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General Cable Corp. (NYSE:BGC)

Q1 2009 Earnings Call

May 01, 2009; 08:30 am ET

Executives

Gregory Kenny - President & Chief Executive Officer

Brian Robinson - Executive Vice President, Chief Financial Officer & Treasurer

Gregory Lampert - Executive Vice President, President and Chief Executive Officer of General Cable North America

Robert Siverd - Executive Vice President, General Counsel and Secretary

Michael Dickerson - Vice President of Finance, Investor Relations and Corporate Development

Analysts

William Stein - Credit Suisse

Shawn Harrison - Longbow Research

Joseph Gibney - Capital One

Jeff Beach - Stifel Nicolaus

Stuart Bush - RBC Capital Markets

Nat Kellogg - Next Generation

Gary Farber - C.L. King & Associates

Matt McCall - BB&T Capital Market

Brent Thielman - D. A. Davidson & Co.

Michael Coleman - Sterne, Agee

Brett Levy - Jefferies & Company

John Evans - Wells Capital

Kevin Zarpahnie - Legend

Steve Gambuzza - Longbow Capital

Operator

Good morning. My name is Vanessa and I will be your conference facilitator. I would like to welcome everyone to the General Cable Corporation first quarter 2009 earnings conference call. This conference call is being recorded at the request of General Cable. Should you have any objections, you may disconnect at this time. All participants have been placed on mute to prevent any background noise. There will be a question-and-answer period after the speakers’ remarks. (Operator Instructions)

General Cable, you may begin your conference.

Michael Dickerson

Thank you, Vanessa. Good morning everyone and welcome to General Cable’s first quarter 2009 earnings conference call. I’m Mike Dickerson, Vice President of Finance and Investor Relations at General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer; Brian Robinson, our Chief Financial Officer; Greg Lampert, President of North America; and Bob Siverd, our General Counsel. Many of you have already seen a copy of our press release from last night, for those of you who have not; it is available on First Call, and on our website at www.generalcable.com.

I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our current Form 10-K report and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

During this call, we may refer to adjusted operating income and adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization, plant rationalizations, lower cost or market LIFO inventory adjustments and other restructuring items.

These non-GAAP company defined measures are being provided because management believes they are useful in analyzing the operating performance and cash flow, before the impact of various reorganization and other charges. A reconciliation of adjusted operating income and EBITDA to GAAP net income is available on the Investor Relations section of our website at generalcable.com.

The format for today’s call will first be some discussion by Greg Kenny about the overall business environment. Secondly, Brian Robinson will discuss the overall financial results and finally, Greg will provide some comments on the company’s second quarter 2009 outlook, followed by question-and-answer period.

With that, I will now turn the call over to Greg Kenny.

Gregory Kenny

Thank you, Mike, and good morning. In the first quarter, key end markets served by the wire and cable industry continue to be under stress, which is directly impacting our results. Volume is measured by metal pounds, was down more than 14% on a year-over-year basis after adjusting for the acquisitions completed in the last year.

In fact, each of the company’s geographic business segments reported lower volumes. I’m pleased however that the company was able to report adjusted earnings per share of $1, which was significantly better than our expectations in previous guidance for the quarter. This is principally due to a more disciplined pricing environment coupled with slightly higher sequential volumes than we were expecting.

As raw material costs fell, we were able to hold price in non-contractual markets which are about 50% of our overall business. In short, we were able to recover some of the price lag as raw materials rolls over the last two years.

In the first quarter, copper remained volatile, while averaging $1.57 or 10% below the average of the fourth quarter of 2008. The swings were from the high $1.30s to the mid $1.80s. And since the end of the first quarter we’ve seen another 20% rise in the price of the metal before recently falling back.

While industrial output and requirements for copper continue to decline year-over-year, some current theories for the recent rise in copper prices relate to a re-stocking of China’s strategic reserves. These price shorts can cost short-term matching problems in the wire and cable industry as prices for our products generally lag when material changes. This is true not just for metals but for petrochemical related compounds as well. This can result in both favorable and unfavorable earnings volatility.

In the first quarter, we benefited favorably. While the conditions in the current market appear to be modestly improving, this has not yet stimulated significant new projects, which require cable typically six to 24 months after financing. With the exception of France, we have not yet seen announced governmental stimulus measures result in increase spending in our end markets in any meaningful way. As you know, continuous cost reduction and lean thinking is a big part of our corporate culture.

In addition to direct labor adjustments that take place more in conjunction with changes in volumes, the company also continues to lean out inefficiency in the indirect labor and management ranks as we have done over time. We continue to actively manage to the right production and headcount levels. The company continues to reduce headcount and product lines with patience with the most severe volume declines and investing in other areas such as NSW with the launch of its new product lines to increase output to support the local market.

This ongoing adjusting of our business to current market conditions has reduced the need for our large restructuring action as many other companies are currently enacting. Our factories are cellularized which also enhance this flexibility. In the second quarter, we expect to build less products than we sell as we feel we can take more inventory out of the system. We will of course continue to keep a close watch on near and long-term demand and adjust accordingly. On balance, we see this time as a time of great opportunity to improve our market position worldwide.

Let me talk a bit about the first quarter performance of each of our reported geographic segments. Revenues in the company’s Europe and North Africa segment were $370.5 million in the first quarter of 2009 compared to $426.6 million in the prior year on a metal adjusted basis. Before the impact of $22.9 million of revenues from acquired businesses and $67.7 million of unfavorable foreign currency translation, revenues decreased $11.3 million or 3.1% on a metal adjusted basis in the first quarter of 2009 compared to the first quarter of 2008.

Before the impact of the acquisition of Enica Biskra on a metal pounds basis, volumes sold in the first quarter were down 15.4% compared to the year ago period. With overall demand continuing to decline across Europe, distributors beginning to consolidate distribution locations resulting in a contraction of the level of inventory in the channel.

Operating earnings before items were $30.6 million in the first quarter of 2009 compared to $49.6 million in the prior year, a decrease of 38.3% and down sequentially 6.7% from the $32.8 million reported in the fourth quarter of 2008. These declines are principally due to lower demand in pricing for construction products in the Spanish market as well as deteriorating conditions in the European markets generally.

Revenue in the rest of the world segment was $301.6 million, a decrease of $27.1 million from the prior year on a metal adjusted basis. Before the impact of $18.3 million of revenues from the consolidation of Phelps Dodge Philippines and $69.1 million of unfavorable foreign currency translation, revenues actually increased $23.7 million or 9.1% on a metal adjusted basis in the first quarter of 2009 compared to the first quarter of 2008.

Operating earnings in the rest of the world segment before items were $30.2 million in the first quarter of 2009, a decrease of $400,000 or 1.3% compared to the prior year period, and up sequentially 6% from $28.5 million reported in the fourth quarter of 2008.

In North America, in this case the U.S. and Canada, revenue before the impact of $21.2 million of unfavorable Canadian foreign currency translation decreased $10.7 million or 2.8% in the first quarter of 2009 compared to 2008 on a metal adjusted basis, while metal pounds sold were down 10.8% compared to the prior year. The decrease in metal pounds sold is across all product families with relative strength in electric utility, which was down only 1.9% principally due to the strength of bare transmission cable volume versus a very weak prior year period.

Operating earnings before items were $27 million in the first quarter of 2009, down 13.5% from the $31.2 million reported in the first quarter of 2008, and up sequentially 79% from the $15.1 million reported in the fourth quarter of 2008 as we are able to hold price in our short cycle non-contractual markets.

