GLENVIEW, Ill.--(BUSINESS WIRE)-- Anixter International Inc. (NYSE: AXE) has reported sales of $1.59 billion for the quarter ended July 4, 2014, a 0.4 percent increase compared to the year-ago quarter. Excluding the impact of the following two items, organic sales increased by 0.6 percent year-over-year:
- $5.3 million from the unfavorable effect of copper pricing
- $3.0 million from the favorable effect of foreign exchange
Adjusting for the impact of one less billing day in the current year quarter versus the year-ago quarter, reported sales would have increased by 2 percent.
On a sequential basis, sales increased 4.1 percent. Adjusting for the impact of two fewer billing days in the current quarter versus the first quarter of 2014, reported sales would have increased by 7 percent.
Operating income in the current quarter of $92.4 million increased by 7.8 percent versus $85.8 million in the year-ago quarter. Operating income would have increased by 9.3 percent excluding the $1.1 million negative operating income impact of the drop in copper prices year-over-year and the $0.2 million unfavorable foreign exchange impact. Operating margin of 5.8 percent increased by 40 basis points versus the prior year and increased by 20 basis points sequentially. Net income of $53.8 million increased by 16.5 percent versus $46.1 million in the year-ago quarter.
“We were pleased to achieve continued strong results across our European and Emerging Markets geographies, as steadily improving markets, combined with our unique global capabilities, offer a compelling value proposition to an increasing number of global customers. This is the sixth consecutive quarter we have achieved significant performance improvements in our OEM Supply - Fasteners segment, reflecting operational actions we took to reposition the business for profitable growth," commented Bob Eck, President and CEO. "While the recovery in our enterprise communications business has been slower than we had anticipated, we continue to experience gradual growth, and are encouraged by the strong backlog in our North America business. As we enter the second half of the year, we expect to see accelerating revenue growth from our first half trends, driven by improving North American markets.”
Income Statement Detail
Gross margin of 22.9 percent for the second quarter of 2014 compares to 22.5 percent in the year-ago quarter, with all three segments delivering improved margins. On a sequential basis, gross margin decreased by 30 basis points, caused by increased project billings and customer mix.
Operating expenses of $270.5 million for the second quarter of 2014 were flat versus the year-ago quarter, reflecting strong expense control while continuing to invest in strategic initiatives. Interest expense of $10.1 million decreased by $1.2 million compared to the prior year quarter. The decrease is a result of the retirement of the Notes due 2014. Foreign exchange and other expense of $2.6 million decreased by $1.1 million compared to the year-ago quarter due to lower foreign currency expense and a favorable comparison in the cash surrender value of company-owned life insurance policies.
Our effective tax rate of 32.5 percent reflects a net tax benefit of $2.0 million primarily related to the reversal of a deferred tax valuation allowance in Europe. Also, due to the change in the country level mix in the full year forecast of earnings, the second quarter of 2014 tax expense includes $0.4 million of additional expense to forecast an effective tax rate of 34.4 percent for the full year, excluding the tax benefit described above. The decline from 34.9 percent in the year-ago period is primarily due to a change in the country mix of earnings.
Enterprise Cabling and Security Solutions (“ECS”) sales of $817.4 million compares to $813.8 million in the prior year period. The 0.4 percent increase reflected growth in our European and Emerging Markets of 3.1 percent and 4.7 percent, respectively. Excluding the $2.8 million unfavorable impact from foreign exchange, organic sales increased 0.8 percent, driven by Emerging Markets organic sales growth of 6.6 percent. Security sales, which represent approximately 26 percent of total segment sales, decreased 2 percent in the quarter.
On a sequential basis, ECS sales increased 7.5 percent despite two fewer billing days in the current quarter. The sequential improvement reflected improving market conditions, typical seasonal trends, and the adverse impact of severe weather in North America on first quarter sales.
ECS operating income of $44.1 million compares to $42.0 million in the year-ago quarter. Operating margin of 5.4 percent increased by 70 basis points sequentially and 20 basis points compared to the prior year quarter.
Electrical and Electronic Wire and Cable (“W&C”) sales of $525.5 million compares to $530.6 million in the prior year period. The 1.0 percent decrease from the prior year period was driven by a drop of approximately $0.14, or 4.3 percent, in the average price of copper. European and Emerging Markets organic sales increased by 8.3 percent and 21.2 percent, respectively. On a sequential basis, W&C sales increased 2.2 percent despite two fewer billing days in the current quarter. The sequential improvement reflected a combination of typical seasonal trends and the adverse impact of severe weather in North America on first quarter sales.
W&C operating income of $36.1 million compares to operating income of $38.1 million in the year-ago quarter. Operating margin of 6.9 percent compares to 7.2 percent in both the first quarter of 2014 and in the year-ago quarter. Both the operating income and margin were negatively impacted by the drop in copper prices which was the largest cause of the decline.
OEM Supply - Fasteners ("Fasteners") sales of $243.1 million increased by 3.4 percent from the prior year quarter. Excluding the $6.1 million favorable impact from foreign exchange, organic sales increased by 0.8 percent year-over-year. Further excluding the $11.6 million impact resulting from the previously disclosed transition of an existing customer to dual source supply, organic sales growth would have been 6.1 percent. On a sequential basis, sales decreased by 2.6 percent primarily due to two fewer billing days in the current quarter.
Fasteners operating income of $12.2 million compares to operating income of $5.7 million in the year-ago quarter. Operating margin of 5.0 percent compares to operating margin of 2.4 percent in the prior year quarter and 5.1 percent in the first quarter of 2014. The improvement in operating margin versus the prior year is due to strong cost control actions as we continue to align the business with market conditions.