarterly conference call I am Brett accurately executive Vice President and 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 first quarter ended March 31.
2023 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 measure.
As discussed during this conference call to the most directly comparable financial measures presented in accordance with generally accepted accounting principles, including EBITDA, which we believe to be useful supplemental information for investors are posted on our website I will now 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 strong results for the first quarter ended March 31, 2023 marked our eighth consecutive quarter of elevated margins stable demand in the quarter, coupled with continued domestic and global uncertainties and persistent tightness and the availability if copper drove metal prices higher in the quarter, while other raw materials.
Cost remained fairly flat.
Our key suppliers continued to perform at a high level, which positioned us favorably to meet customer demand in a timely manner.
By continuing to execute on our core values of providing unbeatable customer service and how we fill rates ongoing market margin abatement remain gradual in the first quarter of 2023.
I continue to believe that our operational agility speed to market and deep supplier relationships remain competitive advantages in our survey serving our customers' evolving needs.
We remain committed to reinvesting in our business with current and planned projects focused on increasing capacity efficiency and vertical integration across our campus. We also remain committed to shareholder capital return as evidenced by our significant share repurchases in the quarter.
Copper unit volumes were flat in the first quarter of 2023 versus the first quarter of 2022.
Copper spreads decreased four 2% on a sequential quarter basis as compared to the fourth quarter ended December 31 2022.
We continue to believe encore wire remains well positioned to capture market share 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 company in our industry.
We believe that our superior order fill rates and deep vertical integration 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 the financial results Brett. Thank you Daniel.
Net sales for the first quarter ended March 31, 2023 were $668 5 million compared to $723 1 billion for the first quarter of 2022 copper.
Copper unit volume was flat in the first quarter of 2023 versus the first quarter of 2022. The decrease in net sales was driven by a decrease in the average selling price in the first quarter of 2023 compared to the first quarter of 2000 2022 aluminum wire represented 14, 6% of net sales.
In the first quarter of 2023.
Gross profit percentage for the first quarter of 2003 was 31, 1% compared to 33, 7% in the first quarter of 2022, the average selling price of wire per copper pound sold decreased 11, 8% in the first quarter of 2023 compared to the first quarter of 2000.
22, while the average cost of copper pound purchased decreased eight 2%. This resulted in the gradual abatement of copper spreads in the quarter, primarily driven by a decrease in the average selling price noted above offset somewhat by increased aluminum spreads which resulted in the decreased gross profit.
Margin in the first quarter of 2023 compared to the first quarter of 2022.
The increase in SG&A in the quarter was primarily due to an increase in stock appreciation rights or Sars expense driven by the increase in our stock price at March 31, 2023 compared to December 31, 2022, we recorded $13 2 million in <unk> expense in the first.
2023, compared to book in a $4 8 million Starz benefit in the first quarter of 2022, resulting in approximately $18 million increase in expenses period over period.
No stars were granted subsequent to January of 2020 as this plan was replaced with the deferred cash plan.
Net income for the first quarter of 2023 was $119 5 million versus $161 5 million in the first quarter of 2022 fully diluted earnings per common share were $6 50 in the first quarter of 2023 versus $7 96 in the first quarter of 2022.
We started off 2023 strong while navigating and stable demand fluctuating raw material costs and continued gradual margin abatement. We also faced headwinds in February and March with the banking prices domestically and globally, our team rose above the challenges to deliver another strong quarter persistent tightness in the available.
Availability of certain raw materials ongoing global uncertainty and the continued suppressed availability of skilled labor kept overall spreads elevated in the first quarter of 2023 as Daniel stated this marks the eighth 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 697 $4 million in cash at the end of the quarter. During the first quarter, we repurchased 702478 shares of our common stock for a total cash outlay of 120.
$7 1 million since the first quarter of 2020, we have repurchased 3.674 million 755 shares of our common stock at an average price of $119 38.
For a total cash outlay of $438 7 million. We also declared a <unk> <unk> cash dividend during the quarter. In addition in February of 2023, the board of directors extended the repurchase authorization for up to 2 million shares of our common stock through March 31, 2024 with <unk>.
$1 million 297522 shares remaining for repurchase under that authorization.
The incremental investments announced in July of 2021 continue in earnest focused on broadening our position as a low cost manufacturer in this sector and increasing manufacturing capacity to drive growth in 2022, we began construction on a new state of the art crosslinked polyethylene or X L. T E.
Compounding facility to deepen vertical integration related to wire and cable installation <unk>.
