Encore Wire CEO Discusses Q4 2010 Results - Earnings Call Transcript

| About: Encore Wire (WIRE)

Encore Wire Corporation (NASDAQ:WIRE)

Q4 2010 Earnings Call

February 23, 2011 11:00 AM EST

Executives

Daniel Jones – President, CEO and Director

Frank Bilban – CFO, VP – Finance, Treasurer and Secretary

Analysts

Liam Burke – Janney Capital Markets

Keith Johnson – Morgan Keegan

Kerry Rigdon – Mayberry Partners

Tom Brashear – Preston Capital Management

Operator

Good morning ladies and gentlemen and welcome to today’s fourth quarter Earnings Conference call. (Operator Instructions)

And, now to start off today’s conference, I would like to welcome and turn the call over to Mr. Daniel Jones, President and CEO. Go ahead sir.

Daniel Jones

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

We are pleased announced 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 this spread between the average price of wire sold for copper pound in the company’s average cost of raw copper per pound in any given period.

The spread increased 59.9% in the fourth quarter of 2010 versus the fourth quarter of 2009. While our unit volume shipped in the fourth quarter of 2010 increased 6% versus the fourth quarter of 2009. The spread increased 32.5% on a year-over-year basis well unit volume decreased 3.8% driving an increase earnings to spot a decreased unit volume. The results in a last three quarters are particularly encouraging following the losses we sustained in the fourth quarter of 2009 and the first quarter of 2010. After earning $0.5 per share in the five quarters ended March 31st 2010, the company earned $0.77 per share in the last quarters of 2010.

We believe the exit of the former competitor in the first quarter of 2010 has contributed to the positive trend in the industry, crossing levels in margins over the last three quarters.

We continue to strive to support industry plus increases to maintain the momentum started during the past two quarters. We believe our superior order field rates continue to enhance our competitive position as our electrical distributor customers are holding lean inventories in the field. As our 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 or historically lean inventory levels for us.

We believe our performance is impressive in this economy, we think our employees and associates for the tremendous efforts, we also thank our shareholders 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’s financial results for the quarter. After the financial review we will take any questions you may have. Each of you should receive the copy of Encore’s press release covering Encore’s financial results. This release is available on the internet or you can call Tracy West at 800-962-9473 and we will get you a copy.

Before we review the financials, let me indicate that in our 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 involves certain risks and uncertainties that could cause actual results to differ materially from those discussed today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties.

Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most 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.

Moving on to the financial results, net sales for the fourth quarter ended December 31, 2010 increased 44.6% to $256.1 million compared to $177.1 million during the fourth quarter of 2009. Unit sales in the fourth quarter ended December, 31st 2010 increased 6% versus the fourth quarter of 2009, while the average price for pound for building wire sold in the quarter increased by 36.3%. Sales prices rose primarily due to higher copper prices. Copper prices rose 30.8% in the same period comparison.

Net income for the fourth quarter of 2010 increased to 4.5 million versus a net loss of $1.9 million in the fourth quarter of 2009. Fully diluted net earnings per common share were positive $0.19 in the fourth quarter of 2010 versus a loss of $0.08 in the fourth quarter of 2009.

Net sales for the year ending December 31, 2010 increased 40.1% to $910.2 million compared to $649.6 million during the year end of December 31, 2009. The average price for copper pound building wire sold in the quarter increased by 45.8% driving an increase of net sales dollars.

Unit volume in the year ended December 31, 2010 decreased 3.8% versus the year of 2009. Net income for the year ended December 31, 2010 increased 320.6% to $15.3 million versus $3.6 million in 2009. Fully diluted net earnings per common share were $0.66 for the year ended December 31, 2010 versus $0.16 in 2009.

On a sequential quarter comparison, net sales for the fourth quarter of 2010 were $256.1 million versus $ 242.8 million during the third quarter of 2010. Unit volume decreased 8.7% on a sequential quarter comparison while the average selling price of wire increased 15.6%. Net income for the fourth quarter of 2010 was $4.5 million versus $5.1 million in the third quarter of 2010. Fully diluted net income per common share was $0.19 in the fourth quarter of 2010 versus $0.22 in the third quarter of 2010.

