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Anixter International (NYSE:AXE)

Q1 2012 Earnings Call

April 24, 2012 10:30 am ET

Executives

Chris Kettmann - Senior Vice President

Theodore A. Dosch - Chief Financial Officer and Executive Vice President of Finance

Robert J. Eck - Chief Executive Officer, President, Director, Chief Executive Officer of Anixter Inc. and President of Anixter Inc

Analysts

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Steven B. Fox - Cross Research LLC

Shawn M. Harrison - Longbow Research LLC

Ryan Merkel - William Blair & Company L.L.C., Research Division

Matthew S. McCall - BB&T Capital Markets, Research Division

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Ted Wheeler

Operator

Good day, and welcome to the Anixter First Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the program over to Mr. Chris Kettmann for opening remarks and comments. Please go ahead, sir.

Chris Kettmann

Thanks, operator. Good morning and thank you all for joining us today to discuss Anixter's first quarter 2012 results. By now, everyone should have received a copy of the press release, which was sent out earlier this morning. If anyone still needs a copy, you can go to Anixter's website or call Chris Kettmann at (312) 553-6716, and I can resend the information.

On the line today from the Anixter's management team are Bob Eck, President and CEO; and Ted Dosch, Executive Vice President and Finance. After mentioning complete their opening remarks, we'll open the line for a Q&A session.

Before we begin, I want to remind everyone that statements in this conference call, including words such as believe, expect, intend, anticipate, contemplate, estimate, plan, project, should, may, will or similar expressions, are forward-looking statements. They are subject to a number of factors that could cause the company's actual results to differ materially from what is indicated here.

These factors include general economic conditions, including the severity of current economic and financial market conditions; the level of customer demand, particularly for capital projects in the markets we serve; changes in supplier sales strategies or financial viability; political, economic or currency risks related to foreign operations; inventory obsolescence; copper price fluctuations; customer viability; risks associated with accounts receivable; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks; political or potential impairment of goodwill; and risks associated with the integration of acquired companies. These uncertainties may cause our actual results to be materially different than those expressed in any forward-looking statements. We do not undertake to update any forward-looking statements. Please see the company's SEC filings for more information.

At this point, I'll turn the call over to Ted.

Theodore A. Dosch

Thank you, Chris. Good morning, and thank you, everyone, for joining us. As you read in this morning's release, we reported our ninth consecutive quarter of year-over-year growth for the first quarter. However, as we discussed on our Q4 2011 earnings call, there was some softness in our 2 cabling businesses which started in December and continued through the month of January. We described an environment where we were seeing project delays in both the Enterprise and Wire & Cable businesses, but it was difficult at that time to tell how long the softness would persist. Every indication was that these delays would be temporary, especially since we were still seeing strong bidding activity and an encouraging pipeline. As the first quarter progressed, February proved to be very similar to January. But in the month of March, both cabling businesses began to strengthen. We also said in late January that our OEM Supply business continued to perform very well at the end of the fourth quarter, and through the start of the first quarter. By the end of the recent quarter, all 3 of our end markets were performing much better with the exception of our European Enterprise end market, as this region continues to experience a very weak economic environment.

I would also like to comment on a tax benefit that flows through the tax line this quarter, along with some additional expense on the other net line. During the quarter, we recorded a $9.7 million tax benefit primarily due to lower valuation allowances for certain foreign countries. This positive adjustment is a result of an improvement in projected foreign profitability that resulted in a $0.28 per share increase in diluted earnings per share. This was partially offset by a $0.03 charge for interest and penalties associated with prior year tax liabilities. Excluding these 2 items, we reported $1.37 earnings per diluted share. The balance of my comments will exclude these 2 items from the most recent quarter, as well as the $5.3 million European restructuring charge in the first quarter of the prior year.

With that, we are pleased to report another quarter of improved performance in which the company delivered a 10 basis point operating margin improvement compared to a very strong sales growth and operating margin period in the first quarter of 2011. I think, it is important to note the headwind from both currency and copper in the first quarter of 2012 compared to the strong tailwind from both currency and copper in 2011. While currency and copper each contributed a positive 2% to revenue in the first quarter of 2011, currency and copper each contributed unfavorable 1% in the current quarter. In addition to the impact on revenue, the 13% drop in copper price year-on-year for the quarter reduced gross profit by $3.3 million and earnings per diluted share by $0.06. Despite these factors, we were still able to deliver a solid 7% incremental operating profit on increased sales.

In the first quarter, we reported a 3.5% increase in year-on-year sales. After adjusting for an estimated $15 million of unfavorable effect of copper prices, and $12 million of unfavorable foreign exchange effects, organic sales grew by 5.4% over the prior year period. As a reminder, and as we have done in past years, we will continue to re-evaluate our methodology for estimating the impact of copper prices on our revenue growth, so that any modifications that are necessary to this estimate process are incorporated appropriately.

