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Encore Wire Corp (NASDAQ:WIRE)
Q1 2020 Earnings Call
Apr 29, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Encore Wire reports first quarter results conference call. My name is Adrian, and I'll be your operator for today's call. [Operator Instructions].

I'll now turn the call over to Daniel Jones. Daniel, you may begin.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thank you, Adrian. Good morning, ladies and gentlemen, 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. With me this morning is Bret Eckert, our Chief Financial Officer. The COVID-19 pandemic and the economic uncertainty it has created requires us to pull together to win this fight. We appreciate your continued investment and support during these difficult times. The health and safety of our employees and their families remains our top priority, and we are following CDC guidelines to maintain safe working conditions. We're very proud that some of the products we manufacture are being utilized to power temporary buildings and pop-up medical facilities in the fight against COVID-19. Our distributors remain very thankful we continue to serve during this critical time.

The strong earnings posted in the first quarter ended March 31, 2020, evidenced the strength of our balance sheet and the resiliency of our business model to weather tough times. I'm very pleased by our first quarter results despite the unprecedented times we're facing in this country. There's some key items to note. Copper unit volumes increased 1% in the first quarter of 2020 versus the first quarter of 2019 and increased 1.4% on a sequential quarter basis. Gross profit margins increased despite a drop in COMEX copper prices versus last year's first quarter as well as first quarter of 2019. 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 spread increased 6% on a sequential quarter comparison. I'm particularly pleased with how we finished the quarter.

Despite a significant decrease in COMEX copper daily prices in March, we were able to maintain average selling prices in the month, which lifted gross profit margins for the quarter. This represented a slight shift to a sellers market as some manufacturing and distribution constraints in the sector kept pricing strong. Finally, aluminum wire represented 8.6% of our net sales in the first quarter of 2020. Looking ahead, the duration and severity of the COVID-19 outbreak and its long-term impact on our business are uncertain at this time. Some of our distributors as well as the end users of our products are experiencing varying levels of disruption related to this crisis. Developments surrounding the COVID-19 global pandemic are changing daily, and we have limited visibility into the extent to which market demand for our products as well as sector manufacturing and distribution capacity will be impacted. We believe Encore Wire is well positioned to weather the storm, continuing to serve the markets during this critical time. As we navigate the near-term challenges, we remain focused on the long-term opportunities for our business. We also believe our superior order fill rates, which have not faltered during this crisis, continue to enhance our competitive position. As orders come in from electrical contractors to distributors, can continue to count on our order fill rates to ensure quick deliveries from coast to coast.

I'll now turn the call over to Bret to cover our financial results. Bret?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Thank you, Daniel. In a minute, we will review Encore's financial results for the first quarter ended March 31, 2020. After the financial review, we will take any questions you may have. Before we review the financials, let me indicate that throughout this conference call, we may be making certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation, instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties. Also, reconciliations of non-GAAP financial measures discussed during this 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 our website.

Now the financial results. Net sales for the first quarter ended March 31, 2020, were $302.8 million compared to $314.7 million for the first quarter of 2019. Copper unit volume measured in pounds of copper contained in the wire sold, increased 1% in the first quarter of 2020 versus the first quarter of 2019. The average selling price of wire per copper pound sold decreased 5.6% in the first quarter of 2020 versus the first quarter of 2019, while the average cost of copper pound purchased decreased 8.2%. Net income for the first quarter of 2020 increased 38.7% to $18.6 million versus $13.4 million in the first quarter of 2019. Fully diluted net earnings per common share were $0.89 in the first quarter of 2020 versus $0.64 in the first quarter of 2019. If you look at it on a sequential quarter comparison basis, net sales for the first quarter of 2020, $302.8 million versus $302.3 million during the fourth quarter of 2019. Sales dollars increased due to a 1.4% unit volume increase of copper building wire sold, offset slightly by a 0.7% decrease in the average selling price per copper pound per pound of copper wire sold on a sequential quarter basis. Copper wire sales prices decreased 0.7%, while the price of copper purchased decreased 4.2%. Net income for the first quarter of 2020 was $18.6 million versus $10.5 million in the fourth quarter of 2019. Fully diluted net income per common share was $0.89 in the first quarter of 2020 versus $0.50 in the fourth quarter of 2019. Our balance sheet remains very strong. We have no long-term debt, and our revolving line of credit is paid down to 0. In addition, we had $206.8 million in cash on hand at the end of the quarter. During the quarter, we did repurchase 439,112 shares in the open market. We also declared a $0.02 cash dividend during the quarter. Our recently announced two phase expansion plans continue as we started initial grading and site development work on schedule this quarter. We reaffirm our previously announced capital expenditure ranges of $85 million to $95 million in 2020, $70 million to $90 million in 2021 and $60 million to $80 million in 2022. Our strong balance sheet and ability to consistently generate high levels of operating cash flow should provide ample allowance to fund planned capital expenditures. A replay of this conference call will be accessible in the Investors Section of our website.