Our balance sheet remains strong. We’ve no long-term debt, and our revolving line-of-credit is paid down to zero. In addition, we had $103.3 million in cash as of December 31, 2010. We also declared another quarterly cash dividend during the fourth quarter of 2010.

This conference call will be available for replay after the conclusion of this session. If you wish to hear the tape replay, call 8066-551-4520, and enter the conference reference 270461 and the pound sign.

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

Daniel Jones

Thank you. As Frank highlighted all things considered on call before well in the past quarter. We believe a well position for the future. Mona will now take questions from our listeners.

Question-and-Answer Session

Operator

Certainly sir. (Operator Instructions)

Our first question is from Liam Burke’s location, Janney Capital Markets. Go ahead please.

Liam Burke – Janney Capital Markets

Thank you. Good morning Daniel, good morning Frank.

Daniel Jones

Hi Liam.

Liam Burke – Janney Capital Markets

Daniel, it’s more of end market the question, it look like the commercial construction market after having a pretty rough 2010 quite a such period numbers was getting better was still down year-over-year, but dramatically the decline was dramatically less. On the end market side, are you seeing any of that follow through?

Daniel Jones

They are still our pockets Liam where that would be true. We’re still seeing data centers, some hospitals or medical buildings smaller type office buildings in outlining areas and it seems to be the construction – the commercial construction side of it, there seems to be pockets or it seems to be somewhat positive.

Liam Burke – Janney Capital Markets

Okay. And, Frank, what was the LIFO adjustments for fourth quarter?

Frank Bilban

The fourth quarter, we took an expense of $15.9 million and for the total year, it was $27.4 million also have expense.

Liam Burke – Janney Capital Markets

Great. Thank you very much.

Frank Bilban

Thank you.

Daniel Jones

Welcome.

Operator

Our next question is from Keith Johnson location at Morgan Keegan. Go ahead please.

Keith Johnson – Morgan Keegan

Hi, good morning guys.

Daniel Jones

Good morning.

Keith Johnson – Morgan Keegan

A couple of questions real quick. May be first off on year-over-year basis in the fourth quarter. Could you guys give us an idea of how your commercial volumes and residential volumes changed?

Frank Bilban

Q4-over-Q4?

Keith Johnson – Morgan Keegan

That’s it.

Frank Bilban

Residential was down almost 29% and commercial was up 15%.

Keith Johnson – Morgan Keegan

Okay. And, can I get the same numbers for the year?

Daniel Jones

Sure. Year-over-year residential was down 15% and commercial was down 1%.

Keith Johnson – Morgan Keegan

I was trying to get an idea because I guess volume only down 3.8% in such a challenging market in 2010, as part of that is may be gaining some shares. Could you give us a little bit of color about what do you think the underlying warranty our building wire market? How much it declined in 2010 versus in 2009?

Daniel Jones

I don’t have specific numbers on it on where it ended up but we do know from a few of the resources that we rely on and some of the folks that we put some faith on them and they are reporting it appears that was somewhere between 25% and 30% on the downside, which is up a little bit from the non-number that was some published as much as 45% to 50% down.

Keith Johnson – Morgan Keegan

And it’s on a volume basis, I guess.

Daniel Jones

Correct.

Keith Johnson – Morgan Keegan

Okay, for the industry.

Daniel Jones

Yes.

Keith Johnson – Morgan Keegan

And I guess maybe final question. Copper of course went up, I guess steadily for the quarter and it seemed that from Q3 or the Q4 the price of copper was more linear in its trend of going higher. Did that help the industry kind of manage the selling price verses copper price environmental a little better, and when we see the markets for copper is up and down up and down on a more volatile type of basis.

Daniel Jones

The volatility has become in the top two or three years we consider each day. But having said that, the volatility been given the overall buyers seems to be in upward trend until the last few days. But to answer your question more directly how relates to pricing, we can tend and I’ve always stood by the fact that we do better in a rising copper market on a trend basis. It forces a few of the year can type competitors to, I have a little more discipline, it may not be brilliant management or genius or any of the other credits that we all would like to take at some point but you have copper running $0.25, $0.30, $0.40 a pound there is a not a lot of options rather than it takes the price up to cover their cost along with other raw materials. When you see the other raw materials increasing also obviously on a lesser overall percentage of the product or cost of goods sold coppers further leader but all of the raw materials were increasing.

