Houston, TX - Houston Wire & Cable Company announced operating results for the fourth quarter and year ended December 31, 2012.
Fourth Quarter Summary
Jim Pokluda, President and Chief Executive Officer commented, "I was extremely pleased with our team's strong year-end sales performance. Activity was solid for the entire quarter. Our 19.3% year-over-year sales increase was the result of steady MRO demand and an increase in project business in both electrical and steel wire rope end markets. I was also pleased with the sequential sales increase of 8.6%.
"Similar to prior quarter experiences, we continued to benefit from resurgence in demand in several major markets. Nevertheless, there remained regions that performed below our expectations as we believe industrial activity has not fully returned to pre-recession levels in all areas of the United States. Despite inconsistent market conditions and customer activity, several strategic markets including Oil & Gas, Power Generation and Industrials performed well. We added 88 new customers during the quarter, and sales of recently introduced new products such as specialty oil and gas cables and aluminum cables exceeded our internal expectations."
Gross margin fell to 21.1% as a result of higher project sales. Operating expenses were flat compared to the prior year period and up 0.9% or $0.1 million on a sequential basis, primarily due to the increased headcount. Operating margins reached 7.1%, up 100 basis points from 2011.
Interest expense of $0.3 million was flat with the prior year period. While average debt levels increased 14.7% from the fourth quarter of 2011, the effective interest rate declined by 17.5%, from 2.5% in 2011 to 2.0% in 2012. The effective tax rate for the quarter of 38.6% remained in line with the 2011 annual rate and with the 38.7% level in the comparable 2011 quarter.
Net income of $4.4 million, increased by 43.2% or $1.3 million, from the fourth quarter of 2011. Diluted earnings per share of $0.25 were up 47.1% from the $0.17 level in the prior year quarter.
Twelve month summary
Sales for the year were $393 million and metal adjusted sales grew approximately 3% over 2011. Sales activity within the six long-term growth initiatives of Power Generation, Environmental Compliance, Engineering & Construction, Industrials, Mechanical Wire Rope and LifeGuard™, our proprietary private-label product, remained active and were largely driven by multiple small to medium sized projects. As expected, the mega-projects experienced in 2011 did not recur; however, the absence of these projects was largely offset by increased activity in oil and gas extraction and transportation, investments in new products and additional sales and marketing resources.
We closed the year with a positive book to bill ratio and throughout the year experienced growth in transactional activity and opportunity pipeline. Project business was up 2% and our MRO business was off roughly 3% owing to continued inconsistent post-recession demand and geographic market strength.
Gross margin was off slightly for the year finishing at 22.1%, down 30 basis points from 2011. "While we were able to hold margins in the face of very competitive market conditions, lower margin project business impacted the fourth quarter and caused a slight decrease over 2011," said Mr. Pokluda.
Operating expenses increased by 4.6% or $2.6 million in the current year. Excluding the impact of the $1.7 million expense reversal in 2011 resulting from a stock compensation adjustment, operating expenses increased 1.6% or $0.9 million, primarily due to the impact of the higher headcount and higher consulting and professional fees.
Interest expense of $1.3 million was lower than the prior year's $1.4 million as average debt levels fell by 1.0% from $58.5 million in 2011 to $58.0 million in 2012 and interest rates decreased 10.4% from 2.3% to 2.1%. The effective tax rate for the year of 38.4% was the same as in 2011.
Net income for the period of $17.0 million fell 13.4% from the $19.7 million level in the prior year, or 8.6% from the $18.6 million level (excluding the impact of the stock compensation reversal).
For the full release, including balance sheets, please visit www.ir.houwire.com.