© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Encore Wire Fourth Quarter Earnings Conference Call. My name is Anna and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the call over to Daniel Jones, Chairman, President and CEO. Daniel Jones, you may begin.
Thank you, Anna. And good morning, and welcome to the Encore Wire Corporation quarterly conference call. I'm Daniel Jones, the President, CEO and Chairman of the Board of Encore Wire and with me this morning is Frank Bilban, our CFO.
We're pleased to report a great fourth quarter and full year. Our unit sales were up for the year. The $3.74 of EPS in 2018 is a 43% increase over the $2.61 EPS in 2017 and that's from core operations, net of the federal tax cut and represents the second best EPS in the history of the company.
One of the key metrics to our earnings is the spread between the price of copper wire sold and the cost of raw copper purchased in any given period. The copper wire spread increased 9.8% in 2018 versus 2017 as the average price of copper purchased increased 5.7% in 2018 versus 2017, and the average selling price of wire sold increased 7%.
We are also encouraged by the fact spreads improved during the fourth quarter of 2018 versus the third quarter of 2018. Copper spreads increased 2.8% on this sequential quarterly comparison.
We view this positive trend in margins as a sign of the strong construction industry environment across the country. Our conversations with our sales reps, distributor customers and their contractor customers indicate that the outlook for 2019 is also very good.
We continue to lead and support industry price increases in an effort to maintain and increase margins. We believe that our superior order fill rates continue to enhance our position.
As orders come in from electrical contractors, the distributors can count on our order fill rates to ensure quick deliveries from coast-to-coast. We have been able to accomplish this despite holding what are historically lean inventories.
We believe our performance is impressive and we thank our employees and associates for their tremendous efforts. We also thank our stockholders for their continued support.
Frank Bilban, our Chief Financial Officer will now discuss our financial results. Frank?
Thank you, Daniel. In a minute, we'll review the financial results for the quarter. After the financial review, we'll take any questions you may have.
Each of you should have received a copy of Encore's press release covering Encore's financial results. This release is also available on the Internet or you can call Elizabeth Campbell at 800-962-9473, and we'll be glad to get you a copy.
Before we review the financials, let me indicate that throughout this conference call, 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 here 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 the term EBITDA, which we believe to be useful supplemental information for investors, are posted on our website www.encorewire.com.
Now for the financials, net sales for the fourth quarter of 2018 were $319.7 million, compared to $301.3 million during the fourth quarter of 2017. Unit volume, measured in copper pounds contained in the wire sold increased 10.5% and the average selling price per copper pound sold decreased 3.7% in the fourth quarter of ‘18 versus the fourth quarter of ‘17.
Sales prices in the fourth quarter of 2018 decreased primarily due to lower copper prices, which decreased 9% versus the fourth quarter of 2017. Net income for the fourth quarter of 2018 was $25 million versus $28.5 million in the fourth quarter of ‘17.
Fully diluted net earnings per share known as EPS were $1.20 in the fourth quarter of 2018 versus $1.36 in the fourth quarter of ‘17. However, the $1.36 EPS in the fourth quarter of 2017 includes $0.76 from the core operations and $0.65 from the adjustment of deferred tax liabilities, offset by nickel associated with a special bonus of $1,000 paid to all employees of the company except corporate officers at the end of last year.
Net sales for the year ending December 31, 2018 were $1.289 billion versus $1.164 billion during the same period in 2017. Copper unit volume increased 4.5% in 2018 versus 2017, coupled with a 7% increase in the average selling price per copper pound sold in 2018 versus 2017.
Sales prices increased primarily due to higher copper prices, which increased 5.7% during 2018 versus 2017. Net income for the year ended December 31, 2018 was $78.2 million versus $67 million for the same period in 2017.
EPS was $3.74 for the year ended December 31, 2018, versus $3.21 for the same period in 2017. The EPS for the full year of 2017 from core operations was $2.61, which includes the adjustment delineated in the discussion of EPS in the fourth quarter earlier.
On a sequential quarterly comparison, net sales for the fourth quarter of 2018 were $319.7 million versus $340.7 million during the third quarter of 2018. Copper unit volume decreased 6.5% on a sequential quarterly comparison, in line with the fact that the fourth quarter is generally a slower quarter in the construction and building wire industries. The unit volume decrease was offset mildly by a 0.9% increase in the average selling price of wire per copper pound sold.
Net income for the fourth quarter of 2018 increased to $25 million versus $23.7 million in the third quarter of 2018. EPS was $1.20 in the fourth quarter of 2018 versus $1.13 in the third quarter of 2018.
Our balance sheet is very strong. We have no long-term debt and our revolving line of credit line is paid down to zero. In addition, we had $178.4 million in cash at the end of the quarter. We also declared another cash dividend during this quarter.