All 3 of our end markets, as well as each of our 3 geographic regions, continue to deliver year-on-year growth during the quarter. The 2% sequential increase in sales was somewhat less than the normal longer-term seasonality, primarily due to less-favorable copper effects and the softer project business mentioned earlier. Similar to recent quarters, our positive sales results, which are in excess of broader GDP growth rates, reflect the combined impact of relatively minimal improvement in macroeconomic factors combined with the success of our global strategic growth initiatives, which Bob will discuss in more detail later on in the call.

Looking at first quarter sales trends within each of our end markets, we experienced the following: On a worldwide basis, Enterprise Cabling and security solutions sales increased organically by 3% compared to the first quarter of last year, exclusive of foreign currency effects. Continuing with the strong trends of recent quarters, total security sales grew 10% compared to the first quarter of 2011 on an organic basis and accounted for 26% of our worldwide Enterprise Cabling and Security end market for the quarter. On a sequential basis from the fourth quarter of 2011, Enterprise Cabling and Security sales declined 4% organically for the reasons mentioned earlier.

Worldwide Electrical Wire & Cable sales grew by 2% compared to the first quarter of last year. Excluding the foreign currency and estimated copper price effects, we experienced a year-on-year organic sales improvement of 6% globally, 2ith our fast-growing emerging markets business up 52% organically. Our continued investment in emerging markets are paying off, as our project business remains strong while the day-to-day business continues to grow as well.

On a sequential basis from the first -- fourth quarter of 2011, worldwide Electrical Wire & Cable sales increased by 5% organically. Worldwide OEM Supply sales continue to show excellent growth, reporting 10% sales growth compared to the year-ago quarter. Excluding foreign currency, we experienced year-on-year organic sales improvement of 12% globally. This end market is the only one of the 3 that has delivered double-digit, year-on-year growth each of the last 8 quarters, averaging 22% organic growth during that time. Organic sales in North America increased 12% year-on-year. While Europe, despite challenging economic conditions, was up 9%, and emerging markets were up a very strong 31%. Our global OEM Supply business continues to benefit from improving demand for capital industrial goods and durable consumer goods, combined with market share gains through the addition of new customers and new part sets to existing customers.

Sequentially, worldwide OEM Supply sales were up 14% organically in the first quarter, which is consistent with the higher level of manufacturing days during the recent quarter, compared to the normal holiday shutdowns in the fourth quarter of last year.

Turning next to gross margin. We reported first quarter gross margin of 22.9%, which was down 10 basis points year-on-year and down 40 basis points sequentially. We continue to be pleased with our overall gross margin management, despite the strong pricing pressure that exists in what continues to be a very volatile pricing environment.

Looking next at operating expenses, we recorded a year-on-year increase of approximately 3.5%, excluding the impact of currency. This operating expense increase is nearly 200 basis points lower than the increase in organic sales, which also excludes foreign exchange in copper pricing impact.

To summarize, operating income was $86.7 million in the first quarter, representing a 5% improvement from the $82.8 million in the prior year quarter. Excluding the negative impact of copper pricing, operating income would have reflected a 9% improvement. A 5.7% operating margin in the current quarter is up 10 basis points from the prior year quarter.

As we move further down the income statement, interest expense of $12.1 million was down from $12.8 million in the year-ago quarter, driven by a reduction in debt of nearly $110 million. A 5.5% average cost of debt in the first quarter is up slightly from a 5.2% in the year-ago quarter. At the end of the current quarter, approximately 63% of our outstanding debt at fixed interest rates, either by the terms of the debt or through hedging contracts. Excluding the net tax benefit I described at the beginning of the call, the effective tax rate for the quarter and projected for the year is 35.8% compared to 37.5% in the prior year quarter. Keep in mind, it is difficult to predict the full year tax rate this early in the year due to swings in country-level profitability, but we believe that we will continue to have an effective tax rate near the 36% level.

For the first quarter, the company reported net income from continuing operations of $55.6 million or $1.62 per diluted share, up 43% compared to $40.9 million or $1.13 per diluted share reported in the year-ago period. Excluding the impact of the net tax benefit in the current quarter and the restructuring charge in the prior year's quarter, net income per diluted share would have been $1.37 in the current period and $1.22 in the prior year's quarter, representing an increase of 12%. The improvement in net income per diluted share would have been 17% after excluding the negative impact of copper prices.

Moving on to cash flow. We consumed $65 million of cash from operations during the quarter. Cash usage was due to higher-than-normal seasonality for the quarter, primarily related to delays in project shipment. Capital expenditures were $10 million in the first quarter compared to $6.1 million in the year-ago quarter. We ended the first quarter with a debt-to-total capital ratio of 44%, slightly down from 44.7% at year-end 2011. This leverage ratio is slightly below our targeted range of 45% to 50% debt-to-capital.

We continue to have excellent liquidity. At the end of the first quarter, we had $301 million in available, committed, unused credit lines in our revolver and $219 million of outstanding borrowings under our $275 million accounts receivable facility.

