SOURCE: Houston Wire & Cable Company

Houston Wire & Cable Company

November 12, 2013 07:15 ET

Houston Wire & Cable Company Reports Results for the Third Quarter of 2013

HOUSTON, TX--(Marketwired - Nov 12, 2013) - Houston Wire & Cable Company (NASDAQ: HWCC) (the "Company") announced operating results for the third quarter ended September 30, 2013.

Selected results were:

  • Sales of $95.2 million
  • Operating cash flow of $4.2 million
  • Net loss of $3.2 million
  • Adjusted net income of $3.5 million excluding impairment charge relating to the Southern Wire division
  • Adjusted diluted EPS of $0.20 per share
  • Debt decreased to $44.5 million, lowest level since Q1 2010
  • Declared a dividend of $0.11 per share

Adjustments to net income and diluted EPS for the impairment charge are detailed in the reconciliation schedules below.

Third Quarter Summary
Jim Pokluda, President and Chief Executive Officer, commented, "Our third quarter sales declined 0.9% from the prior year period due to continued inconsistency in regional markets and slower than expected broad market recovery, affecting major capital project spend. We estimate that sales increased 1% when adjusted for deflation in the price of metals. 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 was down approximately 17% from the prior year period. Positive revenue trends continued in our major revenue stream, Maintenance, Repair and Operations (MRO), which increased approximately 8% over the third quarter of 2012, or 10% on a constant metals basis."

Demand inconsistencies, overall competitiveness of the marketplace, increased customer rebates and softening metals prices collectively caused gross margins to shrink 50 basis points from the 2012 period, to 22% in the current year period.

Operating expenses were up $8.0 million or 55.5% primarily driven by a goodwill impairment charge of $7.6 million related to the Southern Wire division. Absent this charge, sales and marketing expenses from a higher headcount and increased medical costs, offset by lower commissions, caused a 3.2% increase from the prior year period.

Interest expense declined from $0.3 million in the 2012 period to $0.2 million in 2013, a decrease of 31.7%. Outstanding debt at September 2013 of $44.5 million was down $20.5 million or 31.5% from the $65.0 million level in 2012. The average effective interest rate fell to 1.9% from 2.0% in 2012.

Adjusted net income of $3.5 million decreased by $0.7 million from the third quarter of 2012 and adjusted diluted earnings per share were $0.20 compared to the $0.24 in the prior year period. Pokluda further commented, "We were pleased to see the continued growth in our MRO sales, which now marks the fourth consecutive quarter over quarter growth in this area of our business. Unfortunately, the return of project demand has not followed the MRO growth trend, as projects in our under-performing regions have yet to materialize as quickly as originally anticipated and continue to be pushed into future quarters. Despite the impact of these demand inconsistencies, I am pleased with the improvement in our operating cash flow, debt reduction and overall leverage and that our strong balance sheet again allowed us to return funds to our shareholders through the $0.11 per share dividend."

Nine month summary
Sales for the nine month period were up slightly versus the prior year period and increased approximately 3% when adjusted for deflation in the price of metals. MRO sales increased approximately 5%, reflecting a continuing recovery in certain geographic regions and growth in certain end markets. Project sales within the six long-term growth initiatives were down approximately 9% as project activity varied by region, due to delays in project starts and general market uncertainty.

"The marketplace remains very competitive and varies by region depending upon the level of economic activity. Margins at 22.2%, down 30 basis points from the prior year, reflect the pricing required to maintain market competitiveness," said Mr. Pokluda. 

Total operating expenses of $52.3 million including the effect of the goodwill impairment of $7.6 million, increased 20.3% over the prior year period. Excluding the impairment, operating expenses increased by 2.9% or $1.3 million. This was due to the increased headcount, principally in sales and marketing personnel. Pokluda further commented, "We remain committed to ensuring we provide world class service to our customers, while at the same time being appropriately aggressive as we leverage our model to maximize results. We continue to closely scrutinize operating expenses based on the current level of demand in order to improve the overall efficiency of our operation." 

Interest expense of $0.8 million was 18.9% lower than the prior year's $0.9 million as average debt levels fell from $57.0 million in 2012 to $53.3 million in 2013 and as interest rates decreased from 2.1% in 2012 to 1.9% in 2013.