I’ll now turn the call over to Brian Robinson, who will provide further details on our overall financial performance for the first quarter. Brian?

Brian Robinson

Thank you, Greg. Let me begin by describing the accounting change related to the first quarter of 2009 implementation of Financial Accounting Standards Board Staff Position APB 14-1, accounting for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement.

The FSP specifies that when issuers of convertible debt instruments recognize interest cost in subsequent periods, they should separately account for the liability and equity components of the instrument in a manner that will reflect the entity’s nonconvertible debt borrowing rate on the instrument’s issuance date.

The FSP is effective for the company beginning with this first quarter of 2009 and requires that prior periods be presented on the same basis. The result is an increase in non-cash interest expense of $9.4 million and $8.7 million for the first quarters of 2009 and 2008 respectively. This resulted in a reduction to earnings per share of $0.14 and $0.13 for the first quarter of 2009 and 2008 respectively.

On the balance sheet and adjustment to the carrying value of the convertible debt instruments resulted in reduction of net debt and an increase in equity of $182.9 million as of the end of the first quarter of 2009 and $192.6 million as of the end of the fourth quarter of 2008.

Combined with the reclassification of non-controlling equity interest into equity as per FASB 160 net debt to total capitalization is currently 50%. There is no impact on periodic cash flows. On a consolidated basis, net sales for the first quarter of 2009 were $1.0413 billion, a decrease of $115.1 million or 10% compared to the first quarter of 2008 on a metal adjusted basis. This decline was principally due to the $158 million unfavorable impact of a stronger U.S. dollar and lower demand as a result of ongoing weak economic conditions, partially offset by $41.2 million in revenues from businesses acquired in the last year.

Before the impact of acquired businesses on a metal pound sold basis, volume was down 14.1% in the first quarter of 2009 compared to the prior year, but up 2% from the last quarter of 2008. First quarter 2009 operating income before the impact of lower cost of market inventory accounting related gains was $87.6 million compared to operating income of $111.4 million before the impact of similar items in the first quarter of 2008, a decrease of $23.6 million or 21.2%.

The decrease in operating income was principally a result of an unfavorable change in foreign currency translation rates, lower overall demand, lower capacity utilization rates in the industry and continuing efforts by the company to match production levels with expected levels of end user demand.

Operating margin before items was 8.4% in the first quarter of 2009, a decrease of 120 basis points from the operating margin of 9.6% in the first quarter of 2008 on a metals adjusted basis. This compares favorably to the 6% adjusted operating margin reported in the fourth quarter of 2008. This sequential improvement is principally the result of a more disciplined pricing environment, lower raw material cost and slightly better volumes than we had expected when we communicated our first quarter guidance.

Reported operating earnings for the first quarter included approximately $4.7 million of non-cash net lower cost of market inventory accounting related gains. As a remainder, under LIFO the company charges itself the current cost of metals in the period and called off the accounting impact of LIFO and lower of cost or market gains and losses as they occur for investors. Historically, these adjustments have been quite small as in the current quarter, however they were much larger and more volatile than the last two quarters of 2008 due to the rapid decline in the market prices for metals versus the higher acquisition cost of inventories required in prior periods.

Net interest expense for the first quarter of 2009 before the non-cash APB 14-1 charge was $11.9 million, down slightly compared to $12.2 million of interest expense on the same basis in the first quarter last year. Reported net interest expense in the first quarter of 2009 was $21.3 million and includes $9.4 million of non-cash interest expense resulting from the implementation of FASB APB 14-1 as discussed earlier.

With regard to income taxes, the company continues to maintain an effective tax rate below the U.S. statutory rate into the continuing effect of tax rate benefit of the increased relative mix of income from lower rate jurisdictions. The company is actively pursuing opportunities to further improve its effective tax rate over time. During the first quarter, we’ve reported an effective tax rate of 33.5% within the range previously estimated and communicated and consistent with our expectations for the full year.

Gross debt at the end of the first quarter was $1.26 billion, while net debt was $1.05 billion. These amounts have been reduced by the adjustment to the face value of the convertible bonds of $182.9 million at the end of the first quarter as a result of the implementation of APB 14-1.

On a basis consistent with the adoption of this accounting method, net debt increased to $78.9 million from the end of the fourth quarter of 2008. This increase is principally due to seasonal investments in working capital during the quarter and the final phase of our submarine cable expansion at NSW. The seasonal investment in working capital is lower than in prior years as a result of reduced demand expectations in the current year’s construction season. This contributed to a significant improvement in cash flows in the first quarter of 2009.

Cash flow from operating activities in the first quarter of 2009 with the use of cash of $15.9 million, an improvement of $117.4 million from the $133.3 million use of cash in the first quarter of 2008. At the end of the first quarter through a combination of existing cash balances and undrawn available lines of credit, the company had approximately $1 billion of available liquidity spread around its three geographic regions to fund operations, which could include increased working capital requirements as a result of higher capital cost, internal growth, continuing product in geographic expansion opportunities and potential common share repurchases. During the first quarter of 2009, the company made no common share repurchases.

Adjusted EBITDA was $111.6 million for the first quarter of 2009, a sequential increase of $11.6 million or 11.6% from the fourth quarter of 2008. This results in $507.5 million of adjusted EBITDA for the trailing 12-months and a leverage ratio of 2.1 times on a net debt basis. Our coverage ratio of adjusted EBITDA to trailing 12-month net interest expense before the non-cash APB 14-1 charge is 9.1 times. Our trailing 12-month interest expense before the non-cash APB 14-1 charge was $55.5 million.

Capital spending in the first quarter was $46.8 million while depreciation and amortization was $25 million. This spending is over weighted internationally and towards the first half of 2009 as the company completes the NSW submarine energy cable project. Going forward, we will more narrowly focus our capital programs to developing regions of the world coupled with an ongoing global focus on lean initiatives and continuous improvement in the areas of safety, quality, material usage, conversion cost and throughput.

Before the impact of acquisitions or joint ventures, the company expects to spend approximately $100 million in the first half of 2009, which is substantially less in the second half of 2009.

With those comments, I’ll turn the call back to Greg for some final remarks. Greg?

Gregory Kenny

Thanks, Brian. The company continues to report solid earnings and maintain a strong balance sheet in the face of difficult economic conditions. This does not mean that we are at the bottom or the business conditions can not get worse. Declines in industrial and commercial construction activities decreased spending for manufacturing equipment as well as oil and gas exploration and production may last well beyond the end of 2009. These ongoing declines in industrial activity will likely keep pressure on capacity utilization rates in the wire and cable industry. All this creates a great deal of price uncertainty.

As in meaningful demand resulting from governmental sponsored stimulus spending on infrastructure, in all likelihood conditions, we’ll get even tougher in the near term. While we’re hopeful that the stimulus spending can pull world economies back into positive growth territory, we’re not planning on it in the short term.

In this environment of flat or declining volumes, the company’s continuous improvement efforts around the world, market and product diversity or one company culture and a healthy balance sheet are significant differentiators for the company and should result in General Cable emerging from this depressed economic environment stronger than many of our competitors.

For the second quarter, the company expects to report earnings before the impact of APB 14-1 in the range of $0.70 to $0.90 per share. Revenues are expected to be approximately $1.2 billion to $1.25 billion.

Finally, as most of you know, General Cable will be holding its Annual Meeting on May 27, 2009 from Nordenham, Germany, the site of NSW and the site of our new submarine power cable facility. This facility was built over the 18 months at a cost of over $50 million and now houses the largest cable in the world.

