In a commodity market as competitive as the one for copper wire, pricing is often a key component of being profitable. On Monday, industrial copper wire supplier Encore Wire
For the quarter ending Sept. 30, the company reported record sales of $207.5 million, a 31% increase over last year, while profits soared 75%, to $11.2 million, or $0.48 a share. Those numbers easily beat the Street's forecasts of $176 million in sales and earnings of just $0.18. The stock surged 7% in regular trading and an additional 15% after hours.
Encore has established itself as the low-cost supplier of choice for residential and commercial wiring wholesalers. It supplies 60% of the top 200 wholesale electrical distributors in America. The company, like competitors General Cable
Year over year, shipment volume -- the amount of copper pounds of wire sold -- remained relatively flat. Reflecting the uptick in the copper market, however, sequential shipment volume rose by 6% from the second quarter. The company was able to notch record sales and profits because the price of copper had risen, and gross margins increased to nearly 15% from 13.7% last year. At the same time, in accordance with being the low-cost producer, Encore was able to reduce its operating expenses as a percentage of revenue from 7% last year down to 6.2% this quarter.
Encore Wire was a special recommendation of Motley Fool Hidden Gems. The company owns 25% of the copper wire market and produces a run rate of owner's earnings approaching $20 million, useful for paying down the substantial long-term debt that it's necessarily required to have.
Small-cap gems like Encore sometimes take a while to develop, needing the catalyst for a story to evolve. For this leading copper wire producer, that catalyst was the increase in raw-material prices and its simultaneous ability to maintain control over its costs. That combination has Encore wired for sound.
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