Encore Wire Reports First Quarter Results

McKinney, TX - Encore Wire Corporation (NASDAQ Global Select: WIRE) today announced results for the first quarter of 2017.

Net sales for the first quarter ended March 31, 2017, were $279.4 million compared to $225.5 million during the first quarter of 2016. Copper unit volume, measured in pounds of copper contained in the wire sold, increased 8.1% in the first quarter of 2017 versus the first quarter of 2016. Aluminum unit volume was up 7.8% in the first quarter of 2017 versus the first quarter of 2016. Aluminum building wire sales constituted 8.7% of net sales dollars for the first quarter of 2017 versus 10.5% in the first quarter of 2016. The average selling price of wire per copper pound sold increased 16.9% in the first quarter of 2017 versus the first quarter of 2016, driving the 26.5% increase in net sales dollars. Copper wire sales prices increased primarily due to the higher price of copper purchased, which increased 22.6% versus the first quarter of 2016. Net income for the first quarter of 2017 was $13.6 million versus $8.6 million in the first quarter of 2016. Fully diluted net earnings per common share were $0.65 in the first quarter of 2017 versus $0.41 in the first quarter of 2016.

On a sequential-quarter comparison, net sales for the first quarter of 2017 were $279.4 million versus $239.2 million during the fourth quarter of 2016. Sales dollars increased due to a 10.4% unit volume increase of copper building wire sold, combined with a 7.6% increase in the average selling price per pound of copper wire sold on a sequential-quarter comparison. Copper wire sales prices increased primarily due to an increase of 12.4% in the price of copper purchased. Net income for the first quarter of 2017 increased to $13.6 million versus $11.4 million in the fourth quarter of 2016. Fully diluted net income per common share was $0.65 in the first quarter of 2017 versus $0.55 in the fourth quarter of 2016.

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. There are some key items to note. Net sales dollars increased significantly, comparing the first quarter of 2017 to both the first and fourth quarters of 2016. The increased top line was driven primarily by both higher copper raw material prices as well as increased unit sales volumes. Unit volumes were up 8.1% in copper pounds shipped and 7.8% in aluminum pounds shipped versus the first quarter of last year. Units volumes were up 10.4% in copper pounds shipped and 0.4% in aluminum pounds shipped versus the fourth quarter of last year. Margins increased in copper wire sales but declined in aluminum wire sales. 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 7.0% in the first quarter of 2017 versus the first quarter of 2016 while remaining almost flat on a sequential-quarter comparison. The copper spread expanded 7.0% as the average price of copper purchased increased 22.6% in the first quarter of 2017 versus the first quarter of 2016, and the average selling price of wire sold increased 16.9%. The percentage change in sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis. Aluminum spreads were down 15.9% in the first quarter of 2017 versus the first quarter of 2016 and 7.6% sequentially.

The margin changes were due primarily to the competitive pricing environment in the industry. Copper spreads improved in the fourth quarter of 2016 and held through the first quarter of 2017. It appears that the industry consolidation of a copper competitor that took place last year and damaged margins in the second and third quarters of 2016 may be resolving itself. On the aluminum side, however, there are a couple of small competitors importing aluminum wire and selling it at below-market prices. We understand that the government is looking into this import activity. We also have a financially stressed competitor who appears to readily follow these low-price competitors. We believe both of these factors have contributed to the unsettled pricing environment and impacted our spreads negatively.