Over the last several years, the company has typically selected one operating location a year to hold its period Board meeting as well as our operating committee meetings. This gives our associates the opportunity to interact with Board members directly and learn from their collective insight and experience as well as providing the Board with the opportunity to see different products in markets first end.

In Germany, we will have a public opening ceremony that will help build awareness of General Cable as a leader in alternative energy or green energy production. With nearly 70% of our business now outside the United States, General Cable is fortunate to have a Board that is willing to work side-by-side with our associates anywhere in the world. I invite anyone interested in attending in our Annual Meeting in Highland Heights, Kentucky, or you can listen to it by broadcast or obviously in Germany itself. Please contact Mike Dickerson if you plan on attending.

That concludes our prepared remarks. I’ll now turn the call back over to the operator who will assist us in taking your questions. Operator.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from William Stein - Credit Suisse.

William Stein - Credit Suisse

I’m a bit confused by the result, in particular you stated at the start of the call that you got better prices than you expected and slightly higher volumes than expected and yet the revenue fell below your guidance for the quarter. Can you help us understand how that happened, especially considering the very big earnings upside?

Gregory Kenny

Yes, we thought we were going to have flat volumes from Q4 run rate; we’re actually up 2% and obviously you get into a long discussion of sales mix and where you sell obviously metal intensive products have a higher revenues than say electronic cable, which is less metal intensive. When we looked at the first quarter, we saw lower raw materials when we communicated in the middle of the first quarter; about the fourth quarter, what we thought would happen in the first quarter.

We thought pricing for the spot market will deteriorate faster than it did. So, while it deteriorated it did not deteriorate as quickly, which caused us to actually earn more than we had first bought, as well as volume was up slightly.

William Stein - Credit Suisse

But the revenue was below your guidance range, how did that happen?

Gregory Lampert

Well, again there’s the mix issues to go into there; well there’s also currency assumptions and a little bit on the metal assumptions.

Gregory Kenny

I was trying to say, Will, is if I sell a foreign exchange cable that’s massively heavy as it has 50% copper and if I sell at a foot of electronic cable, it’s thin as your pinky. So we’re also trying to understand what was sell-through revenues, if we sell lots of transmission cables, aerial transmission cables. Revenues can add up in that area and if you sell data cable, you don’t see if revenues pile up as quickly, because the metal intensiveness varies dramatically.

William Stein - Credit Suisse

So the mix was very different than you anticipated, is that right?

Gregory Kenny

We’re a large company in 100 countries Will, so we can be off by millions and I think we’ve proven that. We don’t have a backlog beyond two weeks, other than some major projects or requirements performed with the utilities. So, we are not operating off a year long backlog, except with our high voltage underground cables and submarine cables. So I think we probably will always be off a bit. The other is we are looking at obviously copper movements that are changing as well by the day, we saw a huge amount of fluctuation.

William Stein - Credit Suisse

Just one follow up if I can, and it relates to the trade off of inventory and cash flows; where you normally build inventory and consume cash in Q1, but Q1 is normally an off revenue quarter I believe. This quarter was down sequentially and not just year-over-year and down what was it? High teens I think? I am curious, what caused you to decide to build inventory on a dollar basis and how much of the gross margin upside was driven by more of the fixed cost absorption off your balance sheet as opposed to having flow through COGS?

Gregory Kenny

Well I think from an overall inventory perspective, in the first quarter, order magnitude we increased inventory by about $40 million on a global basis and I wouldn’t say again, because it’s a very diverse business by region, there was no certain intention. I think part of it is continuing. There’s some wind down in the businesses as you go through the fourth quarter and we are trying to react as quickly as possible to end markets demand.

So in summary in the first quarter, call it about $40 million dollar increase and I think as we head into the rest of the year, we would expect that we’ll actually bring inventories down and so from a margin perspective there’s certainly an impact. We can’t tell you exactly what the exact percentage impact is on the margin. You can I think do some math with respect to our numbers, but we would again expect that inventory for the rest of the year will come down.

Gregory Lampert

Well, I would say, $40 million you are absorbing fixed cost into your cost, into your inventory at $5 million or $10 million of product at 5% or 10%. So if you used 10% you’d absorbed $4 million by actually building inventory or capitalize your cost and then conversely in the second quarter, we think we can bring it back down, because it’s our judgment that we can run it thinner and we will in a sense, under absorb by an equivalent amount, but again expense on the product which is between 5% and 10% of the inventory build would be your fixed cost absorption that’s capitalized.

I think Will the other thing to say is again, you were talking generally about year-over-year and versus fourth quarter, the year-over-year, the GAAP revenues are very different because obviously copper was 350 a pound prior year and of course we’ve seen that moving all over the lot. So, I think in terms of metal pounds, just again, we actually sold 2% more globally in the first quarter than we did in the fourth quarter and we sold about 10% less than the prior year; 10% to 15% less as we are doing with our acquisitions.

Operator

Your next question comes from Shawn Harrison - Longbow Research.

Shawn Harrison - Longbow Research

Just following up on the first question asked by Will; it looks like the greatest gain at least in operating income sequentially was in North America. Maybe if you could extrapolate it in a different way in terms of you how much of that sequential gain was really a better spread, between the other spot pricing you’re getting for the product and the underlying raw material declining away. The assumption, it sounds like that is going to narrow in the second quarter and you’re going to see a little bit more pricing pressure; am I reading that correctly.

Gregory Kenny

Yes, I would say the U.S. was the beneficiary; we did build inventories slightly more here than elsewhere in the world. So they had that benefit and I think in the stock market, we saw better disciplined than we had thought would be the case in there. We are anticipating that the market conditions that be excess capacity and that there will be continuing pressure everywhere.

So yes, we would see the U.S. as both slowing down production if probably in a greater way than the other parts of the world and also U.S. was probably and Canada had some of the strongest discipline in the quarter and we hope it stays, but we can’t plan on it.

Shawn Harrison - Longbow Research

Just dealing further into that, I mean is it safe to say then the maturity of the sequential gain in EBIT dollar was tied to just kind of the better pricing discipline and the spread you are seeing between that raw materials.

Gregory Lampert

I would say that would be a big driver, don’t forget we have a very chopped up. In the fourth quarter we also had factories down from two to three and half weeks. So we had a decent October and than as we talked about it, it got really rough and choppy quickly. So I think in the first quarter we probably saw distributes continue to de-stock, so that was a negative. A positive is we could actually run our factories for the whole time.

Again, we have our factories generally ideal back, meaning they are not running at seven days certainly, but we the December was a very long shutdown month and then a restart in early January. So I think we benefited by not having December; we benefited by probably having some real price on declining raw materials, which again we leaked on the way up and we are trying to hold on the way down and than the volume was a bit better; I guess offset somewhat by continued stocking by distributors, which eventually obviously has to end.

We are calling our second quarter actually up over the first quarter on the metal pounds basis. So, that’s the effect of seasonality, but it’s also I would say, a decent sign of some measure of stability at least on the demand side, albeit lower than prior year.

Shawn Harrison - Longbow Research

Okay. So globally you are expect metal pounds to be up sequentially, but potentially additional pricing pressure.

Gregory Lampert

Yes, that this is a supply and demand driven business; we also have production lower than revenues as I said in the conference calls script, but just again to reaffirm, we expect the second quarter to be on a unit basis or pounds basis, roughly 10% below prior year and again we don’t know were metals will be for the rest of this quarter, but we anticipate with open capacity in the industry that this industry will continue to be what with us as always been, which is a tough business.

Shawn Harrison - Longbow Research

Okay and then just moving into the guidance range $0.20 kind of off a range; essentially is it mix that gets us to the high end to the low end of that range and pricing or is another factor that I am missing.

