Anixter Int'l (AXE) Misses Q1 EPS by 20c, Revenues Miss

Anixter Int'l (NYSE: AXE) reported Q1 EPS of $1.28, $0.20 worse than the analyst estimate of $1.48. Revenue for the quarter came in at $2.07 billion versus the consensus estimate of $2.16 billion.

First Quarter Highlights

• Strong liquidity position with over $780 million in available cash and borrowing capacity
• Gross Margin improved 20 basis points
• Record first quarter sales in UPS segment of $448.9 million, up 4.4%, organic sales growth of 4.4%

Adjusted (Non-GAAP) Measures

• Adjusted operating expense of $333.5 million compares to $335.8 million, down 0.7%. Adjusted operating expense ratio of 16.1% compares to 15.9%.
• Adjusted operating income of $82.9 million decreased 0.2% compared to $83.1 million. Adjusted operating margin of 4.0% compares to 3.9%, increasing by 10 bps and reflecting the fifth consecutive quarter of margin improvement, especially notable considering the pandemic-driven weaker revenue combined with pandemic-driven incremental expenses.
• Adjusted EBITDA of $96.0 million compares to $96.5 million, down 0.5%. Adjusted EBITDA margin of 4.6% is the same as the prior quarter.
• Adjusted effective tax rate decreased to 25.5% which compares to 29.8%.
• Adjusted net income decreased 2.2% to $44.4 million.
• Adjusted diluted earnings per share decreased 3.8% to $1.28. The extreme volatility in the financial markets resulted in a $5 million unfavorable FX impact. Excluding this impact, adjusted EPS would have been $1.40, an improvement of 5%, to $1.33 in the prior year.

CEO Commentary

"Through this challenging time, Anixter continues to serve its customer and supplier partners by operating as an essential business in markets such as utility, healthcare, public safety, government, telecommunications, and cloud computing services. The value of those relationships is now more important than ever as we navigate this period of economic uncertainty. While the business was consistent with our outlook through February, Anixter was not immune to the slowdown in March. In looking toward the future, our backlog remains near record levels and we look forward to continuing to provide our customers with the essential products and services they need," commented Bill Galvin, President and Chief Executive Officer.

Outlook

Despite a drop in shipments in the last three weeks of the first quarter, our order book continued to grow, reaching an all-time high at the end of the quarter, with our backlog up over the prior year’s quarter and above year end 2019 levels. We believe that the work from home environment has already and will continue to spur higher levels of data center and connectivity related spending which will be positive for our NSS segment later in the year. In addition, our utility and service provider businesses are expected to benefit from remote working. While we have seen a large number of capital projects across all segments delayed, we have not experienced any cancellations of major projects by our customers. Finally, in order to manage through this unpredictable demand environment, we are aggressively reducing our operating expenses while still supporting our customers and their specific needs. Due to the uncertainty caused by the COVID-19 pandemic, Anixter is withdrawing its previously communicated outlook for 2020. We believe that once current restrictions around the globe are lifted, we will see activity pick up once again based on our backlog levels mentioned above.

On January 10, 2020, Anixter entered into a merger agreement with WESCO International Inc. (\"WESCO\"). The transaction is currently subject to receipt of regulatory approval in Canada and Mexico, as well as other customary closing conditions. The transaction is expected to be completed in the second or third quarter of 2020. Anixter will not be hosting a conference call with investors to discuss these results due to the merger agreement.

For earnings history and earnings-related data on Anixter Int'l (AXE) click here.

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