Encore Wire CEO Discusses Q3 2010 Results - Earnings Call Transcript

Oct.30.10 | About: Encore Wire (WIRE)

Encore Wire Corporation (NASDAQ:WIRE)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Daniel Jones - President and CEO

Frank Bilban - Chief Financial Officer

Analysts

Tom Brashear - Preston Capital Management

Louis Corrigan - Kingsford Capital

Liam Burke - Capital Market

Presentation

Operator

Hello ladies and gentlemen and welcome to the Encore Wire Corporation Third Quarter Conference call. As a remainder all phones line are all on listen only mode and there will be time for questions and answer towards the end (Operator Instructions) and now to begin our call I introduce Daniel Jones, the President and CEO of Encore Wire.

Daniel Jones

Thank you Matt, good morning ladies and gentlemen and welcome the Encore Wire Corporation quarterly conference call. I am Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer.

We are pleased to announce strong quarterly earnings in the midst of the severe recession currently taking place in the construction industry as we’ve repeatedly noted the key matrix to our earnings is to spread between the price of wire sold and cost of raw copper. The spread increased 37.4% in the third quarter of 2010 versus the third quarter of 2009. While our unit volume shipped in the third quarter of 2010 increased 12.5% versus third quarter of 2009. The spread increased 28% on year-to-date basis, while our unit volume increased 6.7%. The results in the last two quarters are particularly encouraging. We believe the exit of a former competitor in the first quarter has had a positive on the pricing levels and margins in the last two quarters. We continue to strive to support industry price increase to maintain the momentum started during the past two quarter.

We believe our superior order field rates continue to enhance our competitive position our electrical distributor customers are holding lean inventories in the field. As orders come in from electrical contractors the distributors can count on our order field rates to ensure quick deliveries from coast to coast. We’ve been able to accomplish this despite holding on a historical lean inventories for us. We believe our performance is impressive in this economic. We think our employees and associates for the tremendous efforts; we also thank our shareholder for their continued support. Frank Bilban, our Chief Financial Officer will now discuss our financial results. Frank?

Frank Bilban

Thank you Daniel, in a minute we will review Encore financial results for the quarter. After the financial review we will happy to take any questions you have. Each of you should have received a copy of Encore press release covering Encore financial results. This release is also available on the internet or you call Dennis Lewis at 800-962-9473 and we will happy to get you a copy.

Before we review the financials, let me indicate that in these initial comments and in the question-and-answer period that follows, we may make certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation, and instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties.

Also, reconciliations of non-GAAP financial measures discussed during this call to the most directly comparable financial measures presented in accordance with GAAP including EBITDA, which we believe to be useful supplemental information for investors are posted on www.encorewire.com.

Now the financial results, net sales for the third quarter ended September 30, 2010 were $242.8 million compared to $168.7 million during the third quarter of 2009. Higher prices for building wire sold in the quarter ended September 30, 2010 accounted for most of the increase in net sales dollars, increasing 27.9% per copper pound sold versus the same period in 2009. Sales prices rose primarily due to higher copper prices.

Unit volume in the third quarter of 2010 increased 12.5% versus the third quarter of 2009. Net income for the third quarter of 2010 increased 1467.3% to $5.1 million versus $300.000 in the third quarter of 2009. Fully diluted net earnings per common share were $0.22 in the third quarter of 2010 versus $0.01 in the third quarter of 2009.

Net sales for the nine months ended September 30, 2010 were $654.1 million compared to $472.5 million during the same period in 2009. Higher prices for building wire sold in the nine months ended September 30, accounted for the increase in net sales dollars, increasing 48.3% per copper pound versus the same period in 2009. Unit volume in the nine months ended September 30 2010 decreased 6.7% versus the same period in 2009.