Despite a challenging and uncertain macroeconomic environment, our continued strong operating performance puts us in an excellent position to support our growing business and provide options to refinance our near-term debt maturities, while also giving us the flexibility to consider strategic acquisitions or opportunities to return capital to shareholders as they arise. Our current healthy leverage on the balance sheet and other favorable financial characteristics provide Anixter with the flexibility to quickly adjust to new market realities and fund investments in crucial, long-term growth initiatives as we efficiently capitalize on future opportunities.

On that note, our strong balance sheet, has once again afforded us the opportunity to return value to our shareholders in the form of a special dividend. For the fourth time in 8 years we have elected to make a special dividend payment, this time a $4.50 per share payout, representing the total cash outlay of approximately $150 million and equating approximately to a 6.5% payout.

The management team working closely with the Board of Directors believe a special dividend payment of this amount benefits all current shareholders. Not only do our shareholders receive a direct cash benefit, but the company's investment profile, which includes our flexibility to fund all future growth opportunities, remains unchanged.

At this point, let me turn the call over to Bob, as he will comment further on the dividend along with our strategic initiative, current business trends and the near-term outlook.

Robert J. Eck

Thanks, Ted. Thanks, everyone, for joining us today. The first quarter of 2012 delivered positive sales growth against the prior year quarter, which had shown nearly 20% growth. The first quarter reflected both the strength in the industrial sector along with continuing challenges in Europe and in the data infrastructure market.

Soft macroeconomic environment in Europe led to price pressures across all of our end markets which offset progress on expense management. In spite these challenges, we achieved good organic sales growth in all geographic segments, as well as all end markets. Our operating margin increased modestly over prior year, which in light of the slight decrease in gross margin compared to the prior year, reflects well on our ability to manage expenses in a slow-growth environment. We are pleased with our performance for the quarter given the dynamics of the market and we will continue to drive initiatives targeted at increasing sales growth and improving working capital efficiencies.

As we also announced this morning, we will be returning $150 million in excess capital to our shareholders through a special dividend of $4.50 per share. This dividend reflects our view that we will achieve growth in sales and profits and generate positive cash flow this year. With leverage in our capital structure at the low end of our targeted range, coupled with our anticipated performance, it is appropriate to return capital to our owners. I think it is important to highlight that after the effect of the dividend, we will continue to have substantial liquidity available to make investments in our business to propel future growth.

The Enterprise Cabling and Security Solutions end market experienced slower year-over-year growth in North America, a modest decline in EMEA, and basically flat performance in the emerging markets. Our research indicates that the data infrastructure market in North America actually declined in the high single to low double-digit percentage during Q1. In light of the market environment in that geography, we believe that the nearly 5% growth we achieved was quite positive and indicates the gain in market share. Our booking pace and backlog indicate further growth for the balance of the year. Activity in EMEA reflected soft spending due to the difficult economic environment, as well as increased price pressure as competition is becoming more intense in a shrinking market. The balance of the year will likely prove to be challenging for us in Europe. Emerging market sales reflect normal seasonality in Latin America, coupled with a softer market in Asia. However, project activity is healthy and we're anticipating seeing growth ramp up as we go through the year. Security growth continued across all geographies, reflecting both continued investment in security and the shift of sophisticated, Internet Protocol-based systems. Security growth during the quarter increased 10% organically compared to prior year with growth in the emerging markets of approximately 26%.

Moving now to the Electrical and Electronic Wire & Cabling market. The first quarter experienced continued organic growth in North America and EMEA, and again more rapid growth in the emerging markets. We believe that the Industrial Wire & Cable markets were somewhat flat in North America and EMEA during the quarter and clearly accelerating in the rest of the world, leading to our retaining or gaining market share in all of those geographies.

We continue to experience solid project activity in the power generation, industrial, oil and gas and mining sectors. We continue global investment and industrial plant, natural resource development and power generation should continue to drive sales growth in our Wire & Cable market. We see strong quoting activity and increased opportunity to leverage our global platform in this end market. The initiative to expand in industrial automation gained momentum through this year across North America. Our investments to build our global presence in this market, coupled with our supply chain management services, are enabling us to have a leading position in large-scaled projects globally.

In the OEM Supply end market, we are continuing to experience strong sales growth in line with the growth in manufacturing around the world with greater acceleration in the emerging markets. Our sales initiatives continue to drive new business wins for both part packages at existing customers, as well as new customers. Our ability to operate as a single global partner resonates well with multi-national manufacturers looking to more effectively manage their supply chain.

In North America, our profitability improved significantly over prior year due to sales growth and expense management. In Europe, sales grew in spite of the economy due to the strength with customers whose own product sales are improving. Additionally, during the quarter, we made progress on the improvement plan we have previously discussed and we anticipate further improvements in the profitability of our European business as we go forward this year. We anticipate normal seasonality in the OEM Supply end market in the second quarter and expect healthy growth for the full year. We are pursuing multiple initiatives in all end markets and geographic segments to drive growth, including product and technology initiatives, new customer development, cross-selling and promoting the efficiency benefits our customers can achieve through our supply chain management services. We are continuing our investment plan in the emerging markets to expand our presence across the regions and our end markets. We will also continue to invest in our information technology infrastructure to ensure that we have leading e-business interfaces for our customers as well as a robust operating platform to ensure that we are efficient and effective across our business.