Gregory Lampert

Well, again the range is because we don’t know the price for next week, for almost half of our volume and I’ve got two more months in the quarter. We also don’t know what utilities will flash an order. When they flash an order, we try to do some forward planning. We do get the see some retailers inventories, we do get to see some distributors inventories, but there’s a wide range of what we may or may not see and then of course you’ve got competitive behavior as well, but with copper in this sort of $2 zip code, we can look forward obviously and see that range, but I think again it’s the $0.15 wide, but it doesn’t take many millions of dollars for a fraction of a price to generate that kind of gap.

Shawn Harrison - Longbow Research

Okay. So maybe the way to describe could be, is what you’re seeing right now put you at the midpoint and either side of that’s just depending up on some of these factors?

Gregory Lampert

Yes. We’re trying to look at our range of outcomes and it’s one way to look at it. I wouldn’t say our forecast is a mid point. Our forecast is the range that we can see, that I gave you, and it also contemplates currency at approximately where it is today. We also as you have seen currency movements can have an impact as well, but right now based on where copper is and what we are seeing I think that range feels about right.

Operator

Your next question comes from Joseph Gibney – Capital One.

Joseph Gibney – Capital One

Just wanted to follow-up a little bit Brian on the CapEx side, certainly the $100 million you spent for the first half of the year, you said it can turn down fairly substantially in the back half of the year. Any kind of quantification to where you could flex that down to; I know a lot of that is predicated on the outlook and how things turn, but any sense there?

Brian Robinson

Yes, I would say broadly back in February we got it towards the high end of range of about $140 million and I think that’s probably about right. Again, just a reminder, the first half focused on the NSW power facility and we continue to really monitor our spending very tightly on everything.

Gregory Lampert

We also as I think our shareholders are aware; we are completing a conversion of a factory in Mexico. Our technical facility to electrophone energy products and we’ve also I think as we have communicated overtime we’re in the process of building a facility in India.

Joseph Gibney - Capital One

Greg if you could just on balance certainly if NSW there’s some optimism here; you talked about some resilience in the electric utility side. I mean on balance I guess its tough letting out there; you’ve been fairly pragmatic in talking about that. Were you I guess just a little more optimistic in certain end markets, both geographically and certainly by product like and I guess perhaps more pessimistic. Did anything change from last quarter; a little color there would be helpful.

Gregory Lampert

Yes, I would say, again last quarter I think Joe we saw owners really shut downed and distributors not placed orders and utility to some extent choke its way down. I guess for me the happy news is, there are orders and while there are well over last year and again, we are already in a recession in North America last year, as I said numerous times, some of our businesses do lag the historic cycle, meaning where wires hold six to 24 months, depending on what they are building; again, in some of our business we also have a MRO and moves and changes and lots of stuffs.

So this copper really goes across the Bloomberg terminal every four seconds; wire cables is about 65% or 70% of copper demand and we’re one of the top three or four buyers or consumers of copper in the world. So I think we’re getting a good look at industrial or economic activity around the world and I guess I don’t see any particular area other than the under sea area, which we’ve talked about before, but that hasn’t really changed.

I wouldn’t say anything is particularly exciting, but the good news is that it seems to be stabilizing, that’s not to say it will be stable, but we certainly didn’t continue the trend of November and December. The aerial transmission business was up in North America substantially, but that’s off a pretty low number if you remember, our costs before or recently we were very surprised how weak transmission was in the first half of last year, we are seeing some project releases, but broadly all the things that you read about are slowed. We think there’ll be a surge in alternative energy, but wind farms are a bit slower and we think that will come back for variety of reasons.

So I think, again, we’re exactly in the right spot as a company and thank goodness we spent the years we have on both organizational design this one company and continues improvement, because this is a tough cycle and its not unlike the ‘01, ‘03, 2001-2003 to 1991-1993, other than it’s probably most of the year it’s more global, but I think we’re getting through this, our team is right where we need them to be and we are full of fight and spirit here, so we hoped we’d never see this, but I think we got ready for it

Operator

Your next question comes from the line of Jeff Beach - Stifel Nicolaus.

Jeff Beach - Stifel Nicolaus

For me the highlight of the performance this quarter was the profitability in the rest of the world. What I’d like you to do is just walk through and describe maybe a couple of the key markets in Latin and South America, Africa, Asia-Pacific and give us an idea of what’s going on with your key end markets in each one of those areas and what might happen ahead? I guess there was a fear a couple of months ago that we were going to go into a global depression and most of these companies where totally shutdown. So, I’d love to hear what’s occurring in those markets?

Gregory Kenny

Jeff it’s a great question. As we said before, we have a tendency to think of the sort of mortgage explosion or how’s the explosion globally and while you could argue it took place in the U.S. and the United Kingdom and Spain and some places, we have maintained that people are getting houses for the first time in many places and mortgage markets are being created, long term mortgage markets. For the first time many of these countries as you know, as they get some cash, they built one more room.

So, I think the fundamentals are bit different, these markets are all affected by the availability of global capital commodity prices etc., but they all seem to have a slightly different twist to it, which is again the beauty of begin very focused on wire and cable, but having product broad wide range in geographies. As I move through, we see Central America slower and you don’t see the big hotel projects etc, but and you don’t see the repatriation of earnings back in to that region from the United States

We do see more pressure on our business there from competitors looking for volume, but again we have an extraordinary cost position and excellent logistics and distribution and we are very well close, I think that matters. But Central America I think has some of the spillover of the slowdown in Mexico and the United States.

Our operations in Mexico, Mexico the market is well down really tight with the U.S, but we build a terrific facility there and that is something that I’m very proud. This is the conversion of Tampa facility, so we expect to be a major participant in Mexico and also use that facility to supply up and down the region. So, I think our efforts strategically in Mexico is quiet important as a market we were serving in a small way and that will in an important way.

As you move over to South America; Brazil is really fairly strong with the government spending in the power sector which is helping propel us along. Housing or construction is weaker, but I will say less so with the U.S. which is, we are obviously in those cables as well. So, Brazil is in relatively strong shape, Chile coming up through Peru it’s softer with the mining side which is so important to the economy.

I would say hanging in Venezuela is our trickiest think is obviously managing currencies from there with the believer where it is and clearly they have less oil dollars, but we continue to do very well in the place that others had difficulty doing businesses in. So I would say Columbia and Venezuela are slower, but all-in-all Latin America is hanging in better than the U.S. is hanging in, and Canada is probably better than the U.S. as well.

So, I think Latin America and France would be our strongest regions actually in the world, France in part because of some governmental stimulus showing up already at the electricity company of France. We continue to do well out in Asia, we’ve taken a lot of cost of our and Oceana operation and our combing our Philippines type, New Zealand operations together as well as in India, I think we are doing a good job and we will continue to build out in the South Asian area.

Yes, competitions tougher, Hong Kong or Macau has slowed way, way down, but we are still seeing projects, and again we have a terrific cost bases and these prices as all operate, somewhat differently and somewhat similarly. In Philippines you track out what kinds of call center would work, what kind of partition dollars are coming in and they’ve been impacted a little bit by the auto slowdown, but broadly I would say these areas impart because of the demographics and other than Macau really not getting on as frenzies has all the parts of the worlds seem to be hanging in better than say the U.S. and Spain.

Though arguably the U.S. maybe further long in the down turn than anybody, but I would say there is a bit low resilience there is competitors looking for a to price volume and you see excess capacity looking to go to work but again we are local and we’re well organize. So I think probably that area is not quite as strong as Latin America but we have some superb opportunity there given what we’ve been putting together in the region.