We'd like to remind you, this conference call will be available for replay after the conclusion of this session. If you wish to hear the taped replay, please call 888-843-7419 and enter the conference reference 6877323 and the pound sign. Or you can visit our website.
I'll now turn the floor back over to Daniel Jones, our Chairman, President and CEO. Daniel?
Thanks, Frank. As we highlighted, Encore performed well in the past quarter. And we believe we are well positioned for the future.
Anna, we'll now take questions from our listeners.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we have a question from Zane Karimi from D.A. Davidson. Please go ahead.
Daniel and Frank. Good morning and congrats on the quarter.
Thank you, Zane.
Thanks.
I was just hoping if you guys could provide a little more color on where you are seeing the most activity for your products regionally, as well as which product lines you are seeing particular strength in?
Well, as far as regionally goes Zane, I think anyone who travels you see cranes in the air in most of the metropolitan areas. So construction seems to be going along pretty well. Commercial and industrial both, those two areas, you know, data centers come to mind, hospitals, universities, continue to expand. There is a lot of tenant changes at different locations in high-rise buildings, it causes maybe some wire to be pulled out and new product to be pulled in. Its not all new construction, but it does require our product to be shipped and delivered whatever and so.
I think geographically, it's really coast-to-coast. There are some maybe some differences or outliers to that, but for the most part, in general, major cities and what have you, we're expanding in some fashion. And again, commercial, industrial both seem to be pretty decent at this point.
Okay. Thank you for that. And then just a follow-up there. With the strong margins of the last two quarters, how are you thinking about the competitive market and pricing opportunities and are these level sustainable?
Well in 2018, we saw some things occur in the competitive landscape and continued in or is continuing in for this year. But to remain consistent with the call and stick to '18, there was some timing on the movement of the cost of raw materials and pretty consistent demand into Q4 which most of the time in years past Q4 drops off a little bit and I don't know exactly what other companies do or don't do. But there were some missed opportunities our competitors on deliveries and quality issues and whatever might happen and we were able to capitalize on those in the fourth quarter.
Great. Thank you for those answers. And I'll jump back in queue.
Thanks for your support. Zane, appreciate it .
Our next question is from Julio Romero from Sidoti & Company. Please go ahead.
Hey, good morning, Dan. Good morning, Frank.
Hey buddy.
Good Morning.
So just wanted to follow up on Zane's question there, I understand competitive landscape would be one of the drivers of spread expansion. But can you talk about what the other drivers of that spread expansion you've been seeing lately, just any other puts and takes that that's kind of driven the step function upwards, especially over the last two quarters as we've seen a big jump in the spread sequentially. And just any additional color on how those - how sustainable those drivers would be on a go-forward basis.
Yeah, I mean, great question. And I think that's where the story is most likely and at least that's what we see. Again, there some fundamental issues that have occurred and continue and there's only two things that sell building wire and one of them clearly is delivery.
As we stated in the press release and have stated for a while now, if you get in a situation where there are some value things we can do for our product, we sell those on a consistent basis.
The sales reps by the way, I need to add in our sales force system, a phenomenal job of selling some value that is building wire. So how much of that you can get away with who knows.
But they've done a really good job of handling the orders and executing once we take the order and new order typically is done at our price. And so when you get in a situation to where you've got raw materials in favor and in favor for us as you we've talked about over time is a consistent bias maybe, not necessarily a trend, but a bias on the upside is a good thing.
When you mix into that the delivery piece I'm confident we can tell you that when delivery is a bigger piece of the equation, we do very well and that's right where we want it to be is on delivery. So when you have an increased demand in a particular market area and we have the execution success that we had, you're able to charge just a little bit more. I won't go too deep into the pricing thing because I can see on the screen, we've got quality of our competitors on here. But we're able to do some things and provide some value and we're able to be rewarded for that in the market and when you ask if that can be sustained, I think yes.
We went through Q4, which typically is a softer quarter if you will, based on weather and what have you and folks get wrapped up in Thanksgiving and Christmas and people don't really come back to work into after the last Super Bowl party and what have you.
But it was a really good year, it was a great quarter and there's a lot of momentum and speaking specifically through October, November and December, it's very good, things are very good.
That's helpful. I appreciate the detail there. Can we get an update on the aluminum side? Obviously copper spreads have certainly had a nice step-up. But just any color you can give us into how price volume spreads have trended lately there and maybe the outlook for where you see aluminum products in general going forward?
Yeah, It absolutely Julio, I don't mind commenting on that at all. We were - the public is aware and we filed a petition. If there are some issues that were going on there in the market that weren't necessarily you know, something that we could sit back and continue to take.
And so we stepped up and everything is going along as it should. It will probably be the recent timeframe adjustments based on the government shutdown and whatever that means. But overall it's heading - it's trending the right direction. It's not where it should be, but it's heading in the right direction.