The short-term impact on operating expense is more than justified by the long-term gains we will realize from these improvements. While we continue to make organic investments, we are also continually evaluating acquisitions candidates that will enhance our position across our end market and geographic regions.

We're the only distributor in the end market in which we participate, delivering a value-added technical support and supply chain service model in over 50 countries around the world. We continue to find successful customers by providing global reach with a local touch and selling across our end market specialties.

As we look forward to the balance of 2012, we believe that we are well-positioned to take advantage of the opportunities presented in the stronger economic areas around the world. We also believe that through effective expense management, we will operate profitably in what will be a challenging environment in Europe this year. However, we will continue to invest in growth initiatives that expand the markets we serve and can lead to better operational leverage of our expensive [ph] global service platform. We have the financial capacity to pursue both organic growth and acquisition opportunities that may arise during the year.

We will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from David Manthey with Robert W. Baird.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

I'm just wondering if you can somehow quantify how much growth in the company today is being driven by cross-selling into existing geographies, where you're formally only selling Datacom solutions? And if so, or if not, I'm just trying to a handle on how that growth initiative is going. Are you seeing an acceleration that trend? And really, it sounds like this quarter, you implied that your growth within the Industrial Wire & Cable was sort of holding share. And given that initiative, I'm just wondering, what's the impediment that's keeping that from showing larger share gains?

Robert J. Eck

Well, Dave, I think I said on Wire & Cable that we were holding share or gaining share depending on the market. I think, in emerging markets in Wire & Cable, we're clearly gaining share. I think, Ted called out a 50-plus percent growth number in that geography which is clearly faster than the markets are growing. I think, the way to think about how effective we're being would simply be to look at the growth in emerging markets of Wire & Cable sales and OEM Supply sales over the time that we've been calling those numbers out and you'll see significant improvement. In my view, it's been successful. We'll continue to focus a lot of energy on it because we continue to see a lot of upside there.

Theodore A. Dosch

Yes, I think, just add a little some numbers to that, as Bob said. If you go back just 3 or 4 years, Enterprise Cabling sales represented about 97% of our emerging market sales, now it's down to about 80%. So even though Enterprise grew during that time, the Wire & Cable and the Fasteners business grew much, much faster. Full year last year, Wire & Cable up over 80%, OEM up over 40%. And in this year, as I called out earlier, Wire & Cable up another 50% and OEM up over 30%. So we believe that we are very -- doing a good job of leveraging that infrastructure there to support these divisional 2 end markets.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Okay, it's very helpful. Second, as we're looking at the Enterprise Cable business in North America, you look at corporate profitabilities running extremely high. And I guess the factor that is not doing so well right now, obviously, would be white-collar employment growth. Is that what it's going to take to get this segment to reaccelerate? Is this a growth industry that's just in sort of a secular pause here, or is there something technologically that this segment of the business won't grow like it has historically? I'm envisioning this as sort of a mid-single-digit secular grower, but maybe I'm wrong there. Could you help me understand that?

Robert J. Eck

Yes, Dave, I think it's in a secular pause. It would be my best feel, based on what we see in project board and pipeline activity with customers. We saw it, I think we talked about it at the end of the fourth quarter, a little bit of a slowdown in the fourth quarter. And as I mentioned, we've done a fair amount of research, some of it anecdotal, some of it looking at specific numbers from a number of private sources that led us to believe that we have somewhere in this high-single to low-double-digit decline in North America in the Enterprise infrastructure space. I do think it's more of a pause, I think that's also -- if you saw IBM's earnings release, you would have seen their hardware business globally down 7% year-over-year in the first quarter. I think there's -- IT organizations are taken a step back right now, they're reassessing where they're going to make investments. And while corporate profits are pretty strong, I think there's enough uncertainty right now kind of floating around in the world about Europe, about what's happening in the U.S. macro economy. Are there budget deficits, how does that play out, what does the government do? I think, if you roll all that together, you just have a little caution. But I think in terms of your specular story, I would agree with that. I think the notion that this is a mid-to-high single-digit growth market in North America over the longer term seems to make sense to me.

Theodore A. Dosch

Dave, one thing I would add to that, since you specifically started by asking about employment levels. One of the things that we'd be, as a dynamic that's happened recently but we think will become even more important, is application growth being more a driver of demand than just headcount. When you look at the amount of data, video, graphics, et cetera, that we all use these days, that is driving the need for not just increased storage, but more bandwidth in the distribution networks because, of course, we all want that faster.

