Encore Wire Corporation
Encore Wire Corporation (WIRE - Snapshot Report) continues to outperform even while it customers operate in one of the toughest sectors in the economy: construction. On Feb 9, Encore beat Wall Street estimates for the fourth quarter by 69.82%.
The company reported fourth-quarter 2008 earnings of 72 cents per share which beat analysts' estimates by 44 cents. WIRE reported a loss of 5 cents in the fourth-quarter of the prior year. Fiscal 2008 EPS jumped 31% to $1.70 compared to $1.30 per share in fiscal 2007.
Sales fell to $180.2 million from $281.9 million in the year ago period but net income rose to $16.7 million from a loss of $1.1 million. The 63.9% sales decline was the result of the average selling price declining 21% combined with a 19% decline in actual unit sales. The company pointed out that the fourth quarter of 2007 was a particularly strong one for unit sales.
Gross margins increased 363% to 22.2% compared to 4.8% in the fourth quarter of 2007.
"Our unit volume shipped in the fourth quarter of 2008 decreased over 19% versus the fourth quarter of 2007," said Daniel L. Jones, President and Chief Executive Officer.
"Our year to date unit volume is down 12%. The average selling price of wire containing a pound of copper decreased by 20.9% while the average cost of a pound of copper purchased decreased 42.9% in the fourth quarter of 2008 versus the fourth quarter of 2007."
"This "spread" increased by 72.7% in the fourth quarter of 2008 compared to the fourth quarter of 2007 and increased by 33.3% on a sequential quarter comparison and 19.3% on a total year over year basis. These increased spreads drove our gross margin increase," he added.
Copper Price Volatility
The average cost of copper purchased decline 43% in the fourth quarter of 2008 compared to the year ago period. Copper prices were volatile the entire second half of 2008. Copper closed on the COMEX at $3.92 per pound on July 1 and closed at $1.39 per pound on Dec 31.
"Volatility of that magnitude and the uncertainty it generates tends to disrupt our customers' normal buying patterns and has historically contributed to competitive pricing pressure," said Daniel L. Jones.
"We believe we sacrificed unit volume in 2008, acting as an industry leader by exerting pricing discipline, enabling us to grow profits in a down market."
Balance Sheet Remains Solid
Encore Wire had $217.7 million in cash on hand as of Dec 31, 2008. The company's only long-term debt was $100 million in long-term notes due in 2011. WIRE paid its $150 million revolving line of credit down to zero.
Encore Wire also announced its ninth consecutive quarterly dividend of 2 cents per share payable to shareholders on Apr 17. WIRE currently yields 0.40%.
Value Fundamentals
Encore Wire is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 13.2. Its price-to-book is 1.16. The company also has a solid 1-year return on equity (ROE) of 10.62%.
Read the Dec 24, 2008 analysis.
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