HOUSTON, TX -- Houston Wire & Cable Company announced operating results for the second quarter ended June 30, 2012.
Sales of $98.1 million
Gross margin reached 22.7%
Operating margins reached 7.7%
Net income of $4.4 million
Diluted EPS of $0.25
Declared dividends totaling $0.09 cents per share
Second Quarter Summary
Jim Pokluda, President and Chief Executive Officer, commented, "I am pleased that we achieved a 4% increase in sales over the first quarter of 2012, which was itself 8% higher than the fourth quarter of 2011, although 5% lower than the prior year quarter. When adjusted for an estimated 4% negative impact from metal price fluctuations, revenues were down slightly less than 1% year over year and up approximately 8% sequentially. Nevertheless, market demand remains inconsistent. Comparables to the prior year period are difficult, as the second quarter of 2011 had reflected 32.9% organic sales growth over the prior year as a result of significant project billings and delayed MRO (maintenance, repair and operations) spend from the recession.
"Similar to the first quarter, customer activity and market conditions showed some signs of improvement.We continued to invest in additional sales and marketing resources and to expand our product lines, and we added 107 new customers during the quarter, which drove further share gains. We believe the collective benefits of these ongoing investments will provide a broader footprint in the market and will generate additional traction for our business as the market regains its strength."
Gross margins continued the recent upward trend on a sequential basis reaching 22.7%, only 20 basis points lower than the prior year period.
Operating expenses increased 20.7% or $2.5 million from the prior year, or 3.6% or $0.5 million excluding the impact of the $2.0 million credit in 2011, resulting from a stock compensation adjustment, which we believe provides a more meaningful comparison. Excluding the stock compensation adjustment, this increase was primarily the result of healthcare costs associated with higher claims and an increase in headcount. The sequential increase in sales, coupled with our expense control leverage, moved operating margins to 7.7%, up 50 basis points from the first quarter of 2012. The resulting operating income of $7.5 million was up 10.7% sequentially.
Interest expense of $0.3 million was lower than the $0.4 million in prior year period, as average debt levels fell from $63.9 million in 2011 to $60.9 million in the second quarter of 2012, and the effective interest rate declined from 2.3% in 2011 to 2.1% in 2012. The effective tax rate for the quarter of 38.6% remained in line with the 2011 annual rate and with the 38.5% level in the comparable 2011 quarter.
Net income increased sequentially by 10.1% to $4.4 million, from $4.0 million. Diluted earnings per share were $0.25, compared to the $0.23 on a sequential basis.
Six month summary
Sales activity within the five long-term growth initiatives of Utility Power Generation, Environmental Compliance, Engineering & Construction, Industrials and LifeGuard™, our proprietary private-label product, remained active and continued to be the primary drivers of our sales. Project sales during the current period were primarily composed of a number of small to medium sized projects, as compared to the large projects that drove sales in the prior year period.
Daily sales for the period were somewhat choppy, as we experienced solid volume and sales growth in regions that have come out of the recession, while other regions are still performing below our expectations. Sales declines from the prior year period were equally dispersed between project and MRO markets, which was primarily due to the slow start in activity during the first two months of the year and the completion of several mega-project jobs in the prior year period. For the current period, management estimates that metals market price fluctuations negatively impacted revenues by approximately 3%.
Gross margins were near flat at 22.5% for the 2012 period compared to 22.6% for the prior year. "Pricing remains competitive in the marketplace, but I am pleased that we have maintained margins in these circumstances," said Mr. Pokluda. Gross profit dollars decreased by $2.6 million or 5.6% primarily due to the sales shortfall.
Operating expenses increased by 10.5% or $2.8 million in the current year, or 3.9% or $1.1 million (excluding the $1.7 million year-to-date impact of the credit in 2011, resulting from the stock compensation adjustment), primarily due to the impact of health insurance costs associated with higher claims and increased headcount and higher consulting and professional fees.
Interest expense of $0.6 million was lower than the prior year's $0.7 million as average debt levels fell from $59.6 million in 2011 to $54.3 million in 2012 and as interest rates decreased from 2.3% to 2.1%. The effective tax rate for the period of 38.6% was in line with both the prior year period and the 2011 annual rate.
Net income for the period of $8.4 million fell 20.6% from the $10.6 million level in the prior year period, excluding the impact of the stock compensation reversal.
The Company will host a conference call to discuss first quarter results on Thursday, August 9, 2012 at 10:00 a.m., C.T. Hosting the call will be James Pokluda, President and Chief Executive Officer and Nicol Graham, Vice President and Chief Financial Officer.
A live audio web cast of the call will be available on the Investor Relations section of the Company's website www.houwire.com.
Approximately two hours after the completion of the live call, a telephone replay will be available until August 16, 2012.