Glenview, IL - Anixter International Inc. reported sales of $1.60 billion for the quarter ended January 3, 2014, a 3.5 percent increase compared to the year-ago quarter. Organic sales, which excludes the impact of the following two items, increased by 4.7 percent year-over-year:
- $9.9 million from the unfavorable effect of copper pricing
- $8.7 million from the unfavorable effect of foreign exchange
Operating income in the current quarter of $95.6 million increased by 148 percent compared to year-ago results which included pre-tax charges of $46.7 million, attributable to the impairment of goodwill and long-lived assets, pension-related adjustments and restructuring charges. On an adjusted basis, operating income increased by 12.1 percent, driven by the strong performance of our OEM Supply segment and improved gross margins in all three segments. Operating margin of 6.0 percent increased by 10 basis points sequentially and increased by 50 basis points year-over-year, on an adjusted basis.
Net income from continuing operations of $58.2 million compares to $5.2 million in the year-ago quarter. The current quarter tax expense was favorably impacted by $4.8 million due to the decline in our effective tax rate driven by a change in the country mix of earnings. The adjusted net income for the current quarter of $53.4 million compares to the adjusted net income for the prior year quarter of $42.8 million, an increase of 24.8 percent. All year-over-year comparisons reflected in the following comparisons are presented on an adjusted basis. Reconciliations are provided in the supplemental information at the end of this release.
“While we experienced gradually improving market trends in all of our segments and geographies, we were especially pleased to achieve significant sales and profit growth in our OEM Supply segment, reflecting the results of actions we have taken to reposition the business for profitable growth. The performance in this segment fueled double-digit sales increases and strong growth in profits in our European geography,” commented Bob Eck, President and CEO. “Overall, we are encouraged by the improving performance within each of our segments across our global markets, reflecting the value of our global capabilities to an increasing number of global customers.”
Income Statement Detail
Gross margin of 23.2 percent for the fourth quarter of 2013 compares to 22.9 percent in the third quarter 2013 and 22.2 percent in the year-ago quarter, driven by improvement in all segments. Gross profit dollars increased by 9.4 percent on an organic basis, which excludes the impact of foreign exchange and copper pricing, compared to the 4.7 percent organic sales increase.
Operating expenses of $275.8 million for the fourth quarter of 2013 increased by 7.1 percent versus the prior year quarter on an adjusted basis, with the increase primarily caused by an additional week in this year's fourth quarter combined with higher employee incentives and benefit costs. Interest expense of $11.2 million decreased by $5.0 million compared to the prior year quarter due to the redemption of the convertible notes in the first quarter of 2013. Foreign exchange and other expenses of $3.8 million increased $2.0 million from the prior year quarter primarily reflecting the negative impact of a strengthening U.S. dollar in multiple foreign markets. Our adjusted annual effective tax rate of 33.7 percent declined from 36.5 percent in the year-ago period, primarily due to a change in the country mix of earnings.
Segment Update
Enterprise Cabling and Security Solutions (“ECS”) sales of $811.3 million compare to $800.0 million in the prior year period. The 1.4 percent increase was driven by improvements in our Emerging Markets geographies, reflecting the timing of projects and the strengthening of Latin American markets. We continue to experience a slow recovery in our US markets as many customers continue to be cautious regarding capital investments. Organically, ECS sales increased 1.9 percent.
On a sequential basis, ECS sales increased 0.9 percent from the third quarter of 2013, driven by improvements in our Emerging Markets geographies. Security Solutions sales were flat versus the prior year quarter excluding the impact of the previously disclosed contract that concluded in the fourth quarter of 2012.
ECS operating income of $41.2 million compares to adjusted operating income of $44.3 million in the year ago quarter. The year-over-year decrease was caused by higher operating expenses primarily resulting from the quarter having one additional week. Operating margin for ECS of 5.1 percent compares to adjusted operating margin of 5.5 percent in the year ago quarter. Sequentially, operating margin declined by 20 basis points versus the third quarter.
Electrical and Electronic Wire and Cable (“W&C”) achieved fourth quarter sales of $539.6 million, an 0.8 percent decrease from the prior year period, primarily caused by a drop of approximately 9 percent in the average price of copper. Emerging markets sales increased by 11 percent reflecting project strength in our Asia Pacific geography. Excluding the $9.9 million unfavorable impact from a $0.32 decline in the average price of copper, and the $6.7 million unfavorable impact from foreign exchange, organic sales increased by 2.2 percent. Sequentially, global sales increased by 2.1 percent versus the third quarter of 2013 as industrial project business strengthened as the quarter progressed.
For the full year, Industrial Communications and Control sales of $243 million increased by 20 percent versus 2012, as a result of our strategic growth initiative.
Operating income of $40.9 million compares to adjusted operating income of $43.7 million in the year ago quarter. The year-over-year decrease was caused primarily by geographic mix and the additional week of operating expenses. Operating margin of 7.6 percent compares to 7.9 percent in the third quarter of 2013 and an adjusted operating margin of 8.0 percent in the year ago quarter.
OEM Supply (“OEM”) sales increased by 23.6 percent from the prior year quarter to a fourth quarter record of $247.6 million, reflecting the continued ramp up of a contract in Europe and improvement in North America heavy truck production levels. Excluding the $2.2 million favorable impact from foreign exchange, organic sales increased by 22.5 percent. On a sequential basis, sales increased by 10.2 percent driven primarily by strength in Europe.
Operating income of $13.5 million compares to an adjusted operating loss of $2.7 million in the year ago quarter. Operating margin of 5.5 percent compares to an adjusted operating margin of negative 1.4 percent in the prior year quarter and 3.7 percent in the third quarter of 2013.
Cash Flow and Leverage
In the quarter, the company generated $137.2 million of cash from operations bringing the year-to-date cash flow from operations to $334.5 million. This compares to $142.9 million of cash from operations for the full year 2012 and is a result of our relentless focus on improving working capital efficiency combined with the effects of slower growth in the business.
“We were pleased to declare and pay a $5.00 per share special dividend in the fiscal fourth quarter of 2013, reflecting the strength of our balance sheet, our significant cash flow generation and our steadfast commitment to return value to shareholders,” commented Ted Dosch, Executive Vice President – Finance and CFO. “Our financial position continues to be excellent and we constantly evaluate the optimal use of our funds. We remain committed to investing in our growth initiatives and returning excess capital to our shareholders, as we have done consistently over the past five years.”
Key capital structure and credit-related statistics for the quarter:
- Debt-to-total capital ratio of 44.9 percent compares to 50.3 percent at the end of 2012
- Weighted average cost of borrowed capital of 5.4 percent compares to 6.3 percent in the year ago quarter
- $323.9 million of availability under bank revolving lines of credit at quarter end
- $145 million of outstanding borrowings under the $300 million accounts receivable securitization facility at quarter end
Business Outlook
“As we enter 2014, we believe we are well-positioned for global growth in all of our segments. In addition to a gradually improving economy, we have strategic initiatives which we believe will enable us to gain market share and exceed market growth across our business. For the year, we expect mid-single digit organic growth, compared to a 0.5 percent decrease in organic sales for 2013.” Eck concluded, “We have taken aggressive measures to align our cost structure with the current economic environment, while continuing to invest in our strategic growth initiatives, including security, emerging markets, industrial communication and control, in-building wireless and e-commerce. As companies continue their relentless focus on managing expenses, our business model, which is based on helping our customers lower their supply chain costs and reduce execution risk across the globe, is of even greater value.”