L. P installation is used in many applications, including data centers oil and gas transit wastewater treatment facilities utilities, and wind and solar applications. We anticipate the new facility will be substantially completed by the end of the third quarter of 2023 capital spending in 2023 through 2025.
<unk> will further 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 company.
Total capital expenditures were $148 4 million in 2022, and $31 8 million in the first quarter of 2023, we expect total capital expenditures to range from $160 million to $180 million in 2023 $150 million to $170 million in 2002.
24, and $80 million to $100 million in 2025 weeks.
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 our strong start in the first quarter positions us well for 2023, the consistent success further attests to the strength of our one campus.
Vertically integrated low cost business model, which continues to thrive under current market conditions.
I believe our single site business model provides us with efficiency and scale advantages compared to the Multilocation operational models standard in our sector.
This remains a competitive advantage, giving us unmatched operational agility and speed to market and serving our customers evolving needs.
Despite persistent tightness and the availability of certain raw materials, our supplier partners continued to deliver on our commitments to encore.
Wouldn't have this level of success without the consistent exceptional performance of our long term suppliers.
The labor market also remains tight and are limiting constraint for many companies operationally, we continued to grow through investments that enhanced our service model increased capacity reduced costs and focused on the health and wellness of our employees.
Looking ahead, we remain solely committed to execute upon our core values of the company unbeatable customer service nimble operations and quick deliveries coast to coast.
I remain confident in the strength of the encore team in place as we stand ready to navigate any challenges of liner path.
I want to close by thanking our employees for their hard work and commitment to safety quality and excellence. Our continued success would not happen without their outstanding contributions.
Our strong financial results have allowed us to opportunity to incrementally invest in our team as we position encore as an employer of choice in this sector also want to thank our shareholders for their continued support.
And Emma will now take questions from our listeners.
As a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Maria Romero with Sidoti <unk> Company. Your line is now open.
Thanks, Hey, good morning, Brian Good morning, Daniel.
Good morning.
Hey, just to start off on the copper volumes realized in the quarter flat year over year. If you could maybe speak to what tempered volumes there Brian I think you called out in the prepared remarks, some headwinds with the banking crisis in February and March.
You can elaborate on that impact at all and how does that impact continued into the second quarter.
Well as you know.
So we're not going to really touch on anything post March 31.
We definitely saw like like everyone in the country saw uneven globally. There was a lot of uncertainty as you got into a February into March which was going on with the banks what was going to happen with interest rates that always leans in on the commodity right as the dollar stronger as the dollar weaker you've got to play with regard to that so you saw some.
Fluctuation in those copper prices, even though availability is still very very very tight in the shape of copper has never been more critical.
And so that had a little bit of headwind that we experienced we also saw.
Which.
What happens during those times as distributors tend to take a look at their inventory and take their inventory levels down a little bit because they see a lot of fluctuation in the copper balance they want to get a little bit leaner. So we did see distributor inventories come down 15% to 20 days.
A good thing in my mind, you coming into the second quarter. They are a lot leaner inventories, which plays very well into our immediate order immediate ship business model and so.
I like that position as you head into the second quarter.
Okay.
Got it I appreciate the detail there so I guess fair to say, you've got available capacity to generate volumes above the.
First quarter run rate.
Oh, absolutely I mean, we've been adding capacity, but youre always going to take a look at really balancing volume and margin.
Looking to optimize your capacity and utilization you got to continue to focus on customer service and profitability and margin is important in that process and so those decisions are made on an order by order basis.
Yeah.
Got it and then maybe turning to SG&A I know you called out in the press release, the impact of the $13 million of stock appreciation rights.
Maybe talk about how you expect SG&A to trend for the remainder of the year.
I think it's been tracking it I think last year is probably a good indication there's everyone had some wage inflation and we will see a little bit of that coming into it.
From last year to this year, but some of that you saw even last year's numbers.
The Sars expenses is just something you can't control is why we went away from them you know the stock price went from 137 at the end of December to 185 and change at the end of March and so that Delta.
Is what you would pick up and revalue every single quarter and so you essentially get some of that back going into next quarter and how things settle out so thats going to ebb and flow, but the standard cost the commissions freights been looking better the ability to freights better. So I think all in Youre.
Youre going to see I think last year was a pretty good representative number.
Yes.
Very helpful I'll pass it on and circle back with any follow ups.
Thank you.
Your next question comes from the line of Brent Thielman with D. A Davidson your line is now open.