South Africa has gotten that weaker, again we had great interest in building our business in the Sub Saharan, Africa region and we’re still being successful region, but I would not say Jeff that we should say that the rest of the world has escaped this. I think it will continue to be soft, could get worse, but again I loved what our team has done at these places and I think we are low cost provider in many of these locations.

We compete with people who often aren’t global companies. So, our knowledge with materials and purchasing in best practices, I think gives us a differentiator. We are seeing our operations though Angola remains strong, Algeria is again not immune, but we are still seeing the investments in the oil and gas sector in Algeria and the Government continues to spend money in the sector.

I think the great energy site for NSW remains very, very positive, that as I said we are seeing earlier stimulus in France. So that I would say our performance has been better than I might have thought.

Operator

Your next question comes from Stuart Bush - RBC Capital Markets.

Stuart Bush - RBC Capital Markets

You had hinted that during this downturn that you may be able to take some share in places and you have prepared that company to not just survive a tough cycle, but you might be able to take advantage in some cases. I’m wondering, if you can sort of walkthrough what that implies. If that means that all the few large global players are all going to be able to survive during the period better and knock out some of the local producers, or if you think you’re better positioned versus the big competitors.

Gregory Kenny

I think Stuart, size done not appear the decisive I this business. I think how -- it remains a local or super regional business, I think it’s how you share information is among your company members. So as we developed an operating committee people from other committee or from Spain, Costa Rica and other countries as well U.S. people. So this is a company that’s really turned nearly the opposite way where we don’t really think whereas obviously having a corporate center.

So I think this question of best practices, best ideas and fighting as one makes a difference. If we simply held assets and we’re big, I’m not sure we’ll be any of them more than the collection of those held assets. So, I think that’s the differentiator.

What we do Stuart, I think as we have for years of lean, lean, lean it out, lean it our which is to say that there is always more to be done, but I think given where we positioned our balance sheet, how closely we will watch our working capital, as we see great athletes come out of other companies for whatever reason, I mean people who know our market or product, we have a welcome sign on the door. That’s one way of improving your company.

I think also Stuart, in a game a business where were a couple of points of efficiency around your value-added cost can make the difference of being in business or not, as companies who have been less careful with working capital or who only have the best ideas of one factory or two factories. I think culturally we are probably in attractive place, but then to think about partnering and I think we have a good record of welcoming companies into here, sharing what we both know and making them a player at the table irrespective of the languages they speak or where they are from the world.

So again, this is every kind of dislocation, when you couple up with our operating model at our balance sheet, we think there will be the opportunity, but it could come from a new product development 10 gig we got a couple of people who have an idea and come up with the product that’s we think is the best in the business. Now let’s the other way of different, I would say we are still playing strong offence, we watch every penny like a hawk and we walked away from a lot of opportunities where we think that these are moments not right, we don’t bring enough to the situation.

We avoid going out and saying we will do or count on us to do, because we never want to promise something and then be forced to go do something simply because we ran analysis on that subject. We wanted to do just quietly do our thing. I think we will see opportunities where others will struggle in these businesses; you can begin to see assets get sold some times at below replacement cost if they are not making money and that kind of things.

So, we think whenever we unite with other company we always bring something to it. We look at things strategically and then opportunistically and we look around the world again with a primary focus in the developing world, but we also in contrary have to look in the developed world as well.

Stuart Bush - RBC Capital

Yes, I appreciate that. Excluding any potential acquisitions or venture that you do in the future, I just would kind of like to know little bit more fine point on whether is by geography or by end market segment, where do you think you have the best opportunity to increase your market share by say at the end of 2010 versus where we were at the end of 2008.

Gregory Kenny

Stuart, unfortunately these calls are highly public including public to my competitors, so I would probably prefer not to answer this specifically because I think that wouldn’t be our advantage, but we’ve been clear about the NSW investment, we think there’s opportunity there are and we have been clear about moving into geographies such as India or largely Mexico. I see other geographies that will move into, but I just do not want get into that because it just makes the job tougher Stuart.

Stuart Bush - RBC Capital

Yes, I understand, okay so then you talked about one of the great elements in this quarter was holding the real price above and beyond the nominal past of cost, and you hinted that there could be some further pressure there. Is the pressure coming more in the emerging market or what sort of the way of pressure on the price versus the take out of capacity in the different regions.

Gregory Kenny

Stuart; again is we leaked value as metals move up as they have in the April, you generally struggle to get immediate pass through and long cycle of increases we have generally lagged by three to six months depending on the market.

In the first quarter I got some of what we leaked out back, I think because we were able to hold prices in some segments for half of our business, approximately as you know the customer pays what we pay which are the formula once, but its not just metals obviously Stuart. Oil price change, petrochemical prices, excess capacities steal changes that as well and we get in to transportation. So as you look through our products metals and petrochemicals are both two biggest steel transportation and other things.

The industries capacity utilization is lower and I think we have done relatively well, that is meaning our metal pounds sold versus prior year are probably the reduction of probably less than the overall copper industry.

Again if you are a construction or building wire manufacture you could be down, by a lot. I think we are hanging in better than some, but what’s happening is it we’re down if your cables down 14% excluding acquisitions from prior year and it were better than average perhaps, then we just opened up capacity by 14% and I know you’re an economist in that kind when you have open capacity by 14% you can get price-based competition, which drives towards somebody’s cash cost and hopefully our cash cost is lower than anybody else’s or as low as the best in the industry, but this is straight economics and straight out competitive behavior.

So I think we are relatively advantaged in terms of our cost, and I wish we could get paid well for everything we do, we work hard at it, but I would say with the kind of drop, we’re seeing less discipline. The many added metals moving around, particularly Stuart and you get a lot of things you can’t read well, but capacity is opened in the industry broadly; it depends on the product line obviously and the geography as to how much.

Operator

Your next question comes from the line of Nat Kellogg - Next Generation.

Nat Kellogg - Next Generation

If you guys talk about it, CapEx comes down in the back half of the year, you may just talk about what your priority for spending would be in the back half of the year, assuming decent cash flow generation, especially if CapEx starts to fall off; what else is on your sort of priority list?

Gregory Kenny

Well, I think we are consistently interested in building out our positions in particularly developing country geographies and we will look for opportunities in the developed world, if we can bring an awful lot it to it as a contrarians, but broadly I would say you‘ll see us build JV, green filed, brown field, we’ll acquire assets in geographies, in populations that are large and growing and young and that’s probably where you’d see us.

Again, you can predict when that comes in 2010, but we are wonderfully capitalized with superb assets in the developed world and I think we will probably need to spend less than depreciation in the developed world in the near term and we’ll send that free cash either for debt pay down or opportunities in the developing world.

Brian Robinson

Nat you’ll see us really focused as we said, on areas that we hold very dear the safety and the quality and conversion costs, because as you know, raw materials are such a big component of our cost structure. We will continue to go after that both from a capital standpoint and from a process standpoint.

Gregory Kenny

There’s been a lot of time in the chemistry Nat, around the petrochemical side do we take raw pellets and convert it ourselves, do we buy it from our suppliers, but in the chemistry side and depending on where you are in the world we’re looking at it and obviously in some parts of the world, you can’t get copper rod easily. So we’re very good at actually melting scrap in places in the world as well.

Nate Kellogg - Next Generation

Then just on hedging, I mean have you guys ever thought about being more aggressive on your metal hedging program. I mean I realize a big chunk of the business you guys have a contract and so that’s not as much an issue, because you can pass it on, but the other half of the business it’s not, because you have exposure there I mean. Has that ever been a thought or you just figure that that’s not what you guys are good and at that’s not something you want to do.