Adjusted net income for the period of $11.4 million fell 9.7% from the $12.7 million level in the prior year period and adjusted diluted earnings per share were $0.64 compared to $0.71.

Conference Call
The Company will host a conference call to discuss third quarter results today, Tuesday, November 12, 2013, 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 November 19, 2013.

Replay, Toll-Free #: 855-859-2056
Replay, Toll #: 404-537-3406
Conference ID # 95424648

About the Company 
With over 35 years experience in the industry, Houston Wire & Cable Company is one of the largest providers of wire and cable in the U.S. market. Headquartered in Houston, Texas, the Company has sales and distribution facilities strategically located throughout the nation.

Standard stock items available for immediate delivery include continuous and interlocked armor, instrumentation, medium voltage, high temperature, portable cord, power cables, primary and secondary aluminum distribution cables, private branded products, including LifeGuard™, a low-smoke, zero-halogen cable, mechanical wire and cable and related hardware, including wire rope, lifting products and synthetic rope and slings

Comprehensive value-added services include same-day shipping, knowledgeable sales staff, inventory management programs, just-in-time delivery, logistics support, customized internet-based ordering capabilities and 24/7/365 service.  

Forward-Looking Statements
This release contains comments concerning management's view of the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain and projections about future events may, and often do, vary materially from actual results.

Other risk factors that may cause actual results to differ materially from statements made in this press release can be found in the Company's Annual Report on Form 10-K and other documents filed with the SEC. These documents are available under the Investor Relations section of the Company's website at www.houwire.com.

Any forward-looking statements speak only as of the date of this press release and the Company undertakes no obligation to publicly update such statements.

   
HOUSTON WIRE & CABLE COMPANY  
Consolidated Balance Sheets  
(In thousands, except share data)  
   
    September 30, 2013     December 31, 2012  
    (unaudited)        
Assets                
Current assets:                
  Cash   $ --     $ 274  
  Accounts receivable, net     66,980       65,892  
  Inventories, net     80,236       84,662  
  Deferred income taxes     2,673       2,455  
  Income taxes     543       --  
  Prepaids     943       841  
Total current assets     151,375       154,124  
                 
Property and equipment, net     5,662       5,824  
Intangible assets, net     10,667       11,967  
Goodwill     17,520       25,082  
Other assets     166       158  
Total assets   $ 185,390     $ 197,155  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Book overdraft   $ 4,039     $ --  
  Trade accounts payable     13,999       12,330  
  Accrued and other current liabilities     12,823       15,379  
  Income taxes     --       5  
Total current liabilities     30,861       27,714  
                 
Debt     44,525       58,588  
Other long term obligations     98       103  
Deferred income taxes     580       1,670  
Total liabilities     76,064       88,075  
                 
Stockholders' equity:                
  Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding     --       --  
  Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 17,941,110 and 17,899,499 outstanding at September 30, 2013 and December 31, 2012, respectively     21       21  
  Additional paid-in-capital     55,671       55,291  
  Retained earnings     103,437       104,252  
  Treasury stock     (49,803 )     (50,484 )
Total stockholders' equity     109,326       109,080  
Total liabilities and stockholders' equity   $ 185,390     $ 197,155  
                 
                 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2013     2012   2013   2012
                           
Sales   $ 95,214     $ 96,113   $ 288,850   $ 288,657
Cost of sales     74,292       74,501     224,824     223,655
Gross profit     20,922       21,612     64,026     65,002
                           
Operating expenses:                          
  Salaries and commissions     7,636       7,478     23,388     22,402
  Other operating expenses     6,539       6,256     19,135     18,918
  Depreciation and amortization     741       722     2,244     2,194
  Impairment of goodwill     7,562       --     7,562     --
Total operating expenses     22,478       14,456     52,329     43,514
                           
Operating (loss) income     (1,556 )     7,156     11,697     21,488
Interest expense     228       334     753     929
Income (loss) before income taxes     (1,784 )     6,822     10,944     20,559
Income taxes     1,378       2,590     6,191     7,890
Net (loss) income   $ (3,162 )   $ 4,232   $ 4,753   $ 12,669
                           