Hey, Thanks, Good morning, maybe just picking up on <unk> question about.
You just that the volume Daniel let me here.
You are.
Hearing from customers in.
Overall do you still feel like you're in a demand environment that supports the capacity investments that you've been making in filmmaking.
Areas that are.
The frequency of closer is still pretty good.
Specifically to the industrial side the commercial market.
Still going along good.
The residential piece that we talked about a couple of quarters back in <unk>.
The biggest hit if you will.
But again, you know the volatility in the quarter.
It had to do with comex prices fluctuating as much as 55 or 60 during during the quarter.
Some of the projects that are being discussed about may get pushed out a week out a month out of quarter whenever it might be.
Those things happen.
We certainly are not during our capacity up for one specific quarter.
The capacity that we have.
Geared towards that service model, where we feel.
Where we know.
Our strength is.
What we're after we do have.
An opportunity to catch up on some items, which is fantastic for the service, which is what we're after when we we started adding the capacity piece, but again that volatility in the quarter of comex coupled with.
On the geopolitical forces you've got the bank issue that was.
Not really giving folks a lot of confidence.
That lasted about a week or 10 days.
There was a pause there that you could you could see in field.
But as far as.
Where the volume ended versus the comp last year's first quarter.
Happy with the numbers.
I am pretty bullish going forward on what's happening in that industrial and commercial.
Each one of those segments are doing real well.
There are pockets that are still pretty hot.
Versus other geographical spots, but for the most part.
The industrial and the commercial both or.
Moving along at about the pace that we thought would happen.
And would you call your customer I guess distributor inventory levels into the second quarter sort of unusually low, especially considering this is when the construction season ramps up.
Yes.
You see the movement in copper like do you have and the uncertainty with interest rates.
They may be on the on the leaner side going into the second quarter Julio.
Definitely towards that side of it.
You typically start to see a build as you get into the summer months.
So they can be responsive to that demand, but they.
It's not unusual to come in a little bit lean like this particularly when you've got the volatility in copper and you've got a partner that you know that can deliver right. So it takes it off their balance sheet.
Yes.
And the inventory balance Bret with quite a bit higher than last quarter, and especially last year in your raw material costs, presumably are down.
We infer that you're studying on any larger sort of balance of finished goods that just didn't go in Q1 that ultimately should in the second quarter.
Well no I mean as you look at it as we've been doing since we opened a service center may of 'twenty, one we've talked about needing to build inventory levels right.
Key to this business is as the shape of the inventory as well, having a little bit more raw in this market when copper is as tight as it is in the shape is as challenged as it is gives us more flexibility and we've got the balance sheet to sustain it having more with a super important to get closer to the end shape right.
Again, I can make it any color I'd get Cablet constraint you just tell me what you want right and so we do lean and to get a little bit more.
Speed and customer service with regard to that and then there was a continued commitment to build finished goods and all in for the quarter copper was up even though the other raw materials were fairly flat and so all of that's what you see in the balance sheet of inventory.
Okay, and then it looks like aluminum spreads were still favorable but overall.
Overall aluminum revenue was down from the fourth quarter, I guess on absolute basis, and as a percentage of total revenue and.
Sort of a two part question did that have a big impact on the gross margin comparison to Q4, I think aluminum benefited your margins in the past few quarters and then just the second part of that would be with aluminum also caught up.
And some of that distributor.
Stocking.
You talked about.
I think it goes both ways aluminum is a little bit more subject to imports and so with some of the international markets, particularly China opening up last year right. You did see an increase of some imports to catch up and that tends to impact aluminum more than it does cover.
Aluminum spreads were up compared to the first quarter of last year.
I've always talked about copper spreads likely peaking in late June of 'twenty one right.
Although being very gradual I'd, probably tell you I would've saw aluminum spreads IV peak in the fourth quarter of last year.
But there is still very strong and there is still accretive to overall results.
Okay.
Maybe one more I'll get back in queue Daniel address.
I understand you don't give guidance maybe could you just help us understand what would.
<unk>.
Expanding margins into the second quarter from the first quarter, because you had some pretty big factors this quarter, including lower spreads kind of flat volume, where you werent getting the operating leverage and margin wasn't that much lower than year on year. So I'm just trying to think about those factors as we move into the second quarter and way.
What's going to be the governor on margin expansion.
Well I mean, as you know we've talked about marriage and abatement right for two plus years now right and so the key is managing that at a gradual level. If you look at the last couple of years margins you could probably throw a bell curve on it right. It always starts a little bit lower than the first.