Keith Johnson – Morgan Keegan

Okay, thanks a lot.

Operator

(Operator Instructions)

Our next question is from Kerry Rigdon’s location at Mayberry Partners. Go ahead please.

Kerry Rigdon – Mayberry Partners

Good morning Daniel.

Daniel Jones

Hi Kerry.

Kerry Rigdon – Mayberry Partners

Quick question. Daniel, you were talking about the pricing, I guess consistency, your stability was better throughout the last couple of quarters, would you characterize that as remaining like that, as you kinda execute Q4, I mean has that pricing disciplined still been there or still there?

Daniel Jones

We’re supposed to only talk about Q4, but overall the field in the market is better, the field is there is a little bit of business out there to be had and yeah, I mean the best way to is to be brief and say yes, the overall fields are little bit better, yes.

Kerry Rigdon – Mayberry Partners

Okay, I understand. And also in terms of the inventory levels, would you say that the distributors, that their inventory levels remain, is that number remained very, very thin, have there been any changes one way or the other in terms of how that progressive to the last few quarters?

Daniel Jones

I think the easy answer is yes. I mean the volatility in the output buyers on copper, at some point even the most skeptical buyers become believers, if they’re bought in the market by waiting for a cheaper price next week, when they go back and look and it could be as much as 10% or 15% increase, they are convinced that’s the right thing to do. And the about the time we have the market moving, in conserved with raw material increases, that’s oneish, we’ve got for everyone. But again the pricing discipline becomes forced at some point, it just depends on the threshold of those manufactures, I guess when someone is looking at the margins that are obviously controlled by the price, as much as anything when the cost is out of control, if someone is looking, and it’s their money, I think that threshold would be cause much quicker then folks maybe out pricing product in the market and it’s not their money.

Kerry Rigdon – Mayberry Partners

Okay. A few years ago there was a discussion that, when copper gets to certain levels that you start to see a shifts in usage for two other products, aluminum or something else. Have you seen any, instead of that, is that even, I know all materials have reason, but have you seen any suggestion of that or any kind of trend that might suggest so?

Daniel Jones

I think that existed for a while now, you’ll hear of jobs that are coded copper and then they go back to aluminum and copper drops a little bit, and then go back to copper vice-versa. So, again the volatility in the market depending on which buyers were in has an influence certainly one of the other. But to what extent on a percentage basis would be hard for me to pen down; I can’t tell you of any substantial jobs that we’ve lost to aluminum recently. But certainly it comes up, it is an option, there are pluses and minuses to be considered, when you are going from copper to aluminum and again it depends on, I guess the owner or getting the decision in the hands of the folks that are writing the checks to decide whether that changes worth. The monetary number maybe trying to get it to business decision in some fashion, but overall we see it as more discussion points and in the end most folks that we deal with prefer to have the copper installed.

Operator

Looks like our last question is from Tom Brashear, Preston Capital Management. Go ahead please.

Tom Brashear – Preston Capital Management

Hi gentleman, great quarter. With favorable housing start figures we saw in last week and then that was further quantified talking about more apartments were built than anything. Are you benefiting by that in orders and sales? And then the second question regarding a residential single family detached, are you seeing home builders begin to ramp up any, or what is the latest you are seeing there?

Daniel Jones

Most the numbers that we are seeing on the residential side fluctuate from week-to-week. There may be a situation where a few substantial orders for residential product will make that week a positive number and then the following week or even the week before that could be negative or neutral numbers. So, overall in the residential market, the few competitors that we have to participate, I think the capacity of it is in their market. Any type of uptick in residential demand would be very easily swallowed up with the existing capacity. I know it’s a long answer to your question, but overall the residential is, it’s up and down. We’re seeing the same numbers, which you’re seeing in most likely inventories, are very lean in the fields, but again, any type of substantial order that comes through is field and shipped very quickly.

Tom Brashear – Preston Capital Management

Thank you. Keep up the great work.

Operator

Gentlemen, we have no further questions.

Daniel Jones

Hey, great job Mona. We appreciate your assistance in helping us to deliver the call and the news and look forward to speaking to everyone in next quarter.

Operator

Thank you gentlemen. Ladies and gentleman, thank you for your time and attendance. This conference is now concluded. Enjoy the rest of your afternoon.

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