Encore Wire (WIRE) Misses Q1 EPS by 8c, Revenues Beat

Encore Wire (NASDAQ: WIRE) reported Q1 EPS of $0.64, $0.08 worse than the analyst estimate of $0.72. Revenue for the quarter came in at $314.7 million versus the consensus estimate of $295.67 million.

Commenting on the results, Daniel L. Jones, Chairman, President and Chief Executive Officer of Encore Wire Corporation, said, “We are pleased with our improved results in the first quarter versus the first quarter of last year. There are some key items to note. Net sales dollars increased significantly in the first quarter comparisons of 2019 to 2018. The increased top line was driven primarily by higher unit volumes. Unit volumes increased 13.5% in the first quarter of 2019 versus the first quarter of 2018. Margins also improved in the first quarter comparisons of 2019 versus 2018. 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 2.2% in the first quarter of 2019 versus the first quarter of 2018, while decreasing 5.3% on a sequential quarter comparison. The copper spread expanded 2.2% as the average price of copper purchased decreased 9.6% in the first quarter of 2019 versus the first quarter of 2018, while the average selling price of wire sold decreased 5.9%. We believe that first quarter volumes were somewhat dampened by rough winter weather, which is not unusual, and happened last year also. Margins, which are highly dependent on competitive market conditions, improved slightly in the first quarter to first quarter comparison, but decreased in the sequential quarter comparison. We believe that significant internal management turnover at two of our larger competitors contributed to some odd pricing in the market in the first quarter of 2019. We hope this pricing pressure settles down during the rest of 2019, as the end markets for our industry appear strong. The first quarter results were also affected by increased stock compensation expense, driven primarily by our strong stock price performance driving the mark to market accounting on stock appreciation rights. The net stock compensation expense increased $800,000 in the first quarter of 2019 versus the first quarter of 2018 and $2.6 million on a sequential quarterly comparison. In aluminum wire, which represented 7.8% of our net sales in the first quarter of 2019, we continue to enforce our rights under the U.S. trade remedy laws. On April 8, 2019, the U.S. Commerce Department imposed preliminary countervailing duties on imports of aluminum wire from China at rates ranging from 11.57 to 164.16 percent. The final results of the U.S. Government’s ongoing anti-dumping and countervailing duty investigations are not expected until the end of the year.

The U.S. economy appears strong, as is construction activity. Based on discussions with our distributor customers and their contractor customers, we believe there is a good outlook for construction projects for the next year. We believe our superior order fill rates continue to enhance our competitive 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. Our balance sheet is very strong. We have no long-term debt, and our revolving line of credit is paid down to zero. In addition, we had $178.0 million in cash at the end of the quarter. We also declared a cash dividend during the quarter.

Our low-cost structure and strong balance sheet have enabled us to withstand difficult periods in the past, and we believe they are continuing to prove valuable now. We thank our employees and associates for their outstanding effort and our shareholders for their continued support.”

For earnings history and earnings-related data on Encore Wire (WIRE) click here.

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