It comes up a little bit in the second and third it comes back down.
The market conditions are going to dictate at the ability of our peers to be able to deliver finished goods in a timely manner is going to impacted how tight the metal continues to be and how significant that tightness in the shape is you know what I mean by that is rod.
Only one other competitor that has their own Rockville, and so if you can't get the Rod you need domestically and you have to look internationally, you're going to countries all over the world Dubai you name. It right. That's a long way to go to get Rod and so that can be a limiting factor all of that is going to come into play copper today.
Now estimates will tell you China could be up to 60% of the world's <unk>.
Copper consumption.
They start to get more bullish and get moving this year, that's going to draw on the metal that you've got.
It's in three five days above ground. So all of those factors come into play as you look to convert skilled labor has not gotten any better I think it's the new norm and so the ability to do to manage that that impact on every operation is something that we'll continue to lean in on and all of that is going to go into it come into what <unk>.
Margins do on a go forward basis, but we work on every single order.
To make sure it fits within.
The parameters that we're looking for and putting customer service first and obviously profitability and margin plays into that.
Okay, I've got a few more but I'll pass it on thank you.
Thanks, Brett.
Your next question comes from the line of Ryan Connors with Northcoast Research. Your line is now open.
Good morning, Thanks for taking my question. This morning, and I, just had one which was bigger.
Bigger picture in nature, but actually a segue from your previous response there to that question about just the tightness of copper markets and so my question was around sort of recycled.
And.
Recycled scrap.
Availability as a raw material component both both for yourself.
You compete with and other related markets for raw material I know you do have your own scrap purchase program in house.
But is that something you're investing in.
Have you seen external other players investing in scrap scrap processing capacity to try to bill.
Buildup that that side of the raw material base curious any color you might have there.
Yeah, no. It's a great question as you navigate this what are the things that we really saw it as you get deeper into the pandemic and coming out of it is the scrap supply and it makes sense right people were not buying automobiles you werent seeing as many.
<unk> going that were that were causing a lot of scrap to be generated the scrap supply got very tight.
It goes hand in hand, when Theres only 335 days above ground right. There's a lot of scrap that is going overseas a lot is going to China because their pain at one point they were paying comex for scrap which you typically get a discount for scrap we have the ability in our furnace to process it but we only buy the highest quality.
And so the availability of scrap is extremely tight it goes hand in hand, with the tightness in the metal itself and so.
We did talk about last year, we were buying less scrap.
Flip side of that is pure cathode I can run faster and so there's a there's a bit of a give and take as you look at that and so is the spread between comex and scrap tightens I'd, rather buy cathodes in scrap and it will continue to evaluate that but the scrap market is very very tight I think as you look at the outlook for copper get past 'twenty.
Five there's a looming supply gap, that's not going to help the availability of scrap right, it's going to it's going to get folks continuing to.
Maybe go after scrap closer to comex and at that point in time, it's just not economical to pursue.
Okay I appreciate that thanks for your time.
Yeah.
Thank you Sir.
Your next question comes from the line of you lever.
Yes.
You have taken.
Thank you.
Taking the question I have a question regarding the new facility, you're building, which should be completed in Q3.
What.
The cases do you see do you see more revenue or higher margins from that and the second question is are you planning.
<unk> share buyback program since there is only a little spare capacity, which might run out in the next two quarters can you elaborate on that one thank you very much.
Perfect question. Thank you for that so I'll start with the second question.
Can you look at last year. So yes, the board authorized us to repurchase up to 2 million through March 24, and when we purchased as you know a little over 700000, and leaving the balance for the remainder of the year similar to the authorization, we got from the board a year ago.
So at that time had authorized 2 million shares through March 23, we bought back a little more than $1 1 million shares last year and the first two quarters.
And then at that point in time, the board actually refresh the authorization back to a full $2 million and so it's something that when we talk to the board and meet with them every single meeting, we'll evaluate where we sit with regard to <unk>.
Purchases in the market and the remaining authorization and when the board makes a decision as to how they want to act.
With regard to the <unk> PE facility and that's part of what we've talked about and deepening vertical integration right. You got to look to see where you think the demand potentially is going and when you. We've talked a lot about strength in data centers right in oil and gas.
The infrastructure investments that are being made in transit and wastewater treatment hardening of the grid with regard to utilities and you've got wind and solar from a renewable right. All of that takes this cross selling polymer <unk> LTE installation and so you know as a company our manufacturing you have to always balance the buy versus make.