Gregory Kenny

I think investors can go ahead and take positions in copper for their own account. Clearly, when the metals a $1.30 as it was in this quarter and selling below the high cost producers cash cost, you could argue there’s limited downside, but I don’t think you’ll ever see us take a position so to speak, go by all of this year’s unpriced business at $2.04 and then hope it’s $2.04, because our business is the conversion and then managing risk and managing risk is obviously we price something for a major utility. We will have to go ahead and buy that metal on the pricing formula as we do, but we will not go ahead and take a position even if you could argue $1.30 was a very attractive number, that’s not our business.

Nat Kellogg - Next Generation

Then just SG&A year-over-year wasn’t down all that much and I realize there’s an acquisition in there, but I would have thought maybe on FX alone, you would have seen SG&A drop a little bit. I was just wondering, if you look at the business prices a year ago, what maybe headcount looks like and I know, do you guys had a good track record of running things pretty lien and I’m just a little bit surprised, where I came in versus what my modulation, if you can help me where I might have, sort of value?

Brian Robinson

I would say SG&A in the quarter were slightly higher and then we had guided to. In the past, I think from a global standpoint as we’ve said, we have not massive restructuring, so we taken out headcount along away. Really, what’s happening in the first quarter are more, I would say sort of our cost of increase on our defined pension plan as a result of the past asset performance.

Also their system volatility year-over-year with respect to our differed compensation plan, which you can see, if you go back to our 10-K, it’s described and that was in our technical subject, but because we get some volatility amongst the quarters historically you give some of them is partly why the first quarter is higher than maybe was anticipated. As we look forward to the rest of the year, I believe we’ll migrate that down in the low 90’s to $90 million kind of run rate.

Operator

Your next question is from Gary Farber - C.L. King & Associates.

Gary Farber - C.L. King & Associates

Two questions; one, can you contrast the financial health of your competitors or just the industry, this time versus and prior downturn?

Greg Kenny

This industry is about 50% public and I would say it’s more public than it has been in prior downturns. Without getting specifics about the competitors, there’s been a number of competitors that have emerged and seeing with available capital and developing world.

So, there is a number of competitors who are new on the stage, who are probably have a right access to ongoing capital. So privately owned companies, particularly in the developing world I think will struggle a bit because they’re not going to access capital quite as easily.

The major competitors are well known, but I would say there is a number of who look as long as general cable in terms of EBITDA, the cash interest cost, etc., but I’m looking particularly at the middle size ones that are private, who may not have been as careful and seasoned around how they manage working capital.

Right now with lower copper our number of competitors are throwing cash out because we are not having to finance to high metals cost, but that ends as well if metals stay down here, but I won’t say the difference, it’s a more public industry, we’ve say there is probably greater transparency and scrutiny because its by publicly held

Gary Farber - C.L. King & Associates

I just wanted to make sure understood you correctly, did you say earlier on do you thought destocking on inventory side was sort of come to an end in the next quarter?

Greg Kenny

I think my general impression is distributors are buying as they needed and they have probably got their inventory as where they want them to be, but we have tens of thousands of distributors on a definitive statement, but you can obviously if this number that are publicly traded, but that likely to be some more destocking.

I guess what I was saying is sourcing, what you feel good about and I guess I feel good that my business, I believe at this point on this day will only be down on a unit or pounds basis 10% from prior year and that my first quarter was up slightly from the fourth quarter of this year, which says that they’re like the credit markets that are as opposed to the fourth quarter shutdown or buy. We are seeing people buy as they needed. Again at a level then we have seen as you know, ‘08 was actually weaker than ‘07 in many ways.

Gary Farber - C.L. King & Associates

So the tight inventory market, but if maybe a rational you would say?

Greg Kenny

I think we may have spend six months adjusting and they maybe getting that doesn’t say that some distributors might not be long on certain products, but my guess is that they’ve done a broadly a good job adjusting and or buying as they need it now.

I can’t say definitely they are still not adjusting. I'm sure they are constantly tweaking just like you are us seeing pull inventory, we have a plan to pull inventory out in the second quarter. Again, we also have a plan to sell a certain amount. So, we ought to see what happens.

Gary Farber - C.L. King & Associates, Inc.

Then just lastly on pricing, I don’t know if you touched on this yet. You talk about pricing strength, if you can address any specific markets where you saw pricing strength?

Gregory Kenny

Well, what I was saying is correct. The absolute pricing is coming down, but slower than we might have anticipated in particularly in the distribution markets which are the sort of the weakly markets or monthly markets, spot markets, for half our visitors all formalistic, but there is pricing with open capacity, there is pricing pressure everywhere.

Gary Farber - C.L. King & Associates, Inc.

So just less than, basically as fare as the pricing?

Gregory Kenny

That’s correct.

Gary Farber - C.L. King & Associates, Inc.

Then just lastly on the acquisitions, its sounds like, you’re still amenable to, shall I call them bolt-on or larger than bolt-on acquisitions?

Gregory Kenny

I would say generally, the bolt-on geographic build-out is where we are thinking. That isn’t to say, if we see an extraordinary opportunity, we wouldn’t go after, it could be larger in size, but our broad thinking is geographic built-out, right now. When you’re getting into the developing world there are some companies of medium or small size, but you don’t see very many larger companies that are pure play. As well as, large, our judgment was really the largest and I would argue one of the absolute best in the developing world and the company of size. So, that was our big strategic move which we loved.

Operator

Your next question comes from the line of Matt McCall - BB&T Capital Market.

Matt McCall - BB&T Capital Market

Just one question. Several comments about the stimulus package in the benefits on your business in France. Greg I think you even said, you were surprised by the strength of CVAC and it sounded like that was tied to the stimulus. Forgive me if you are not being as familiar with that package, but if you could compare and contrast the structure of that package versus what you’re seeing in the U.S. and some other company and some other countries and maybe, is there any read-through that you’ve been able to get from what that opportunity turned out to be and what it should be in some of these other location?

Gregory Kenny

I think it really gets to, as we said in the prior call a lot of the stimulus for the transmission grid was interesting and wonderful, but it will take time and its first forum was in the U.S. was only, I forget $16ish I have to check our last conference call, but it was an interesting numbers, cable as 5% and 10% of that kind of number.

So it was meaningful. I think in the U.S. longer cycle my belief is Obama admistration will come and tackle green and alternative as you can read almost in daily news there was discussions around what to do and how to do it. So, I think we are in exactly the right place, but in some countries the government actually owns or controls the utility and can use that as an immediate vehicle.

As you know, France is very aligned with its companies and in fact the state owns part of Electricity Company of France. So, the ability is that, again I'm not encouraging government ownership, but in those countries where the government owns the utility, they can makes happen lot more quickly and that’s why we're benefiting there.

I wouldn’t see, we're seeing bits in it in some of the developing world, but I don’t have a call to make, I think this stuff is still onto come broadly. They’re all talking in the right areas, talking in our world and as we’ve said energy and dependence for political reasons green house gas. As everything it all works right to what we do, but I think it mostly is in gestation, which is I guess happy because we have to look forward to.

Operator

Your next question comes from Brent Thielman - D. A. Davidson & Co.

Brent Thielman - D. A. Davidson & Co.

Just two quick one to you, I guess it relates to North America and the 11% year-over-year decline you saw in metal pounds sold, is that tied through the usual areas the low voltage in communication cable, are you seeing some other market relies that are contributing overall to the decline and I’m just wondering, if you’re seeing some more favorable comparisons there?