Robert J. Eck

If I can, Dave, to add one more piece of color on to Ted's comment, the other trend we think will be meaningful in the market as we look out over the next few years, is mobility. And it's not that we're in the handset business, it's what mobility drives in terms of data center requirements on the parts of providers and ultimately, on the parts of co-location companies and end-users who are providing various mobile apps. And that, we think, will generate significant uplift in data center construction. But again, over an extended period of time.

Operator

We'll take our next question from Steven Fox with Cross Research.

Steven B. Fox - Cross Research LLC

First question, just backtracking on your comments about pricing pressures. You seem to suggest that they were pretty broad based, but also highlighted, I guess more specifically, Europe, as being more intense. I was just wondering, excluding the copper pressures, if you could just talk about that, a little bit more detail in terms of end markets with that geography?

Robert J. Eck

Steve, the comment I made was targeted at Europe. I think because of what feels like a flat-to-recessionary kind of economy in Europe, we have a market that looks like it's shrinking and some of the spaces that we're in, and therefore, a lot more aggressive pricing coming from competitors, and as a result, it's generally pushing the level of pricing down across that market. I think we will find that as an issue that'll continue through the course of the year. I don't know that it will get worse, I don't see it turning the other way, however.

Steven B. Fox - Cross Research LLC

But in spite of that, you're now thinking that sales growth in Europe for Enterprise products is going to be under pressure including -- because of that? Or can unit demand overcome some of that pricing pressure?

Robert J. Eck

I think revenue growth in Enterprise in Europe will be a challenge for the coming year, and the challenge is going to be due to the -- primarily due to the pricing pressure coupled with an economy that's not growing very rapidly. So I think that creates the normal sort of recessionary or flat market pressure on customer spend.

Steven B. Fox - Cross Research LLC

And then just lastly. If you could flush out the comments you made about project delays. How do you see that playing out over the next few quarters? Is that something that -- you mentioned everything is still on the board, does that mean that some of these projects have been delayed, start to come back and create a little bit more upside or does it get spread out over the course of the year? What are your customers sort of indicating in terms of when they release some of these projects now?

Robert J. Eck

The projects are delayed for all kinds of reasons. And so there's individual cases behind each one. But I do believe these projects come back. I don't want to call out a timing specifically when we see the projects come back. But we're very engaged with the project managers on these things. And we definitely see that this starts to turn around, we believe, as we get into the second quarter.

Operator

And we'll take our next question from Shawn Harrison with Longbow Research.

Shawn M. Harrison - Longbow Research LLC

There was some informal commentary in the last earnings call about the potential for high single-digit growth for the year. Obviously, some of these factors are weighing down upon the growth potential. Would you be able to hazard a guess about maybe where you think the markets could take you in terms of growth for this year now, given what you're seeing?

Robert J. Eck

Yes, Shawn, you're right. We did talk going into the year about high single-digit growth rates for the full year. We said back on the last earnings call that we were anticipating that. But the softness starting the year and the 2 cabling businesses that we would be well below that in Q1, but that we still saw that as being a reasonable number. So high single digits in the 7% to 8% range, I think, were probably still reasonable. And just to temper that, 6 months ago, we might have thought that was 8% to 9%. So it's still high single digits, but just not quite as robust as what we probably thought at the beginning of the year. And obviously, a lot of that is heavily influenced by what we're seeing in Europe now.

Shawn M. Harrison - Longbow Research LLC

Okay. And then 2 clarifications, if I could quickly, please. The Enterprise within North America, how much of that is tied to data centers? And then second, I think that was maybe an informal goal of seeing a 3% EBIT margin, give or take, exiting this year and out of EMEA. What should we expect, maybe, for EBIT margins now?

Robert J. Eck

I'll take the first point on data centers versus other drivers. We don't call out data centers specifically. Frankly, it's just too hard to pull that out of the information or pull that out of our numbers, so I can't give you a number how much of the growth was driven by data centers.

Shawn M. Harrison - Longbow Research LLC

I guess, maybe just the overall percentage of total sales, do you have kind of a guess? Is it half of what North America is?

Robert J. Eck

No. I mean, that's the same answer I just gave you.

Theodore A. Dosch

Yes. Part of that, as you might remember, Shawn, talking to you, I remember at your conference, when we go to the markets for multiple channels and we're selling to end-users, we're selling to big integrators, we're selling to electrical contractors, we don't -- we can't always tell from our sale if that's going into a data center or not. So we just can't get at that and it would be very difficult to put on a number on it. But on the back part of your question, let me speak to that relative to EMEA profitability. As I think you're correctly remembering, we said last year, our goal was to get that business up to about 150 basis points of profitability. I think we ended the year about a 1.6 margin. Our goal back in Q4 of last year was to improve that by about 100 basis points this year, which would put it up there north of 2.5 points of margin. Similar to my comment before about revenue growth, considering where we are today, relative to the tightness in demand, compounded by the pricing pressures, I think that's going to be more difficult than what we anticipated to start the year. I still think we will be able to improve our profitability in Europe over the course of the full year. So remember when we announced that restructuring charge in Q1 of last year, we said that the benefits would not be fully realized until 2013. So we're going to get about half of the estimated $5 million of cost savings from that to be realized in 2012, but that will come out over the course of the year. So I think we will still be able to show improved profitability for this year in Europe, just not to the level that maybe would have been -- that we did initially target before we saw just how tough the European economy was.