And if we can.
Put a facility and.
That we can find ways to make it cheaper than we can buy it and then it also gives me a much broader access to supply so normal longer limited by someone else's capacity I can leverage my own to be able to lean in to what the market offers so it is part of our vertical integration strategy, we've got our own plastic.
Nailed it makes their own PVC installation in PVC pellets and now we will have our own <unk> facility. So it picks up the other side of the installation.
So maybe a follow up question on that one.
For the Capex since you have quite quite flushed with cash which is great.
Could you envision another use for Capex in terms of not only investing in the run facility or doing share buybacks, but making a take overall.
Going into copper mines, or whatever or is that.
Suited as an idea and the second one is did.
Did you evaluate.
Our company is going to profit from the inflation reduction Act.
Yes, so with regard to vertically are deepening our capital spending we typically you see it in both our press release in the comments, we made today, we stay pretty general until we get closer to a facility opening but we are focused over the next three to five years and continuing to have deepened vertical integration.
As well as to reduce costs and modernize select wire manufacturing facilities to increase capacity and efficiency and so all of that continues as we get closer.
We'll announce more specifics about other projects in the mix.
Youre in this 150, 170 180 type million spending.
As we roll out another year, we'll update for any additional spending opportunities.
What was your second question.
As you look to how much you can profit from the in place and reduction Act, because I think you're gonna prime spot.
Sure cables and stuff.
It's going to be needed in the oil and gas or even in windows.
Sure.
Absolutely I mean, I think everything you see when you look out and say okay. What's the market look like it goes back to Brad's question. It really gets back to what you all think about the continued expansion of the Datacenters and what AI AI may due to that and what you think about renewables in this country look at Evs right, 1% of the vehicles in the U S.
Our electric right, but to get to that you first get a build battery plants, you've got to build the facilities to build the cars you need more semiconductors, and so you've got to build semiconductor plants all of that takes wire and cable and then once you get the electric vehicle the electric vehicle charging capacity in the U S is not great right.
We're not stopping at a major gas station, where the restroom and a chance to buy a drink right youre stopping at odd locations that charge. The vehicle. So that has to get more mainstream the majority of a charging station is copper.
<unk> power it with aluminum and so a lot of things with regard to the infrastructure hardening. The grid in the electrification is all going to take wire and cable with a looming supply gap in copper.
Had it out there in the next three years to four years and so those are the constructs that we look to when we look for capacity additions in where we want to build in the market.
Yeah. Thank you just you brought your shareholder base in Europe , I guess Theres a lot of.
Good great topic to go on the road show it yet because this topic is in everybody's mind in everybody's mind here.
Fantastic. Thank you for that I appreciate it thank you.
Okay.
Your next question comes from the line of Mike <unk>. Your line is now open.
Good morning.
Good morning, Mike.
My question is really on the process that you go through and your thinking which I applaud.
That caused you to be so aggressive both on the amount of shares as well as the price paid in Q1, which I believe averages out to a little bit under $181 a share.
As we go forward.
Does that demonstrated.
Our confidence in our future outlook and your cash flows.
If you could comment the process you go through and why it got so aggressive this quarter. Thank you.
No listen I think we've been pretty consistent you know we bought back.
785000 shares I want to thank in the third quarter last year and now.
We continue to execute on the board's authorization.
We do see it as a return of capital to shareholders.
It gives you some level of confidence in what we think and the value as you go through this process. We only have really three levers we've never done an acquisition in our history and so when you look at our use of cash balance you've got Capex, we've got a very robust capital expenditure plan over the next three to five years.
You look at the.
The dividend, which is only two a quarter and you look at stock buybacks.
And there's a lot of benefit from the stock buyback side and shows the confidence that we think is out there. So I think with that that authorization by the board for up to 2 million more shares and the activity we did in the first quarter.
You can interpret.
That makes sense I appreciate it and I have visited you haven't been there in Mckinney is probably 15 years ago, but.
I understand that the philosophy no acquisitions, I think the organic growth story.
And exceptionally well executed and.
Thanks for what you're doing keep doing it.
I'll come back and tell you, yes, we've changed the business.
Okay I might do that thank you.
<unk>.
Your next question comes from the line of Brent female Thielman with D. A Davidson your line is now open.
Hey, thanks.
Hey.
Daniel I mean, you and your customers had to deal with right of erratic sort of movement in copper prices. This last quarter could you talk about the traction.