Net income for the nine months ended September 30, 2010 was $10.8 million versus $5.5 million in the same period in 2009. Fully diluted net earnings per common share were $0.46 for the nine months ended September 30, 2010 versus $0.24 in the same period in 2009. On a sequential quarter comparison net sales for the third quarter of 2010 were $242.8 million versus a $236.1 million during the second quarter of 2010. Unit volume is virtually unchanged decreasing one tenth of 1% on a sequential quarter comparison.

Net income for the third quarter of 2010 was $5.1 million versus $8.1 million in the second quarter of 2010. Fully diluted net income per common share was $0.22 in the third quarter of 2010 versus $0.35 in the second quarter of 2010.

Our balance sheet is very strong. We have no long-term debt and our revolving line of credit is paid down to zero. In addition, we have $90.4 million in cash as of September 30, 2010. We also declared another quarterly cash dividend during the third quarter of 2010.

Finally, we want everyone to know that this conference call will be available for replay after the conclusion of this session. If you wish to hear the tape to replay, please call 8066-551-4520 and enter the conference reference 26761 followed by the pound sign.

I'll now turn the floor back over to Daniel, our President and CEO. Daniel?

Daniel Jones

Thank you, as Frank highlighted all things considered we performed well in the past quarter. In math we now like to open the lines up for questions.

Question and Answer session

Operator

(Operator Instructions) and our first question comes from Tom Brashear of Preston Capital Management, please go ahead

Tom Brashear - Preston Capital Management

Congratulations on the quarter. Are you seeing any improvement in the housing sector and are you continuing to see opportunities in the schools and churches and hospitals in that sector of the market?

Daniel Jones

There is not a lot of change in the housing part of it Tom, as far as the volumes goes it’s still very spotty. There is few areas where there are some residential not much and as far as the commercial side of the hospitals, schools and what have you seemed to be pretty sizeable job. Seems to be a little bit of backlog there not a substantial amount but all in all that business seems to holding it’s own.

Operator

And we have a question from Louis Corrigan - Kingsford Capital, please go ahead

Louis Corrigan - Kingsford Capital

Hi, could you just talk about the LIFO impact on the quarter?

Frank Bilban

Yes sure, LIFO was a $12.25 million expense in the quarter.

Operator

And next up we have Liam Burke of Capital Market.

Liam Burke - Capital Market

This might have been addressed in the first question, but could we circle back on the commercial market, how that has been growing and what pockets of the commercial market look like they have promised? The headline numbers in the Commerce Department show the construction, the commercial side is down, but with your unit volumes up, it seems there's got to be some pockets there that are doing pretty well or better.

Daniel Jones

The medical sector or the hospital three and four storied free standing surgery types centers. There is a lot of specifics I can get into but the medical overall seems to be doing pretty well most of the schools and universities around the country are doing something adding whatever upgrading, dorms, living space seem to be going along pretty steadily. Public schools, elementary schools, middle schools and high schools seem to still be moving along fairly well. Airports around the country, municipal airports seems to be adding maybe FBOs, hanger space for private aircraft, some commercial activities surrounding airports. There are pockets I won’t tell you that anyone sector is huge but overall there seems to be some pretty steady in the commercial market.

Liam Burke - Capital Market

Okay, and with your ability to deliver 100% on time and your distributor customers needing to keep inventories lean, do you think there is a market share gain there, again, going back to the unit volume increase?

Daniel Jones

There seems to be, it’s hard to get the exact numbers. We don’t have a public competitor so to speak so it’s tough to really nail that down but based on the few areas that we trust for information and data it seems that we have continued to creep up in the market share number.

Liam Burke - Capital Market

Great. And Frank, what was or CapEx number year-to-date?

Frank Bilban

On a year-to-date basis, we are $15.3 million

Operator

(Operator Instructions) okay looks like we have no further questions coming in from our audience.

Daniel Jones

Okay Matt, well thank you and thank you that did participate. And we appreciate the attention on the calls. Look forward to the next quarter.

Operator

Thank you ladies and gentlemen this conference is now concluded

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