Houston Wire & Cable Company Reports Results for the Fourth Quarter and Year Ended December 31, 2011
HOUSTON, TX -- Houston Wire & Cable Company (NASDAQ: HWCC) announced operating results for the fourth quarter and year ended December 31, 2011.
Selected highlights for 2011 compared to the prior year:
Sales of $396.4 million increased 28.5% from $308.5 million.
Gross margin at 22.4%, increased 210 basis points from 20.3%.
Net income of $19.7 million, increased 128.3% from $8.6 million.
Debt reduced by $6.8 million or 12.5% to $48.0 million from $54.8 million.
Diluted EPS of $1.11 increased 126.5% from $0.49 per share.
Declared dividends totaling $0.355 cents per share, an increase of 4.4% from $0.34 cents per share.
Selected highlights for the fourth quarter of 2011 compared to the prior year period:
Record operating cash flow of $15.1 million, increased 475.2% from $2.6 million.
Debt reduced by $13.2 million or 21.6% to $48.0 million from $61.2 million.
Gross margin at 22.8%, increased 170 basis points from 21.1%.
Net income of $3.1 million, increased 5.1% from $2.9 million.
Diluted EPS of $0.17 increased 6.3% from $0.16 per share.
Declared a dividend of $0.09 cents per share, an increase of 5.9% from $0.085 cents per share.
Jim Pokluda, President and Chief Executive Officer commented, "I am pleased with our overall sales and operating performance during 2011. Our long-term growth initiatives continue to drive share gains in our targeted markets, and although there remains a degree of uncertainty involving flattening demand, the majority of our markets and customers are quite healthy and optimistic regarding their 2012 outlook. As expected, sales in the fourth quarter were affected by the gradual slow-down in shipments to large, long-duration projects. We expect this transition will continue during the first half of 2012, but are optimistic that we will replace this business with higher MRO sales and smaller, quick turnaround project business as the year progresses."
"As we move into 2012, we will continue to invest in our industry-leading sales force, marketing and operational resources, new products and the geographic expansion of the mechanical businesses through our legacy distribution network. Building on our share gains and the 285 new customers added in 2011 will remain a priority, as will our continued diligence in further penetrating our chosen markets which appear to have stabilized in a moderately growing economy."
Fourth Quarter Summary
Revenue for the quarter totaled $87.5 million, down $6.1 million, or 6.5% lower, compared to the fourth quarter 2010. Net income rose to $3.1 million, an increase of 5.1% from $2.9 million in the fourth quarter of 2010 due to significant gross margin improvement and expense management.
Overall market strength remained intact and project activity within the five long-term growth initiatives of Utility Power Generation, Environmental Compliance, Engineering & Construction, Industrials and LifeGuard™, our proprietary private-label product, was a significant component of overall revenue. New project sales increased as a result of several small to medium sized orders from plant expansions and upgrades. Total project sales decreased approximately 13% for the quarter due to a reduction in "mega" project backlog billings experienced in the prior year period.
Sales activity in the Repair and Replacement market, also referred to as Maintenance, Repair and Operations (MRO), was down approximately 5% and remained negatively impacted in the quarter as a result of the implementation of a new software system in the acquired mechanical wire businesses. Excluding the estimated impact of the software implementation, management estimates MRO sales were up approximately 3% to 5% for the fourth quarter of 2011. Management also estimates that increased copper prices in our inventory during the quarter compared to those in the prior year period, had a favorable impact on sales of approximately 4%.
Gross profit at $19.9 million increased 1% from $19.8 million due to increased profitability realized from higher margin on smaller sized project business and improved profitability on MRO business. Gross margins increased 170 basis points from 21.1% to 22.8%.
Operating expenses decreased 0.4% from the prior year period, primarily due to decreased commission expense and other operating expenses, offset by higher healthcare costs and systems integration expenses. However, as a percentage of sales, operating expenses increased to 16.7% in the fourth quarter of 2011 from 15.7% in the prior year period.
Interest expense of $0.3 million was lower than the $0.4 million incurred in fourth quarter of 2010, as average debt levels fell from $54.9 million in the fourth quarter of 2010 to $53.0 million in the fourth quarter of 2011, primarily due to the decrease in working capital.
Operating income at $5.3 million was up 4.3% from the $5.1 million achieved in the prior year period. The effective tax rate for the quarter of 38.7% was higher than the 38.3% in 2010, due to the impact of higher state income tax rates.
Net income for the quarter was $3.1 million, a 5.1% increase over the prior year period and diluted earnings per share were $0.17, up from the prior year period at $0.16 per share.
Twelve Month Results Summary
Revenue for 2011 increased 28.5%, reflecting 19.1% organic sales growth and $36.2 million in increased sales from the June 2010 acquired businesses. MRO sales increased approximately 8% to 10% for the period and sales within our five long-term growth initiatives were up approximately 30%. Management estimates that copper inflation, which primarily affects our stock shipments and lags broad market moves, had a favorable impact on sales of approximately 5%.
Gross profit of $88.9 million increased 42.0% from $62.6 million in the prior year due to the increased level of sales and the improvement in gross margins. Gross margins increased from 20.3% to 22.4%, as a result of improved demand over the prior year.
Operating expenses increased 16.7% from the prior year, primarily due to expenses of the acquired businesses, of which only six months were included in the comparable period. Operating expenses as a percentage of sales decreased to 14.0% from 15.4% in the prior year, due to operating leverage, ongoing cost control initiatives and the reversal of compensation expense of $1.7 million, recorded prior to 2011, resulting from the forfeiture of options upon the departure of our former CEO. Operating income of $33.4 million was more than twice the $15.0 million level in 2010.
Interest expense of $1.4 million was higher than the prior year, as average debt levels rose from $33.5 million in 2010 to $58.5 million in 2011, primarily as a result of the June 2010 acquisition and to fund the increase in working capital.
The effective tax rate for the period of 38.4% was lower than the prior period level of 39.1%, primarily because 2010 reflected the impact of non-deductible acquisition expenses.
Net income for the period more than doubled to $19.7 million, from $8.6 million in the prior year.
Conference Call
The Company will host a conference call to discuss fourth quarter results on Thursday March 15, 2012 at 10:00 am CT. 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.
Approximately two hours after the completion of the live call, a telephone replay will be available until March 22, 2012.
Replay Dial In: 855.859.2056
International Replay: 404.537.3406
Confirmation Code: 60166235
The full financial spreadsheet can be found at their website, www.houwire.com.