You saw with attempted price increases, especially just given how.
Tightened the supply such a.
Thanks price situation is in the market.
Yeah.
Good point.
You saw copper start off the year and start off the quarter around $3 70, something.
Run up too.
425 ish or whatever.
And then back back off a little bit and then actually ended up the quarter at the tail end of March with some strength and so what ends up happening.
As you can imagine.
The industry does not.
Change the price sheet on the way down, but when there is a price increase.
There is a fresh new price sheet that is an increase over the last one.
And we had really good traction within the quarter.
Couple of different price increases going to a new price sheet.
There is times when.
The industry will change the discount levels.
And <unk>, what have you, but it was very clear and very consistent message in the quarter to.
Get those prices up a little bit in reference to some of the raw material volatility in it again.
The demand in the.
Different buckets of our product offering has been pretty fantastic.
Specifically toward that industrial and some of the more niche products in the commercial line. So.
Two to hit the.
Requirements on some of the repeat business the demands of the customer.
We charge for it.
When it doesn't go out to the market.
On a bid process and get chopped up.
It's it's good business, it's good margins and everybody's happy.
The price increase and the sheets there were in the quarter.
You announced them with a day or two clean up and then go right to that sheet and we had good success, which is another vote of confidence for the bullishness that I have in the marketplace.
That's really helpful. Daniel I appreciate that.
I wanted to come back I mean, you and others.
For sector talked about industrial desk.
Industrial project all the different things that are out there I'm wondering if you can just talk about how meaningful that is now for for encore.
Like to give percentage parameters I get that but just something to help us understand from the outside looking in how much of a bigger deal that is as it relates to your business and if I could just follow up too maybe just helping folks to understand what the biggest drivers of the aluminum business right now because that that looks very healthy.
Yes, the industrial piece.
The way the market works for us on the industrial side.
There's limited capacity and there is limited.
Availability of product in the majority of the volume that comes through.
It was on a custom.
Built to order basis to begin with.
So.
The volume is pretty sustainable from a copper pounds perspective, the footage the multi conductor combinations the color combinations in a lot of those things or specific too.
The job itself and so it's.
It's a pretty fast pace.
But what you get in.
And start to work through some of the requirements of the end users and the installers.
That's where our service model.
Go from.
Not having the product on the floor to delivering the product for installation pretty quickly.
That allows us to charge for that value and charge for that service level.
When when Youre seeing.
The amount of quotes that are coming in.
And the work that you have to put in.
Ahead of time before you actually arrive at quoting that price.
Sure.
It's shielded horta insulated really from the usual price cutters that we deal with in the marketplace, specifically because the amount of time and work that was put in leading up to those custom.
Vacation so it's good volume.
It has good margins.
And the other part is it.
A lot of it is backed by.
Some of the opportunities that are there with the.
Interest rate infrastructure and some of the.
Duction active there in the marketplace to the feds are financing so.
Huge opportunity.
Hundreds of billions of dollars into the electrical market. We're just trying to make sure that we participate in the areas of opportunity that we've identified and then as far as the aluminum piece goes.
Alright.
Aluminum is less volatile really from a pricing perspective in the marketplace.
On a bias or a trend basis, but you have aluminum start off the year.
<unk> started off the quarter.
In the low 40 <unk>.
Sure.
Ran up to I think it was about.
$1 70, some odd dollars 71 or something to pound and then fell off a little bit and then stabilized towards the end of March so.
As it relates to the metal price itself.
Quite a bit of volatility for aluminum.
Which attracts as you know from our story in the past it attracts some of the opportunistic threats that we've dealt with historically from imports.
The good thing there is when it when it creeps back up or stabilizes.
<unk> discipline in the marketplace and at some point the product has to be actually delivered so we were able to perform very well and hang on to.
Margins in deflect some of those threats from.
The overall outside noise.
And two in the market, but the volumes are still happy with the.
The demand is still good.
<unk> been very clear in the past as you know and I am still coincidentally I prefer to sell.
So in ship copper.
But in this market the aluminum is very important for us to go forward and.
We're actually pretty good at what we do on the aluminum side.
Yes.
Just on the XL P/e plant startup any reason to think the ramp of that ramp up of that facility can be dilutive at all the margins in a meaningful way just as you try and get that to.
Sort of a steady pace.
Going forward.
That plant is to as you know bring some of our cost in house to control those costs in house.
It's a.
It's a very important.
Piece of the industrial cable market and Thats, a very important piece of that commercial.
