Houston Wire Sales Up 1.3% In 2Q

MRO sales increased approximately 4% and continued to reflect a slow but steady recovery across multiple geographies and end markets.

Houston, TX - Houston Wire & Cable Company announced operating results for the second quarter ended June 30, 2013.

Second Quarter Summary
Jim Pokluda, President and Chief Executive Officer, commented, "Continued inconsistencies in regional market conditions limited our sales increase to 1.3% over the prior year period and 5.3% sequentially. However, we estimate a more encouraging increase in sales of approximately 4% over the prior year period and 7.5% sequentially when adjusted for deflation in metal prices. We estimate Maintenance, Repair and Operations (MRO) sales increased approximately 5% over the second quarter of 2012, while project business from our long term growth initiatives encompassing Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™ (and other private branded products), Utility Power Generation, and Mechanical continued to suffer from a shortage of new large capital projects and was down approximately 5% from the prior year period."

"New product initiatives, including specialty oil and gas cables and aluminum cables, continued to help the top line. Both the operating cash flow generated and the resulting debt reduction exceeded our internal estimates and further strengthened the Company's financial position, as debt decreased to its lowest level in more than three years. We hope to see more consistent market demand in the under-performing regions in the last half of the year, and if this occurs, sales and profitability should improve."

Gross margin at 21.9% decreased 80 basis points from the second quarter of 2012 due to competitive pricing and the impact of metals. Operating expenses were up $0.1 million or 0.9% from the prior year period, principally due to higher salaries partially offset by lower commissions. These items impacted operating margin, which fell to 6.9%, down 80 basis points from 2012.

Interest expense of $0.3 million was down 23% from the prior year period. Outstanding debt fell by the same percentage, from $60.5 million at June 2012 to $46.6 million at June 2013, the lowest quarterly level since March 2010. The average effective interest rate remained flat at 2.1%.

Net income of $4.1 million decreased by $0.4 million from the second quarter of 2012. Diluted earnings per share were $0.23 compared to $0.25 in the prior year period. Pokluda further commented, "I am pleased that our financial performance and strong balance sheet again allowed us to return funds to our shareholders through the $0.11 per share dividend."

Six month summary
Sales for the six month period were up slightly versus the prior year period and increased approximately 3.5% when adjusted for metals price deflation. Project sales within the six long-term growth initiatives remained inconsistent, and were down approximately 5% due to varying levels of geographic and end-market demand. MRO sales increased approximately 4% and continued to reflect a slow but steady recovery across multiple geographies and end markets.

Gross margins at 22.3% were down 20 basis points from the 2012 period. "Pricing remains very competitive in the marketplace, as demand for product remains tepid in several parts of the country. Despite this demand inconsistency, we were pleased to see our margins remain at respectable levels while, we believe, gaining market share as evidenced by our metals adjusted top line growth," said Mr. Pokluda. Gross profit dollars decreased by $0.3 million or 0.7%, primarily due to the decrease in gross margin.

Operating expenses increased by 2.7% or $0.8 million in the current year period, primarily due to the increased headcount, principally in sales and marketing personnel. Pokluda further commented, "Rigorous expense management remains a top priority and we have heightened awareness towards this end given the current level of demand."

Interest expense of $0.5 million was lower than the prior year's $0.6 million as average debt levels fell from $54.3 million in 2012 to $53.3 million in 2013 and as interest rates decreased slightly to 2%. The effective tax rate for the period of 37.8% was lower than the 38.6% rate in the prior year period, due to the impact of a state tax adjustment in the first quarter of 2013.

Net income for the period of $7.9 million fell 6.2% from the $8.4 million level in the prior year period. Accordingly, diluted earnings per share fell, from $0.47 in the prior year period to $0.44 in the current period.

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