Operator

We will take our next question from Ryan Merkel with William Blair.

Ryan Merkel - William Blair & Company L.L.C., Research Division

So I wanted to start with March. Can you give us a sense for how strong March was relative to the 5% organic growth for the quarter? Was it a couple of points higher, any comments there would be helpful.

Robert J. Eck

Ryan, we'll scramble around, maybe, and look for numbers. I think the best way to describe is that March was stronger certainly on a daily sales basis than January or February. And we basically saw the quarter build as we went through the quarter.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And that's part of what gave you confidence along with the increased backlog that organic growth could pick up from here?

Robert J. Eck

Yes, exactly right.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And then on incremental margins, you did about 7.5% incremental margin on 5% organic growth this quarter. And I'm wondering, is it reasonable to assume as organic growth improves to maybe 7% to 8% the rest of the way, that incremental margin go back to kind of that 9% area?

Robert J. Eck

Yes, Ryan. I think if we're able to deliver the higher single-digit revenue growth that we should be able to deliver higher than the 7% operating profit leverage that we have here in Q1.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay, so no incremental investment or anything that would push that down?

Theodore A. Dosch

No. I think, obviously, the bit of a caveat to that is how much pricing pressure we continue to experience in some markets. Because, obviously, pricing, whether it's positive or negative, goes straight to the bottom line and has the most significant impact on that operating profit leverage.

Robert J. Eck

Yes, and I think may be important to call out, we talked about copper for the first time having a negative -- first time in quite a while having a negative impact. Copper right now, spot copper right now, is below where it was on average in Q1. That potentially creates a little more pressure.

Theodore A. Dosch

Yes. And just to the first part of your question there, Ryan. As you know, we don't typically release monthly sales results. But I can tell you that, overall, as the company, that our year-over-year revenue was almost twice as much in February as it was in January. And I'll talking percentage growth. And then was almost twice the increase of that in March versus February. So you can see there's, directionally, that's just speaks to a pretty significant ramp as the quarter progressed.

Ryan Merkel - William Blair & Company L.L.C., Research Division

That's very helpful. And I just have one more clarification question on gross margins. Because I noticed that OEM Supply was the best growth market and that's your highest margin. So was it -- did pricing pressure offset better mix, is that the right way to frame it?

Theodore A. Dosch

Yes, I think in a couple of markets -- well, certainly in Europe that's definitely true. Within our OEM Supply business, we do have some impact, especially in Europe, of customer mix within that. So just to try to differentiate a little bit from call it pure pricing pressure, we do realize different margins for different customers as you might imagine. And so customer mix in Europe OEM Supply was the single biggest factor affecting their margins in Europe.

Operator

We'll take the next question from Matt McCall with BB&T Capital Markets.

Matthew S. McCall - BB&T Capital Markets, Research Division

Back on the Datacom commentary, in the first commentary, I think West Co talked about some pressure from the government. I think you -- maybe, Bob, you said maybe uncertainty on the part of corporations based on what the government may do, but what about government demand? Can you talk about maybe any impact that had on Enterprise activity in Q1?

Robert J. Eck

Matt, I don't think we saw specific impact by the government. It's a smaller part of our business than it is for others.

Matthew S. McCall - BB&T Capital Markets, Research Division

Okay, okay. And then secondly, I think the last question was, are you going to have any investment? You had talked about, Ted, in the past, the reason for the step down and incremental margins from what you've been reporting the last year or so, was that you need to start investing. Maybe you're facing some operational bottlenecks. From your earlier answer, should I assume that most of the investments in people that you were talking about having to make have been made and they're now in the current cost structure, so from here forward, we'll just see the regular leverage play out?

Theodore A. Dosch

Let me try to answer that in 2 parts. Because I think, what I was referring to earlier was more along the lines of what we refer to as strategic investments. Like our dedicated Wire & Cable specialist and emerging markets, or investing in incremental expertise to support our industrial automation business. As opposed to making some investments in kind of the day-to-day business to support the higher run rate. I think, as the year progresses, we will still need to make some of those investments. That's what I, I think, referred to on a prior year as being more in procurement and inventory management, that type of levels where we have begun to reach a bit of a step function based on the revenue growth that we've experienced over the course of the last several quarters.

Matthew S. McCall - BB&T Capital Markets, Research Division

So the outlook for that high single-digit incremental margin reflects those investments?

Theodore A. Dosch

Yes. For the most part, yes.

Operator

We'll take our next question from Jeff Beach with Stifel, Nicolaus.

