Encore Wire (WIRE) Misses Q4 EPS by 32c, Revenues Miss

Encore Wire (NASDAQ: WIRE) reported Q4 EPS of $0.50, $0.32 worse than the analyst estimate of $0.82. Revenue for the quarter came in at $302.3 million versus the consensus estimate of $308.3 million.

Commenting on the results and planned expansion, Daniel L. Jones, Chairman, President and Chief Executive Officer of Encore Wire Corporation, said, “This is an exciting time for Encore's employees, customers and stakeholders. We've been under construction since inception and we continue to grow today. Our two-phase expansion plans will extend our reach and increase manufacturing capacity to meet the growing needs of our customers. We anticipate total capital expenditures to range from $85 - $95 million in 2020, $70 - $90 million in 2021, and $60 - $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. Our business and the markets for our products remain strong as evidenced by a 4.1% increase in unit volumes in 2019 compared to 2018. The unit volume increase was achieved even though we continue to face vigorous competition in the market place. Despite the strong U.S. construction market and demand for building wire, margins were restrained by competitive pricing in the fourth quarter of 2019 versus the fourth quarter of 2018. Gross profit margins fell in concert with a drop in copper prices versus 2018's fourth quarter and full year basis, along with the competitive pressure noted above. 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 decreased 11.2% in the fourth quarter of 2019 versus the fourth quarter of 2018, while decreasing 4.9% in the full year comparison. The copper spread contracted 11.2% as the average price of copper purchased decreased 2.8% in the fourth quarter of 2019 versus the fourth quarter of 2018, while the average selling price of wire sold decreased 5.8%. It should be noted that the spreads in the fourth quarter of 2018 were the highest in over a decade. However, we still believe that the currently strong end markets can support those margin levels.

In aluminum wire, which represented 8.1% of our net sales in 2019, we successfully enforced our rights under the U.S. trade remedy laws. As a result of the International Trade Commission’s final affirmative decision, U.S. importers of aluminum wire and cable from China will be required to pay antidumping duties at rates ranging from 47.83% to 52.79%, plus countervailing duties at rates ranging from 33.44% to 165.63%, depending upon the Chinese exporter/supplier.

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 remains very strong. We have no long-term debt, and our revolving line of credit is paid down to zero. In addition, we had $231.0 million in cash at the end of the year.

Our low-cost structure and strong balance sheet have enabled us to withstand challenges 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 stockholders for their continued support.”

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

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