I will now turn the floor over to Daniel for a few final remarks.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thank you, Bret. As we highlighted, Encore performed well in the first quarter ended March 31, 2020. Our low-cost structure and strong balance sheet have enabled us to withstand difficult periods in the past, and they are continuing to prove valuable now. We believe we're well positioned for future growth as this country overcomes this global pandemic.

I'm very proud of how each of our employees have rallied during this crisis, and I want to thank our employees and associates for their tremendous efforts. We also thank our stockholders for their continued support.

Adrian, we will now take questions from our listeners.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Zane Karimi from D.A. Davidson. please go ahead.

Zane Karimi -- D.A. Davidson -- Analyst

Congratulations on the quarter.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thank you.

Zane Karimi -- D.A. Davidson -- Analyst

So first off, I was kind of wondering, what are you seeing with regards to demand of aluminum relative to copper and historically, how does the split or ratio change with a market slowdown?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

It really hasn't changed that much. We dip in and out of both markets with existing distribution. And there's some of the larger jobs that start copper may be changed over to aluminum on specific occasions. But for the most part really didn't see anything to change that up too much in the first quarter.

Zane Karimi -- D.A. Davidson -- Analyst

Okay. And then can you.help me?.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Nothing.

Zane Karimi -- D.A. Davidson -- Analyst

Okay. Can you speak to the trends within the industry, particularly resi versus nonresidential demand? And what you kind of saw in the first quarter versus so far through April?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Again, it's similar to the aluminum piece. There's existing jobs of significant volume that can move the percentage a point or two, one way or the other. But we did see strength in the residential demand piece in the first quarter. A lot of times, the residential development sites will be will shift from maybe one month or next based on weather issues. We really wouldn't have significant delays in that market segment at all in the first quarter. So there's some strength in the resi. It's sort of consistent, not it's not great, but it really was solid, and it's pretty good demand at this point.

Zane Karimi -- D.A. Davidson -- Analyst

Okay. Thank you. And regionally speaking, wearing to what degree of COVID been the most impactful to your customers and fellow suppliers and distributors?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Yes. Regionally, geographically, we obviously, the Northeast was hit, and there were some job delays and what have you and some distributors, customers, whatever, that were closed in the first quarter, but we were still shipping some of the as we mentioned in the press release, we were still shipping some of the temporary hookup cables and whatever for the temporary medical sites and what have you. But for the most part, the East and in the Pacific Northwest, there was disruption and then a little bit in California.

Zane Karimi -- D.A. Davidson -- Analyst

Thank you.

Operator

[Operator Instructions] And our next question comes from Julio Romero from Sidoti & Company. your line is open.

Julio Romero -- Sidoti & Company -- Analyst

Hey, good afternoon hope people are doing well. So Hope you people are also doing well. So I was hoping you could elaborate on what part of the value chain is seeing those disruptions you mentioned. I don't know if you can talk through maybe competitive landscape, customers, suppliers or limitation on freight? I mean, if you could highlight maybe where you're seeing the most notable constraints?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Well, there were disruptions in every category to different degrees. The trucking company that we used did a fantastic job, the service was fantastic. Some of the drivers had mentioned lack of support on the road with maybe some of their normal spots along the route to be closed or what have you. But the service from the carriers that we use were fantastic. Distributors worked with us on deliveries to get the trucks unloaded and offloaded. I'll tell you where the disruptions were coming in, you also saw an equal or an exceeding effort on the service side. There was a seriousness to the deliveries, a lot of the drama that's normal went away, there was forced discipline, if you will, in the entire chain. I mean, so from the perspective of disruptions, I think they were exceeded with the efforts and the contributions from the people that were involved that realized the seriousness of the situation. There are just no there were a lot less hassles, if you will, on getting those trucks delivered and unloaded.