Greg Kenny

We’re seeing, we had a weak quarter in the first quarter across the board in the U.S., I would say the electric utility was weak in well and medium voltage cable continued to weak offset by versus the prior year than in transmission sales, but it really weak prior year. So, that was kind of a easier comp, but we’re up in the first quarter some pretty big numbers across the board again the utility transmission helped to offset 20 plus percent declines in some of the other business.

So, its pretty tough and we are seeing electrical infrastructure holding the best, but that’s still was a double digit decline, but data communication telephone cable were down larger numbers also the cables for industrial applications portable power was also down in that 20% range. So, we’ve got a bunch of that down 20% to 30% transmission helped, we see that beginning to smooth out a little bit in the second quarter, but again we’ve helped we are hopeful we’re moving some bottom, but we’re going to call.

Same bottom but we are not going not to call.

Brent Thielman – D. A. Davidson & Co.

Brain, I guess this one for you. I guess Q1 is that sort of the run rate we should anticipate for interest expense for subsequent quarters?

Brian Robinson

Yes, it is, and that’s about, yes.

Operator

Your next question comes from Michael Coleman - Sterne, Agee.

Michael Coleman - Sterne, Agee

Most of my questions have been answered, but I just wanted to kind of focusing on transmission. Do you maintain your margin as you move towards the 765 verses lower voltage?

Brian Robinson

I’ll let Greg Lampert, to take that out.

Greg Lampert

Yes, we do I mean it’s pretty similar across the products sets of transmission cables in terms of the market.

Michael Coleman - Sterne, Agee

You had choose strong quarter here and shipments on transmission .You talked about utilities flash and order, how close to use our utilities ordering or you drop shipping to sides or is there some build before the installation in the fallowing quarters.

Greg Lamper

Michael, again it’s Greg Lampert. I would say that process the mechanic how ordering and how we’re shipping that’s really have hasn’t materially changed from what it’s been over the years, that’s on the trend, again on the transmission side utility.

Greg Kenny

As we said for long time, we described that is vary with these lumpy evolve for market and I think certainly in May, June the first quarter and really attributable to a handful of different jobs.

Michael Coleman - Sterne, Agee

Okay, so you’re seeing two quarters in a row of strong transmission shipments, can you get a third quarter, sequential volume in that category?

Greg Kenny

I think Mike it’s a lumpy business, its project oriented. We’re optimistic again as Greg, pointed out earlier 2008 was a very disappointing year in transmission volume and as you point out, we’ve had a couple of consecutive quarters, what we think is the right amount continuing on the trend of right amount of spending. So we’re optimistic, but again due to the projects nature, it’s very difficult to predict.

Michael Coleman - Sterne, Agee

Okay, a little longer term, you’ve been very selective in terms of what you’ve participated in China, you have a new plant in India? What is the product category or the markets are expected for India for the India plant. Secondly, China has a very large TND program as part of their stimulus. Are you looking at ways to participate in that or is that something that isn’t necessarily on your radar screen now?

Gregory Kenny

With China we have three assets there. One is, two are minority positions, one is in a utility cables business in the North. One is in a broad industry business down in just across on the border from Hong Kong and then an OEM business aimed at industrial and automotive application that sort of mirrors some of our other businesses.

They are all relatively small businesses. They are great window into that market. We still see China, I’m not maybe, and there is a lot of capacity in China, a lot of in effective. We are selling to China with product from France in the high voltage area where we get paid for the extraordinary quality that we build.

We have great insight there. I think we’re going to, see us wait for that some consolidation in that market continuing to push standards there and I think that’s an opportunity that comes as capacity gets washed out. Lot of capacity was build there, a lot of its not working. We’ll be that’s probably still a couple of years away from us taking more material position.

India in other hand is much less served. We already serve India via Thailand and we bought some small business, called Product Cables to get this, the specs were the listings there with a view to really getting started that way and then building a new larger facility that would either make products locally. We are bringing specialized products around the systems.

So I think our bigger push will be in India near term. In China we’re selling probably a $150 million of products. That’s not from revenues; that’s the total JVs revenues. We will take equity accounting in two of the cases, but we about a $150 million worth of book into the market and at all three different regions and I think we’ll be patient. That’s not to say that’s a guarantee, but right now that’s my thinking.

Michael Coleman - Sterne, Agee

One last question, on your submarine power cable business, you indicated, if I heard correctly, you said that you had built the largest cable in the world. Some of those players in that space are ensnarled in a price fixing issue. You’re relatively new to that market, is there are a tangible benefit from this price fixing issue going on in the market place to you or is that something that’s may be a non-starter in the customers decision making process?

Gregory Kenny

I know that we are new to the business. Our focus is primarily in the deepwater oil and gas drilling and in the, also the offshore wind farms, which is different than say, DC cables going long distances between islands. So we’ve really focused this more at alternative energy/deepwater drilling and it takes a long time to get references in this business meaning we are blessed with a 100 years of communication submarine references.

Also, we have won some wind farms off of the German Coast of not as we’re very close to where we are. So, again we are coming in, not yet as a full line provider and I really can’t tell what’s in the customers’ minds with respect to that investigation.

We’re just coming in because we see opportunity. We saw opportunity to leverage, no-how in power cables with their no-how under the sea and we saw a market that was actually going to blossom because of the offshore wind turbines and decided that we would get into that, but we will continue to, look at this business as a growth business for us. We are very excited about it.

Operator

Your next question comes from Brett Levy - Jefferies & Company.

Brett Levy - Jefferies & Company

What is full year CapEx numbers you guys seeing? I know you said the $100 million in the first half?

Brian Robinson

Yes, we previously referenced about a $140 million.

Brett Levy - Jefferies & Company

So, $140 million and then is there a rough estimate in terms of as the way you guys are hedged right now for every penny or $0.10 move in the price of copper? What does that mean for your working capital and then also as you look at the lag on some of your transaction prices? Can you talk a little bit about, what the upward moving copper are meant in terms of EBITDA for the current quarter, in terms of how contributed to it and if there is any rough metric that you could use going forward?

Greg Kenny

Brett, we’ve talked a number of times about the dollar or pound or copper movement downward could free $100 million to $200 million of working capital sort of as a broad rule of firm. We have actually having to change copper backup. So, copper was under $130 million and it hit $220 million.

So, we are actually running back up after copper and trying to obtain price to recover the metal, but copper travels around at average $156 million, I think in the first quarter, but it was volatile then and it remains volatile, but broadly we’re averaging $100 pounds less than where we were a year ago.

We should put cash out, as you know half of our business has been hedged forward because they priced forward, meaning the utility or the OEM. So, it winds out more slowly than they spilt arithmetic movement because half our business is actually priced forward, in some cases up to a year. Fact of that with firm orders with that metal price exactly as we got it.

You’ll see that in our first quarter cash, where we talked about the $117 million improvement in operating cash flow, but our working capital improvement was about a $112 million, across there was a lots of puts and takes in that, but a big influence was a significant one of the metal prices during the first quarter of last year and of course in leasing in the first quarter of this year.

Brett Levy - Jefferies & Company

On the EBITDA line, is there anyway of attributing a certain portion of the $117 million in EBITDA for the quarter to improvements in copper price?

Greg Kenny

No. our view has always been, we will make a margin on the longer run based on supply and demand and competitive behavior. We make a margin on the value added. In the short run it can be sticky on the way up, meaning if copper goes up $0.30 today. We will probably get $0.30 of increased price today for the business that’s in the spot market, which is half our business, at the same time it went down $0.30.