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

I followed the company sequentially rather than year-over-year. And I've got, in that context, a couple of questions on the emerging markets. I saw sequentially here, higher growth in both the Wire & Cable and the OEM Supply businesses and extremely sharp drop in Enterprise. And just kind of looking at the economics, can you explain why the Enterprise is so weak going into the first quarter versus the other 2 segments? And then secondly, the profit margin sequentially, your profits were down extremely sharply even relative to the volume decline in the emerging markets. Can you -- is there more here than strategic investment occurring?

Robert J. Eck

Jeff, let me start with it and Ted will jump in as well. First of all, I think when you look at OEM Supply and you look at Electrical and Electronic Wire & Cable as different from the Enterprise business. The sequential trend is going to be a little bit different for a whole range of reasons. First -- the first reason that applies to both that they're smaller businesses and they're still very much in early sort of life cycle growth and ramp-up phase. They don't have the same sort of existing run rate, so you'd anticipate seeing them not have the same kind of seasonality we might see across the rest of the business. Compound that in OEM by the fact that you have, in the fourth quarter, due to holidays, due to the year-end holiday season, you end up with a bigger haircut on manufacturing days, particularly in Latin America, which is the bigger part of our OEM business and the emerging markets, you have a bigger haircut on working days in the fourth quarter than in the first quarter. So you'd expect to see different seasonality with the OEM business in any case than you would in the Enterprise business. Then getting back to the Enterprise business, frankly, the seasonality we're seeing is, without quoting specific statistics, it's fairly normal. We see a big fall off from Q4 to Q1. Our seasonality in Latin America is different than it is in the other businesses for Enterprise. We always have a low first quarter. We accelerate through the year, and the biggest quarter is the fourth quarter. And that's very different than the seasonality we see in Enterprise, in EMEA and in North America.

Theodore A. Dosch

Yes, I would completely agree with that, Jeff. I think the extent of that quarter-to-quarter seasonality, Q4 to Q1 for emerging markets is more significant than any other seasonality we have between any other quarters or in any of the other regions of the world. And as example of -- to Bob's point at being fairly normal, the 4.5% operating margin we reported in Q1 was almost identical to the prior 2 years, where it was 4.6% both in 2011 and 2010. So that really wasn't -- so neither. I guess, I'd say neither the top line nor the operating margin was really a surprise to us based on what we expect from the seasonality.

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

I guess I can look back, but it just looked like the sequential decline in profitability, again, in the emerging markets, it was very significant this year versus the last couple of years and I'll take a look back at it. But if it is greater than it has been, that sequential decline, is there more to that than the strategic investment?

Theodore A. Dosch

Yes. To that point, the sequential decline, as you go back multiple years, you will find, from Q4 to Q1, is a little bit higher than what it has been in past years. Although I think it tends to be over 200 basis points usually from Q4 to Q1. And this time it's closer to 300 basis points, as you can see. And yes, that is a function of some of this incremental cost, we talked specifically about ramping up more with Wire & Cable in emerging -- in Asia-Pacific, I mean, to be specific, where we ramped up in Wire & Cable really starting back in '10 to early '11 in Latin America. We started that effort at least a year later in Asia-Pacific. And so that, certainly, that higher investment is a piece of what's impacting that as well.

Robert J. Eck

And I think the other important piece is we had a very dramatic ramp-up in late Q4 last year that was highly profitable and frankly, was -- without looking at numbers, I'm going to say it's the highest quarter we've had in the emerging market business, ever.

Operator

And we'll take our next question from Anthony Kure with KeyBanc.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Just a couple of questions about copper. Copper, at its current rate, $3.60 and change, will it still be a headwind for the next 2 quarters on a year-over-year basis, given that copper was over $4 in the second quarter and the third quarter of last year?

Theodore A. Dosch

Yes, we would anticipate that to be the case. It would -- I think, if it were to stay at approximately $3.60 price that is now, we would expect it to be a headwind, both sequentially as well as year-over-year. I think Q2 last year was about $4.15 a pound. So whereas it's down from the $4.38 it was Q1 of last year, it was over $4 in both Q2 and Q3 of last year.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Okay. And then sort of related to that, I think last quarter you mentioned some of the customers sort of stalled on their orders, as they attempted to maybe time the copper market, maybe on some projects. So as copper accelerated then through the first quarter, do you see a sharper-than-normal reversal, as they maybe try to time the market here as the price went up?

Robert J. Eck

No, I don't think we saw that. I think, if anything would happen, what would happen is that as copper falls, people who've held back will start having projects quoted. People are waiting to make orders based on copper, will start making orders. So if anything, declining copper would potentially push up sort of the underlying growth, but I wouldn't want to make too big a case of that.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Okay, so nothing explicit along those lines?

Robert J. Eck

Right, no.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Okay and then just last one on the special dividend, I understand the logic there. I just looked at the press release and maybe I'm reading into this, but you talk about you continue to look for a strategic acquisitions that can grow profitably. But you'd only make these acquisitions if the fit and valuation makes sense. I guess, is this, the special dividend, the $150 million cash outlay more indicative of maybe a less rational M&A environment?