Aluminum sales were good, not great, margin in aluminum were better, but not great and I don't think it's any secret that I prefer and I've been very public with this, I prefer to sell copper all the time. We sell aluminum so that we don't miss the copper order. But it's performing a lot better, aluminum is performing a lot better. We've got room to grow there, as we need to and I'm confident in ‘19 we'll do a little better on aluminum.
Great. And just maybe the last one here is, I know on the last call. Dan, you mentioned when we talked about cash deployment, you mentioned you were pursuing some opportunities there. Just wanted to see if there was any update about cash deployment going forward?
Yeah. I don't want to say the sack is full, but we've got some opportunities here ahead of us and we haven't announced anything specific publicly, but we’re constantly looking and investigating where we can be better and add to what we have. We're not interested in getting into something that we're not super familiar with, we’re going to end up with some experience and somebody else gets the money. We constantly are able to watch in this industry that specific happen and occur in France [ph].
And so we're anxious to get started on a couple of projects. Timing is everything and hopefully we'll be able to announce something going forward. But nothing has been announced yet Julio. We just consistently and constantly are trying to improve, and we've got some good ideas and it's a timing issue.
Very good. I'll hop back in queue and best of luck in 2019.
Thank you. Appreciate the support.
Thank you. Our next question comes from Bill Baldwin [Baldwin Anthony Securities] Please go ahead.
Hi, good morning, Dan and Frank.
Hi, Bill.
I've just - kind of a housekeeping item Frank. Can you tell us what the LIFO impact was in the fourth quarter?
LIFO, in the fourth quarter was relatively minor. It was a $1.1 million detriment to cost of sales.
Okay. $1.1 million. And can you give us any numbers on aluminum volume year-over-year as far as the pounds or the aluminum, your major and copper and pounds, do you measure aluminum the same way as far as the year-over-year purchased aluminum, copper wire, I mean, aluminum wire?
You're talking Q4 to Q4 or year-over-year ?
Yes. Q4 to Q4?
Q4 to Q4, the aluminum volumes were down 7.3%.
7.3% okay.
And as a total of our sales dollars, it was only 7.2% of net sales Q4 of '18.
Repeat that number one more time, then you said 9%?
No, down 7%.
Down 7% on volume was, okay, very good. And I know the data center has been a fairly important incremental aspect of the business. I think it has been an incremental this year, correct me if I'm wrong. But is there - do have much visibility looking out on that business Daniel, and I know it's a pretty large - those are large orders and it can't be I guess kind of lumpy from time to time. I just wonder what kind of visibility you had on the data center construction going forward in 2019.
Yeah, nothing specific Bill, that I want to share on the call. But I don't think it's…
Not very of course specific, just kind of the general trend that you see it kind of equal to this year, this past year, or do you continue to see a build-up of demand there and as far as your sense of it is concerned?
Yeah, and that's where I was headed with the answer. I think that there will be more. I mean, the feeling is and the quotes in the conversations that we're involved with, it's not something that's slowing. The number of exact - they try to keep the site locations and it's not different than what you saw in the Amazon headquarters publicity whatever that was and now they're moving whatever.
But the data centers stuff, the construction is also kept really close to the west, lot of code names whatever to keep it secret what have you, it's definitely not slowing.
Another area of that seems to be getting more and more capital investment than expected to get more here again, it's not vehicle [ph] but you get involved in heavy wiring or wiring at all when you get into these LNG large complex that you're building on the Gulf Coast. Do you get involved in CapEx on refineries? Are they going to do turnarounds and so forth and refineries or work refineries things like that, midstream projects in the oil and gas area, are those users of copper building wire or aluminum building wire Daniel that have an impact on your business?
Yes. Both the copper and aluminum that’s a good fit for our commercial industrial product offering. It is pretty specific to a couple of geographical areas, but yes, answer is yes. They do use our product.
Thank you very much and congratulations on a job that you guys are doing well. One other area that came to mind, I just want to ask you with this increased volume and so forth, how are you doing as far as utilization, the labor situation and your plants able to continue to run efficiently is other stresses and strains that are beginning to show up or how is that?
The plants are running great. We've got some fantastic people doing great things and very positive about the plants in production, capacities and those things are constantly being rationalized and it's going along well. There is no question, it's more difficult today to hire, motivate qualified help and our stress motivated because we operate at a pretty high rate of speed here and to just jump into that takes - but listen we're in it. We know what it takes to get good folks, and we're doing those things. Constantly upgrading our offering and what it might be but that's - if there is a limiting factor it's getting good qualified motivated people.
It just takes a little longer to get enough, but we're right in the middle of it, all day every day and we could use a handful of folks today and it just takes a few more applicants and interviews to peal back and identify what you need and train and we've got quite a few programs in place that we're really proud of.