Earnings (loss) per share:                          
  Basic   $ (0.18 )   $ 0.24   $ 0.27   $ 0.71
  Diluted   $ (0.18 )   $ 0.24   $ 0.27   $ 0.71
Weighted average common shares outstanding:                          
  Basic     17,830,813       17,732,715     17,794,803     17,719,005
  Diluted     17,830,813       17,814,499     17,891,942     17,811,844
                           
Dividend declared per share   $ 0.11     $ 0.09   $ 0.31   $ 0.27
                           
                           

The accompanying Notes are an integral part of these Consolidated Financial Statements.

   
HOUSTON WIRE & CABLE COMPANY  
Consolidated Statements of Cash Flows  
(Unaudited)  
(In thousands)  
   
    Nine Months Ended
September 30,
 
    2013     2012  
                 
Operating activities                
Net income   $ 4,753     $ 12,669  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
  Impairment of goodwill     7,562       --  
  Depreciation and amortization     2,244       2,194  
  Amortization of capitalized loan costs     14       14  
  Amortization of unearned stock compensation     669       809  
  Provision for doubtful accounts     (59 )     (19 )
  Provision for returns and allowances     30       (44 )
  Provision for inventory obsolescence     397       563  
  Deferred income taxes     (1,416 )     (640 )
  Changes in operating assets and liabilities:                
    Accounts receivable     (1,059 )     (7,282 )
    Inventories     4,029       (20,163 )
    Prepaids     (102 )     (41 )
    Other assets     (22 )     91  
    Book overdraft     4,039       1,228  
    Trade accounts payable     1,669       3,161  
    Accrued and other current liabilities     (2,615 )     (5,706 )
    Income taxes     (557 )     1,542  
    Other long term obligations     (5 )     (17 )
Net cash provided by (used in) operating activities     19,571       (11,641 )
                 
Investing activities                
  Expenditures for property and equipment     (782 )     (718 )
Net cash used in investing activities     (782 )     (718 )
                 
Financing activities                
  Borrowings on revolver     287,223       302,142  
  Payments on revolver     (301,286 )     (285,116 )
  Proceeds from exercise of stock options     471       137  
  Excess tax benefit for stock options     44       34  
  Payment of dividends     (5,509 )     (4,781 )
  Purchase of treasury stock     (6 )     (57 )
Net cash (used in) provided by financing activities     (19,063 )     12,359  
                 
Net change in cash     (274 )     --  
Cash at beginning of period     274       --  
                 
Cash at end of period   $ --     $ --  
                 
                 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Non-GAAP Financial Disclosures and Reconciliations
While the Company reports financial results in accordance with U.S. GAAP, this press release includes non-GAAP measures. We use the non-GAAP measures to evaluate and manage our operations and provide the information to assist investors in performing financial analysis that is consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

   
HOUSTON WIRE & CABLE COMPANY  
Reconciliation of Non-GAAP Measures  
(Unaudited)  
(In thousands, except per share data)  
   
Adjusted net income and adjusted diluted EPS   Three Months Ended
September 30, 2013
 
    Net Income     Diluted EPS  
                 
Net income, as reported under GAAP   $ (3,162 )   $ (0.18 )
Goodwill impairment     7,562       0.43  
      4,440       0.25  
Tax effect of goodwill impairment     (870 )     (0.05 )
Adjusted net income   $ 3,530     $ 0.20  
                 
                 
                 
Adjusted net income and adjusted diluted EPS   Nine Months Ended
September 30, 2013
 
    Net Income     Diluted EPS *  
                 
Net income, as reported under GAAP   $ 4,753     $ 0.27  
Goodwill impairment     7,562       0.43  
      12,315       0.70  
Tax effect of goodwill impairment     (870 )     (0.05 )
Adjusted net income   $ 11,445     $ 0.64  
                 
* Due to rounding, EPS amounts do not add in total.                
                 
                 

Contact Information

  • CONTACT:
    Nicol G. Graham
    Chief Financial Officer
    Direct: 713.609.2125
    Fax: 713.609.2168
    ngraham@houwire.com