Market cable that we make.
A higher temperature installation ratings and a little more durable cable overall so.
We will benefit and we will treat it the same and.
As our history has shown when we're able to lower our cost and increase our service model in a particular segment.
Segment, we can really do.
Do some things in <unk>.
You control really of the input side of that raw material is going to be.
Win for us.
Okay.
One guys I got to ask I mean, you haven't been shy about buybacks.
Yes, obviously substantial activity here over the last couple of years I mean, as you look at your stock.
Sub one five times.
Book value and anything you can tell us today about how you're thinking about repurchases there.
Well I think as Brent is Brett again, I mean, I think as you look at this I mean, the board came out after.
Pretty significant purchase level last year with almost $2 1 billion with a reauthorization of up to another 2 million shares and so.
You can look back since February of 'twenty, and we've been active in the market for repurchases. So.
Again, I think you've got to interpret that from your perspective.
But we do as we've said before through the first quarter, we've seen that as a good use of cash.
Yes.
Okay. Thanks for taking all the questions guys I appreciate it.
Great question Brett.
Yeah.
Your next question comes from the line of Andrew Shirley with <unk> capital your.
Your line is now open.
Hi, Thanks for taking the question you touched on this earlier, but I didn't quite get.
The net response I was just curious was the copper price spike in early January a headwind at all to realized spreads during the quarter.
It's a great question, Andrew I mean listen we've.
That's kind of a normal course and managing the purchases, we do within a quarter right copper moves up copper moves down and it's the same thing with all other all other raw materials.
We are really good at capturing those costs and passing those on right, but when we've talked about abatement right that abatement.
More on the top end and out of the bottom end right and so thats, where youre seeing so we tried to maybe decipher or put it out there even clearer when you talk about abatement.
May see some erosion at the top end as is the broader sector starts to catch up a little bit.
But that's really where it's at.
Fluctuations in copper and the like.
We're looking at that price at every single order, whether or not it's average or or spot whatever it is higher and so that's where our service model really is such a competitive advantage. We talked about shipping orders quick 24 hours 48 hours, 100% complete it's fantastic customer service, but it's extremely.
Defensive right, because if I take an order and I know my margin of nice ship it that day or the next day it doesn't matter what copper does that just locked in my margin and Thats why that service model.
It's the best heads out there and when you turn inventory 12 months 2014 times a year finished goods.
Youre, capturing everything within that month, and so theres, a great matching of revenues and costs.
Yes, good catch though Andrew it was about a 50 cent I think if I'm correct.
From the beginning of January through the end I think it was.
Close to 50 run.
But it sounds like youre, suggesting it didn't specifically presents a headwind during the quarter.
Yes.
Not specifically I mean, there's more things that go into it.
The timing of it the timing of the price increases the timing of posting the price sheet increase.
Are you stand with quotes where you stand with.
Production runs by the end of the month, what have you but.
We typically ship out and bring in the same amount of.
We try to match up the pounds to the months so.
Spreading net 50 cents over.
22 trading days.
And pulling prices from one day to the next.
It definitely.
Maybe speeds a few things up folks they're going to wait to see if copper is going to go up or down you get a bias or a trend on the upside.
It will shake some things loose during the during the week or during the month for sure.
Okay, Great and then just one more not not asking about this current quarter, specifically, but historically what is the typical sequential volume pickup from <unk> to <unk> due to seasonal factors.
That's a tough one right, we don't give any future guidance and it's tough.
You go back to 2019, and you rolled into 'twenty, you had the pandemic and with everything that was out there as you know we stay fully operational.
And then things really started to pick up from that standpoint, you had periods in there where there was a pent up demand and so you saw a big catch up on that you looked at residential when it got meteoric year ago. It was really driven by folks moving out of more.
Populated areas and into more rural areas.
That happens and you see a residential boom light commercial always follows 12, 18 24 months later, because you have to build the infrastructure around this much larger influx of population in a more rural area, you still need gas station to Starbucks in supermarkets and in.
In care now has in churches and schools and so.
That is going to you should see that tail as you go into this next year.
And you see some of that already.
We saw it in the fourth quarter and first quarter and so it's hard to peg. It I will tell you typically the first quarter and fourth quarter kind of the shoulder quarters.
And the second and third quarter are.
Typically a little bit stronger as far as the and that.
Kind of aligns well with the build timing.
Okay, great. Thank you very much.
Thank you Andrew.
Your next question comes from the line of Paul for Tonight with Barga. Your line is now open.