Robert J. Eck

No, I don't think that's right. I think I can understand, by the way, how you got there. But that's not what I would say at the moment. I think the problem was M&A for us. If you basically have a cadre of targets that are not large companies, the time it takes from identification of a credible candidate to closing a transaction, reporting it, can sometimes move quickly. Like in the case of Clark Security Products, moved in about 6 months from first meeting to close. Other cases, we've had have taken literally years from first meeting to getting to close transactions. And a lot of that has to do with personalities, we're typically dealing with privately-held companies, not public companies. There's emotion, there's whatever kind of churning in that. So I wouldn't take it to say the market's any different, we just see these things mature in varying rates. We absolutely have our oars in the water on this. We have things that we're working on. So, hopefully, they'll mature. I think the key is, that after paying the dividend, we still have substantial liquidity, a lot of dry powder, so to speak, to go out and do acquisitions of the scale that we've typically done in the past.

Theodore A. Dosch

Tony, if I can add just one last thing. I think the other thing it's indicative of, is that unlike many companies, we have refrained from putting a specific goal out there to say, we're going to grow revenue by 3% or 4% or some number every year. We...

Robert J. Eck

Based on acquisitions.

Theodore A. Dosch

Yes, yes. I'm sorry, based on acquisitions. And specifically, because we don't want to find ourselves in a position of having to do acquisitions for acquisitions' sake to hit a target like that. So we're going to stick to our guns pretty well to make sure that, that valuation is right, even if we think it's a great strategic fit. If it's not the right valuation, then we won't do it.

Operator

[Operator Instructions] We'll take our next question from Ted Wheeler with Buckingham Research.

Ted Wheeler

You answered a lot of the questions. I'll try a couple more. If I look at the whole company and sort of the comments on project timing, et cetera, it would feel perhaps the second quarter sequentially this year will be a little better than your average, if we go back over time? Would that be a fair way to think about revenues?

Robert J. Eck

Ted, that's a great question. I think our interpretation would be that we would see a little bit more than normal sequential growth from Q1 to Q2.

Ted Wheeler

And are there any holiday anomalies this year that I should be aware of? I guess, I'm not aware of, but I guess I'll ask you.

Theodore A. Dosch

No. I think off of the top of my head, we have the same number of holidays in both. We have one holiday with -- in Q1 with New Year's Eve being celebrated on a Monday. And then we'll have one holiday in Q2 with Memorial Day.

Ted Wheeler

And then, of course, you'd back out copper, whatever, to crank the number...

Theodore A. Dosch

Right, right.

Ted Wheeler

And then in Europe, you talked, now for probably over a year, you had this issue with tariffs and needing to resource, and I know you're working on it. Have you made much headway in sort of resourcing and maybe how far along are you in resourcing the Fastener raw material?

Theodore A. Dosch

Ted, we're making progress. So I guess the right way to describe it, it's starting to filter into the business. The time delays, as we've talked about in the past, have to do with getting certain types of certifications done by the customer on the products. And we tend to be low on the food chain when they stack up the priorities of which parts they're going to recertify new suppliers or new manufacturers of the item. So it takes some time for this stuff to work into the supply chain, lead time issues, all that kind of stuff. But we're beginning to make progress and we think we'll see some benefit from that in the second quarter.

Ted Wheeler

If I sort of interpret that comment, would this be a process it might be -- work its way through, maybe, for the rest of the year before you get it done, or will there even be some next-year issues that you'll -- what are you clear up to when...

Theodore A. Dosch

Yes, Ted, I think it will go through the end of the year. I think, last quarter on the call, I might have made the statement that compared to when we first started feeling the impact, which was third quarter of 2010, so you're right, it's been well over a year. I said at year end, that we think we're about halfway through recovering that margin deficit that was created practically overnight back there in the third quarter of 2010. So if we don't have kind of any unexpected extreme pressure due to overall demands in Europe, I would think that we can get the bulk of the rest of that back this year, 2012.

Ted Wheeler

Great. Just one last one on the special dividend. And thinking in terms of perhaps a 7.5 percentage revenue for the year. I guess, my thinking is your cash flow would really pay for this. Net debt would even be lower after the dividend if you had revenue growth of around 7, 7 to 8, Is that a fair way to think about it?

Theodore A. Dosch

That's reasonable. I guess, at this point in time, I'd be comfortable saying that our cash flow this year ought to be pretty comparable to last year. Which if I remember right, was just a little bit lower than the amount of its dividend. So you're approximately right in that analysis.

Operator

And we have no further questions. I'd like to turn the program back to our speakers for closing remarks.

Robert J. Eck

Thank you. Thanks for joining us today. While we face the year with some economic uncertainty, we believe that there are many opportunities around the world and that our diverse global reach, strategic initiatives and value-added business model position us well to support our customers and increase sales in the months and years ahead. Thank you.

Operator

This concludes today's program. You may disconnect at any time. Thank you and have a great day.

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