We don't publicize those. We don't put logos on them and include them in our public presentations because they are in-house and they are personal and have to do with people. And so from that perspective, it's rolling along really well, Bill. I mean there is no - I don't have anything to tell you that's negative at this point.
Well, thank you very much, Dan and continued success.
Sure. Thanks, Bill. Appreciate the support.
Thank you. Our next question comes from Brad Evans with Heartland Advisors. Please go ahead.
Good morning, gentlemen.
Hey, Brad.
Congratulations on a great fiscal year for the Encore team.
Thank you, buddy.
It's pretty impressive fourth quarter I mean in light of $2.70 copper. So it's very encouraging to see the rationality within industry, the competitive behavior and Daniel I know that you're not inclined to give forward guidance, but if I can just maybe ask you something more of a hypothetical.
So what do you think would be as you kind of think about what could cause this newfound industry rationality either to potentially break down. What do you worry most about that could cause that to happen at this point?
It's a great question and I think you’re onto something there. If you see that the year of 2018 started well over $3 a pound and ended up at about $2.75-ish a pound, that's happened a couple of times in the last 29 years, but normally you know that creates some chaos in the market.
And I think the difference today is and I don't have anything negative to say about our competition and I'm sure they're all doing well in the areas that they choose to do well and that's not - that's not something that there is no negative there as far as I am concerned.
I mean, listen, we're in a market today, where we can - there's a little bit of, I don't want to get too far ahead of anything, but we're able to be rewarded somewhat for some of the value that we bring to the quote in a job site.
It's not - I don't want to try to spell that out for everyone, but again, there's only two things, it's our building wire and one of those is delivery and we are really, really good at executing delivery after we receive the order.
And so from that perspective, as that balance between the two things that sell building wire swing one way or the other, when the delivery piece is what's important, we do well. And in the market in the fourth quarter and I don't want to get ahead of the fourth quarter, but in the last two quarters of '18, delivery was important and you were able to be rewarded for execution if it where it should be and a lot of that credit goes to our plants and our people, and I know that gets overused, but it's truthful.
And we have phenomenal sales reps in the markets. If we didn't have the best one in each market. I think you know well enough Brad, in our history I will make a change. We're doing a lot of things well and it's in a market that that lines up to where we can be rewarded.
So it's really a - it's a disciplined situation and we're not overstepping something. We're staying inside our own guardrails and things are rolling along pretty well and I just think it's a market.
It's hard not to get to be intrigued by the financial possibilities here, if we were to get into - before seeing this type of industry discipline in a subdued or declining input environment, copper input environment, but It leads one to really imagine a little bit as to what would happen if so long as demand stays relatively robust and we get into a rising copper environment that, that is an interesting [ph] perhaps environment for you as we move forward here.
Yes, I mean I think you're on to something, I mean if you look at the copper environment, I think you can find enough copper articles to support whichever conclusion you want, but I'm incredibly bullish on copper at this point.
Yeah, it's hard not to read a story where the market is perhaps in deficit at this point. So did - it looks like you spent from a CapEx perspective, roughly $21 million, $22 million in the first three quarters. Frank, could you just let us know what you spent for the full year and can you give us any sense as to kind of where your CapEx might be budget for 2018?
For the full year, we spent just over $26 million and we were just looking at the CapEx budget before the call to make sure we could answer the question. Currently, and you know, things come in and things go out, and when I say, they go out, it's just because they get delayed and we pay some of the invoices we think we're going to pay this year, next year. But the best estimate we have right now is in the mid '30s about $35 million for 2019 and that's without any large project that could be undertaken later in the year.
Got it. So clearly, I mean your balance sheet is fortress balance sheet. So clearly you've got enough liquidity to withstand working capital surge that could accompany with higher copper prices, as well as meet the dividend, as well as the CapEx requirements for the business at this point, fair statement?
Yes, very fair.
Okay. And my last question is - again and congrats on a great quarters, did you see much in the - did copper scrap availability help you in the fourth quarter a little bit?
Well, you know our story pretty well, Brad, for a lot of years and I guess the best way to answer that is we take advantage of that when we can opportunistically. And it was a little bit tighter in the fourth quarter than the previous three. And I don't think that's any kind of secret.
But we're doing everything we can in that area. Any opportunity that we get to save a fraction of a penny here or there and we're after it, but scrap was tight in Q4.
Thanks again and congrats. Thanks for the questions. Appreciate it.
Thanks, Brad. Come see us.
Thank you. We have a follow-up with Julio Romero. Please go ahead.
Hey, my follow-up was just answered. Thank you.
Thanks.
[Operator Instructions] And it looks like we have no follow up questions at this time or audio questions. Turning the call back for closing remarks.
Anna, thank you very much. And folks, I appreciate you all calling in and look forward to first quarter call and appreciate your support. Thank you.
Thank you, ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.