GLENVIEW, Ill. - Anixter International Inc. (NYSE: AXE) today reported sales of $1.52 billion for the quarter ended April 4, 2014, a 2.2 percent increase compared to the year-ago quarter. Despite the negative weather impact in the months of January and February and excluding the impact of the following two items, organic sales increased by 3.8 percent year-over-year:
- $12.1 million from the unfavorable effect of copper pricing
- $11.8 million from the unfavorable effect of foreign exchange
Operating income in the current quarter of $85.7 million compares to $81.0 million in the year-ago quarter. The 5.7 percent increase would have been 9.0 percent excluding the $2.7 million negative operating income impact of the drop in copper prices year-over-year. Operating margin of 5.6 percent increased by 20 basis points versus the prior year and decreased 40 basis points sequentially.
Net income of $47.4 million compares to $42.5 million in the year-ago quarter. The current quarter results included foreign exchange losses due to currency devaluations in Venezuela and Argentina of $8.0 million (after-tax $5.3 million) partially offset by the reversal of deferred tax valuation allowances of $4.9 million in Europe. Excluding the impact of these two items, adjusted net income for the current quarter was $47.8 million, an increase of 12.5 percent from the prior year quarter. Reconciliations from reported amounts to adjusted amounts are provided in the supplemental information at the end of this release.
“Steadily improving market trends in all of our segments fueled strong performance, particularly in our OEM Supply – Fasteners (“Fasteners”) segment and across all segments in Europe and Emerging Markets. For the fifth consecutive quarter we achieved significant performance improvements in our Fasteners segment, reflecting increases in our customers’ production levels coupled with the results of actions we took to reposition the business for profitable growth. We also experienced a solid recovery in our core enterprise communications business, with double-digit growth in both our Emerging Markets and European geographies,” commented Bob Eck, President and CEO. “Overall, we are encouraged by the solid 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 first quarter of 2014 compares to 22.7 percent in the year-ago quarter, driven by improvement in all segments. On a sequential basis gross margin was flat, as improving trends in our Enterprise Cabling and Security Solutions segment were offset by customer mix-driven lower gross margin in our Fasteners segment. Excluding the $2.0 million negative impact of foreign exchange and the $2.7 million negative impact of copper pricing, organic gross profit dollar growth was 5.9 percent versus a reported growth of 4.6 percent.
Operating expenses of $267.9 million for the first quarter of 2014 increased by 4.2 percent versus the prior year quarter, with the increase primarily caused by higher employee incentives, increased medical benefit costs and investments in new positions to support our strategic initiatives. Interest expense of $11.2 million decreased by $2.4 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 expense of $10.3 million compares to $2.0 million in the year ago quarter. Our adjusted effective tax rate of 34 percent declined from 35 percent in the year-ago period, primarily due to a change in the country mix of earnings.
Enterprise Cabling and Security Solutions (“ECS”) sales of $760.1 million compares to $745.1 million in the prior year period. The 2.0 percent increase was driven by strong growth in our European and Emerging Markets geographies of 17.3 percent and 16.3 percent, respectively, combined with solid improvement in our core US enterprise cabling business. Security sales, which represent approximately 26 percent of total segment sales, increased slightly in the quarter. Excluding the $7.8 million unfavorable impact from foreign exchange, organic sales increased 3.1 percent. On a sequential basis, ECS sales decreased 6.3 percent from the fourth quarter, largely due to severe weather impacting the North American business in January and February.
ECS operating income of $36.0 million compares to operating income of $34.8 million in the year ago quarter. Operating margin for ECS of 4.7 percent is flat versus the prior year and compares to 5.1 percent in the fourth quarter of 2013.
Electrical and Electronic Wire and Cable (“W&C”) achieved first quarter sales of $514.2 million, a 0.7 percent decrease from the prior year period, primarily caused by a drop of approximately 10 percent in the average price of copper. European and Emerging Markets sales increased by 7.8 percent and 4.2 percent, respectively. Excluding the unfavorable impact of the decline in the average price of copper and foreign exchange, organic sales increased by 3.0 percent. Sequentially, global sales decreased by 4.7 percent versus the fourth quarter of 2013, largely due to severe weather impacting the North American business in January and February.
Operating income of $36.9 million compares to operating income of $41.3 million in the year ago quarter. Operating margin of 7.2 percent compares to 7.6 percent in the fourth quarter of 2013 and 8.0 percent in the year ago quarter. Both the operating income and margin were negatively impacted by the large drop in copper prices which caused the majority of the decline.
OEM Supply - Fasteners sales increased by 9.4 percent from the prior year quarter to $249.5 million, reflecting the continued increase in customer production levels combined with incremental business wins. Excluding the $3.1 millionfavorable impact from foreign exchange, organic sales increased by 8.1 percent year-over-year. On a sequential basis, sales increased by 0.7 percent.
Operating income of $12.8 million compares to operating income of $4.9 million in the year ago quarter. Operating margin of 5.1 percent compares to operating margin of 2.1 percent in the prior year quarter and 5.5 percent in the fourth quarter of 2013.
Cash Flow and Leverage
In the quarter, the Company generated $8.0 million of cash from operations, which compares to $51.2 million in the year ago quarter. The reduction in cash flow is primarily due to the working capital requirements in this year’s first quarter associated with an improving sales trend over the course of the quarter versus a softening trend in the year ago quarter. The additional volume-driven working capital requirement was partially offset by improved working capital efficiency resulting in a reduction in working capital days.
“The acceleration in sales combined with our gross margin improvement and productivity initiatives allowed us to deliver 14% operating profit leverage for the quarter. We are committed to maintaining our strong balance sheet to provide financial flexibility, and will continue to pursue working capital initiatives that will enable us to enhance our cash flow generation as 2014 progresses,” commented Ted Dosch, Executive Vice President – Finance and CFO. “Our excellent financial position provides us the flexibility to continually evaluate the optimal use of our funds. We remain committed to investing in our growth initiatives and returning excess capital to our shareholders, just as we did last quarter and consistently have done over the past five years. Additionally, we were proud to be named in Forbes Magazine’s 2014 list of the 100 Most Trustworthy Companies in America, as we believe this is recognition of the importance we place on financial stewardship to benefit all of our stakeholders, including our customers, suppliers, employees and investors.”
Key capital structure and credit-related statistics for the quarter:
- Debt-to-total capital ratio of 44.8% compares to 44.9% at the end of 2013
- Weighted average cost of borrowed capital of 4.8% compares to 5.8% in the year ago quarter
- $337.6 million of availability under bank revolving lines of credit at quarter end
- $225.0 million of outstanding borrowings under the $300 million accounts receivable securitization facility at quarter end
“With solid momentum in the first quarter in all of our segments and across all geographies, we believe we are well-positioned for global growth as the year progresses. In addition to a steadily 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 continue to expect mid-single digit organic growth.” 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.”
(In millions, except per share amounts)
|Three Months Ended|
|April 4,||March 29,||Percent|
|Diluted Earnings Per Share||$1.43||$1.27||13%|
|Diluted Weighted Shares||33.3||33.5||-1%|
First Quarter Earnings Call Details
The Company will host a conference call to discuss these results beginning at 9:30 a.m. Central Time today. The call will be available as a live audio webcast and can be accessed at the Investor Relations portion of Anixter’s website at anixter.com/investor. Dial-in numbers for the call are as follows:
|U.S./Canada toll-free dial-in:||1-888-438-5524|
A replay of the call will be available at anixter.com/investor for 15 days following the call. Prior to the beginning of the call a supplemental presentation titled “First Quarter 2014 Highlights and Operating Review” will be available on the company’s Investor Relations section of the website.