Why Encore Wire Corporation Stock Dropped Today

Is this meaningful or just another movement?

Travis Hoium
Travis Hoium
Jul 25, 2014 at 2:23PM
Industrials

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of wire and cable supplier Encore Wire Corporation (NASDAQ:WIRE) fell as much as 13% today after the company reported earnings.

So what: Second-quarter sales were up 6% to $307.1 million and net income dropped 34% to $10.2 million, or $0.49 per share. Revenue was just short of estimates, but the bottom line is what has investors concerned, because Wall Street was expecting $0.68 per share in profits.  

Now what: This is a full year now of continually dropping profits per share, in large part because of dropping margins. The spread between the price at which Encore can buy raw copper and sell the processed copper was down 9.9% versus a year ago as competitors cut prices. That's not a good environment for any company to operate in, and it's why I'll be staying out of share despite the discount today.