The rigid delivery appointments or whatever, people just went to work and got the job done. And quite frankly, it was refreshing to have that type of business approach and discipline to operating. It saved everybody, I believe in the delivery chain, everyone became more efficient. And I think those types of things will last coming out the other side. It's very good to see. So again, some of the problems that we ran into, really had to do with a property or a job site being closed. If they were open, people went to work. It was really was a good thing to see. I think everyone kind of pulled together and got the job done.

Julio Romero -- Sidoti & Company -- Analyst

Got it. That's helpful. I'm just shocked on how well your pricing held up in this environment, much better than what I had modeled. But can you maybe discuss if you said your average copper selling price held as well in the quarter, but was there potentially some outperformance in the relative to your expectations in maybe the first two months of the year that held that average up? Or was it more a function of prices holding up in the face of copper falling off the cliff in the last month?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes, great question. It was a combination. We've always tried and made a really good effort to be super disciplined when it comes to pricing. There's only two things that sell building wire and it's price and delivery. We like to focus on the delivery piece. I've said that repeatedly for about 30 years now, and we're really good at it. When you have the balance sheet that we have and the people that we have in the right place at the right time, it showed and came through pretty well, started some in January. The guys and girls in the sales office did a fantastic job in February. And then obviously, there was a lot of uncertainty going into March in every department we have, purchasing, sales, shipping, and everybody pulled together and did the job. We were just reluctant to lead with low price when you don't know what it is that you're buying, which, again, has been something that I've harped on for years. When I cut the price if you don't know what the order looks like and why would you cut the price if you can't deliver and I can see on the call that there's a few of our competitors on here. So I probably should stop with that.

But listen, it's a discipline, it means a lot to us to make sure that we can keep a promise. We don't want to let people down. And it takes money to do the things that we do around here from a service perspective. And so we felt that it was the right thing to do and continue to think it's the right thing to do. We're offering a value, and we think it's worth it. And again, it goes back to really the entire team here. The sales office was incredibly disciplined. Our sales reps in the field were fantastic. A lot of like I said, the drama that goes in with the price shopping and all those things, you could kind of set it aside almost for a little bit and actually run your business like a normal business, and it was pretty fantastic to watch. And so the credit goes to the folks here. I mean, they're super disciplined, and they just they did a great job. And a lot of our folks, by the way, I'm guessing, we have well over probably 75%, 80% of our people are working from home, office personnel.

Julio Romero -- Sidoti & Company -- Analyst

Great. And I guess, just on the capacity expansion plans. You reaffirmed your spending plans over the next three years. Can you just maybe discuss how that's progressing? And given that the OT project that's bisecting your property. I don't know if that potentially gets delayed, and that, in turn, would potentially delay your expansion plans?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

I don't see that. The last part of the question first. I don't see that having an effect. And the first part of the question, we're progressing very well. We were blessed with some timely rain and some sunshine and some warmth and what have you. But I pass the job site a couple of different times each day. And unfortunately for them, maybe I'd like to drive through it and take a look around. And so it's fantastic. It's moving real well. We actually have the ability to post some drone photography on our website, and we'll potentially be doing that to kind of give a glimpse into what's happening. But it's it's moving along real well. We've been very fortunate with the weather and timing and we're working with a really good construction group that we've had, I don't know, 25, 26 expansions around here in my 31 years, and we've used these guys several times, they are pros. They know what they're doing. They obviously have a very robust safety program going and they're doing a fantastic job. Can't wait to see concrete being poured.

Julio Romero -- Sidoti & Company -- Analyst

I'll be on the lookout for those drone photos on your on your site. Thanks for taking the question. Stay healthy and best of luck.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thanks for the support.

Operator

[Operator Instructions] Julio is on the line with a question, please go ahead.

Julio Romero -- Sidoti & Company -- Analyst

I guess just one quick follow-up is, I don't know if I missed capex number in the quarter.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Capex?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

What's the capex for the quarter?

Julio Romero -- Sidoti & Company -- Analyst

Yes.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

First quarter.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Yes, give me one second, Julio, and I will pull that. So capex in the first quarter was just over $12 million. $12.2 million. We're really I mean, we are really just trying to move in some dirt right now. As Daniel said, across the street. So a lot of grading utility work.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Great. Thanks very much.

Operator

And we have no further questions.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Okay. We appreciate your time this morning. Appreciate your interest and your support and your investment in Encore and enjoy the day.

Operator

[Operator Closing Remarks].

Duration: 22 minutes

Call participants:

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Zane Karimi -- D.A. Davidson -- Analyst

Julio Romero -- Sidoti & Company -- Analyst

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