I wouldn’t expect pricing to fall again long cycle will priced on the value-added, short cycle chasing copper up or down or aluminum or petrochemicals for that matter can have an impact and we talked about it quarter-after-quarter as these were going out and we just said we had some benefit, but we don’t know what that was in the first quarter, but it was a bit sticky. So, that’s why we would not say “Take the first quarter and annualize it” because certainly that’s where we live in.

Brett Levy - Jefferies & Company

Okay, I’ll take sort of the delta between your guidance in the first quarter as somewhat of an indicator than in the copper effect.

Operator

Your next question comes from John Evans - Wells Capital.

John Evans - Wells Capital

Can I just ask you a question relative to the guidance? I think you’ve said a couple contradictory things and I want to understand this maybe I just inhere you correctly, but if you look back over the last seven years, you’ve only had one quarter where you’ve been down sequentially? I know this economic time is different, but seasonally you’re going into a stronger quarter.

Another question, you said, the distributor inventories are in better shape than they were in Q1. So, to meet a things volume should be better and pricing shouldn’t deteriorate from Q1 levels? So, what am I missing, why are you guiding for the next quarter to be down sequentially?

Gregory Kenny

Evan, we are going to make the first item is regarding to make less product than we made it in the first quarter.

John Evans - Wells Capital

So it’s absorption in your manufacturing?

Gregory Kenny

Right and you absorbed that in your inventory. So, that’s one of the issues and then the other is that we have unknown competitive pricing in half of our business a week from now. So, we are trying to calculate what behavior will I see and where will the market be made, given that the market is now.

We are guessing in the second quarter we will be down 10% for something from prior year and some competitors may be down even worse than that. So, that says capacity utilization is down 10% and arguably wire cable capacity utilization, we don’t know no one formulates like the auto industry there isn’t or steel there isn’t an independent view, but capacity utilization is probably depending on the place between 60% and 80%, which is down in our estimate from where it was two year ago, which was probably broadly a market peak in the cycle.

John Evans - Wells Capital

That’s helpful. So and why do you get that in a week that pricing?

Gregory Kenny

We have half of our business approximately or 40% to 55% is going to utilities or retailers or in some cases OEMs or major infrastructure projects, where we lock in a price formula that may last to a year to five years, depending upon the length of the agreement or delivery of that specific job.

Other business, we then sell to channel partners, our distributor. Our distributors would be WESCO or GraybaR or Anixter and they’re buying for their shelves as well as small jobs and they will say, what is the price this week for a portable cord and we will say it’s this price and then they will buy or not buy depending upon what our competitors offer that product and so, while there are strong loyalties and strong go-to-market strategies between distributors and manufacturers. I would say the market is constantly hesitant.

John Evans - Wells Capital

Then just a last follow-up to what you said about the utilization. So if I think about it you had absorption in Q1 better because you ran your factories more full you put that in inventory. So can you give us a sense of just kind of what you see about where you ran utilization in Q1 and kind of where you’ve assumed it’s going to be in Q2 to give us your guidance?

Gregory Kenny

We run our factories in a variety of ways, a lot of them will be five days, it’s going to seven in times of maximum demand. Sometimes we are in a six day of certain operation. So, again we are well off, not every factory can run seven days, but most could. We are well off of seven day cycle. We are probably averaging five days or something like that, three shifts.

So, by that definition, we would be off, two-sevens or that would. We are running at 70% utilization or something like that as a company. We don’t frankly look at it. We also are creating capacity, as we get better lower scrap, lower rates and that’s part of what we are doing. We are also heavily selling [Inaudible], so you’ll see some companies say, “I have got to take a factory down. We would love to have volume or we would love to over absorb our fixed cost, but we can flex down pretty attractively, because again you are around the work cells and our headcount by factory salaried is typically 25 or 30.” These are pretty nimble places that got the lot of nimble in the last eight years.

John Evans - Wells Capital

So, just the last point, one of the reasons as you think absorption is going to be worse sequentially and you think you’re going to run your factories less than you ran in Q1 is that right?

Gregory Kenny

Broadly speaking, again we don’t know what happens in the next two months, but that my view on it.

Operator

Your next question comes from [Kevin Zarpahnie] – Legends.

Kevin Zarpahnie - Legend

Very impressive and if you going to that jumped out at me was gross margin and looking back historically, you have not been at this level. Obviously utilization and price is a delta, but back in the late 90s you were mainly in industrial telecom business, now with Dick, your utility business [Inaudible]. You changed very much in product geography, I’m just wondering, how much mix has helped you on the gross margin, whether its transmission coming up, NSW or emerging markets?

Greg Kenny

I’d like to take credit for all those improvements, Kevin and clearly we taken the company a long way in terms of really a U.S., Canadian centric couple product business, so thank you, but as I said before, all things been equal, you would almost want to look at it as margin on the value added. So, if copper comes down, if you’re still getting the same gross margin dollars, by definition, arithmetically gross margins would have to be higher.

So, we have argued with a lot of folks is, “Please don’t think about this business, as can you get 50 basis points in operating margin year-over-year?” because I would look at more on an absolute terms. Because if copper were $5 tomorrow and our value added was just a same as it is today, we would see very low gross margins, lots of working capital tied up and the same absolute margin in that little model I just made up, if value added pricing haven’t changed, but thank you for the kudos, but I think you’re right, my mix is a lot better and lot more diverse and we’ve done better at manufacturing it.

So, we are hoping every year, we’ve taken cost out, which would gives us margins that are in relative terms stronger, but if you even talk our business apart and look at say margins of electronic cable versus say transmission cable gross margin percentages, electronics would be a lot higher because I has a lot less copper in it and also may have below the line, selling costs that the transmission cable may not. So it’s probably a pretty complex subject.

Operator

Your final question comes from Steve Gambuzza - Longbow Capital.

Steve Gambuzza - Longbow Capital

I was wondering, you were just commenting on mix in the last question. Would you expect mix to have a positive impact on indulging in your second quarter guidance versus what you’ve did in the second quarter of last year?

Greg Kenny

I wouldn’t see a dramatic change in our mix, but I won’t say it will be relatively the same when you are looking at across our businesses.

We’re starting to deliver the business continuous to change overtime, but I think it’s in the noise level. Stronger U.S. transmission is a small number relatively the company just doing over $1 billion quarter.

Steve Gambuzza - Longbow Capital

Reflecting back on Q1, is it fair to say that the majority, when you think about your performance versus you Q1 guidance that Europe and rest of world were relatively inline with your expectations and North America was substantially better, what was the beat kind of broad-based across all regions?

Greg Kenny

In North America was a nice surprise relative to work a pleasant surprise. We can see it getting some nice traction, but North America was over delivered and I think I’m thrilled what we did in the rest of the world and in Europe considering the circumstances, but I would say North America had the big recovery from the fourth quarter and its well done and keeps getting better and they had a very good quarter.

Steve Gambuzza - Longbow Capital

Did Europe and rest of world achieve your expectations in terms of profitability in the quarter?

Greg Kenny

They were in the zip code.

Steve Gambuzza - Longbow Capital

So, North America was add on zip code?

Greg Kenny

It was stronger.

Operator

There are no further questions at this. I would now like to turn the call back over to the presenters for closing remarks.

Michael Dickerson

Thank you Vanessa and thank you everybody for joining this morning. That concludes today’s conference call. A replay of the call will be made available later today on our website. We appreciate your continued interest in General Cable. Have a good day.

Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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Source: General Cable Corp. Q1 2009 Earnings Call Transcript
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