Thank you good morning, I'm curious about the wholesale electrical distributor customers that you have I think very forthcoming with information about their inventory levels of wire products.
Yes, I think so we're pretty close with those distributor customers, there's long term relationships with those people.
We have field reps.
Good to know on a relational level families and whatever it might be in.
We also are very active.
Visiting with and bringing in and visiting our place back and forth.
With those distributor customers and so we can put eyes on their inventory and we have folks in the field constantly doing that providing the feedback.
With that type of information available do you think the distribution customers.
Embraced your concept of how to have almost just in time delivery or some of them still tending to go back to the let's say the historical practices that they may have had in the past where they stock larger quantities. Just so they can have inventory on their side.
Yes, that's a great question.
Thirdly, the current state is nearer to the front end of your question more just in time levels.
As the speed of the volatility.
The raw materials moves from a value perspective, you do see those inventory holdings fluctuate.
If you can get some type of spin.
Specific bias or trend.
You might see it build a little bit ahead of time, but it's usually related to a specific job.
Anticipating job that they have in their market area.
But if I had to choose today versus.
<unk> historical levels I would tell you today distributors run extremely.
On the.
On the extreme end of the lean side.
If I could ask just one final follow up question for your distributor customers that might be closer to Canada to Mexico.
Thank you get any business that they would have from selling to their customers in either of those countries.
Over the years, there may be some residual business, if you will but as far as direct.
Product crossing the border.
The electrical specifications in.
Those two countries don't match up with our country, specifically on our building wire products.
So I would say no.
Okay. Thank you very much thanks for the questions.
Your next question comes from the line of Taylor Merit with Forge first asset management.
Your line is now open.
Good morning, Brett Daniel.
Wanted to ask on the <unk> facility, you've already spoken to it a few times.
Is that.
Solely a cost initiative or <unk>.
<unk> insulation, let you access.
Markets, our sales channels that you are not currently able to or capacity.
Capacity you'd like to.
Yes, it's a great question Taylor I mean, it's both.
Listen a couple of years back I talked about during the pandemic right when raw materials across the board got heightened and as you know we never ran out but we spent we went from at least one for spending an hour a day to 12 hours a day chasing them.
As you go through that I said that there were certain aspects of our supply chain.
That may be raised there has some risks or availability or cost standpoint that I didn't like as much as some of our others and that was really one of the relationships.
He is a pandemic when there was a lot of build going on the <unk> LTE across polymer.
Capacity domestically it was very strange theres a lot of companies that quota is you can only get so much and it was eliminate factor at that time as to how much product we can put out.
When we looked at that it was just a natural extension with vertically integrated since our inception, you looked at where when you get to a certain point from a volume standpoint, you could say listen we benefit if we made our own versus relying on someone else to buy it I also think control the labor aspect the access to the.
The other raw materials and that really came to bear when we saw the opportunity next LTE, particularly with the ability to de risk some of that supply, but our ability to build a facility right you don't build it for what we need today you build it as to where you think the market will be and so we always build in incremental capacity.
That can serve all the markets we've talked about in the type of installation that demand that as that group expense.
Yes.
Got it so.
Fair to say then as that facility comes online later this year and we're still presumably at the <unk>.
And some of these larger infrastructure government docs capex programs.
Residential will become structurally smaller part of the business.
I don't think I'd say just on that I would tell you that.
Our ability to serve.
The availability of that type of installation will not be eliminating factor for us once that's what's that's facilities online.
Right, Okay, but residential as a percentage of sales is.
Like you say probably hit the high watermark in.
For the second quarter of 'twenty one.
Well no what I would say in the segment, what I was saying Teva in the second quarter 'twenty. One is that we felt that the price of copper margins peaked in June of 'twenty, one right residential if you look at the residential percentage today.
It's about 27, 9% of our business for the first quarter.
If you compare that to the fourth quarter right and see a trend there. It was it was 2093. So it was one 4% different right not a big move.
So residential is still running a little higher than it was pre pandemic levels, but but that's not related to my comment from June of 'twenty, one and it's not directly related are comparable to.
Thanks, LTE coming online to the extent that the uses of that installation grow and we start to ship more product associated with it that could impact the percent of residential but again that doesn't mean it impacts the pounds per se.
Yes, no got it yes totally understood. Thank you very much.
Ingram.
Yes.
Okay.
There are no further questions at this time and this concludes today's conference call. Thank you for attending you may now disconnect.
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