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Encore Wire Corporation has a market cap of $652 million; its shares were traded at around $28.29 with a P/E ratio of 16.6 and P/S ratio of 0.6. The dividend yield of Encore Wire Corporation stocks is 0.3%. Encore Wire Corporation had an annual average earning growth of 5.9% over the past 10 years.
Highlight of Business Operations:Net sales for the second quarter of 2012 were $264.7 million compared with net sales of $309.5 million for the second quarter of 2011. This dollar decrease was primarily the result of a 13.2% decrease in the average price of wire sold and a 4.0% decrease in the unit volume of copper wire shipped. Unit volume is measured in pounds of copper contained in the wire shipped during the period. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition. The average cost per pound of raw copper purchased decreased 14.1% in the second quarter of 2012 compared to the second quarter of 2011, and was the principal driver of the decreased average sales price of wire. In the second quarter of 2012, aluminum wire constituted 3.5% of the Company’s net sales dollars compared to 1.0% in the second quarter of 2011.
Cost of goods sold decreased to $245.3 million, or 92.7% of net sales, in the second quarter of 2012, compared to $278.8 million, or 90.1% of net sales, in the second quarter of 2011. Gross profit decreased to $19.4 million, or 7.3% of net sales, in the second quarter of 2012 versus $30.6 million, or 9.9% of net sales, in the second quarter of 2011. The decreased gross profit dollars and gross profit margin percentages were primarily the result of an increase in total materials cost including the LIFO adjustment from 83.7% of net sales in the second quarter of 2011 to 84.3% in the second quarter of 2012, along with an increase in manufacturing labor, depreciation and overhead from 6.3% to 8.3% of net sales in the second quarter of 2011 versus the second quarter of 2012. The overhead percentage increased both from increased spending on machinery
Selling expenses, consisting of commissions and freight, for the second quarter of 2012 were $11.2 million, or 4.2% of net sales, compared to $12.6 million, or 4.1% of net sales, in the second quarter of 2011. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales, and therefore, declined $1.6 million in concert with the decreased sales dollars. Additionally, although units shipped declined slightly, freight costs increased by $0.2 million, or 0.3% of net sales as a result of increased fuel prices, smaller customer order quantities and small shifts in demand from various areas of the country. General and administrative expenses were $4.1 million, or 1.6% of net sales, in the second quarter of 2012 compared to $3.5 million, or 1.1% of net sales, in the second quarter of 2011. The provision for bad debts was $0 for the second quarters of 2012 and 2011.
Selling expenses for the first six months of 2012 decreased to $22.2 million, or 4.1% of net sales, compared to $24.3 million, or 4.0% of net sales, in the same period of 2011. Commissions paid to independent manufacturers’ representatives are calculated as a percentage of sales, and therefore, dropped $2.9 million in concert with the decreased sales dollars. Freight costs increased $0.9 million to $9.9 million or 1.8% of net sales versus $9.1 million or 1.5% of net sales as a result of increased fuel prices, smaller customer order quantities and small shifts in demand from various areas of the country. Commissions were 2.2% and 2.5% of net sales in the first six months of 2012 and 2011, respectively. General and administrative expenses decreased to $8.2 million, or 1.5% of net sales, in the first six months of 2012 compared to $10.0 million, or 1.6% of net sales, in the same period of 2011. The general and administrative costs declined primarily due to decreased legal and administrative costs. The provision for bad debts was zero in the first six months of 2012 and 2011, respectively.
changes in components of cash flow were notable. The Company had net income of $9.1 million in the first six months of 2012 versus net income of $20.1 million in the first six months of 2011. Accounts receivable increased in the first six months of 2012 and 2011, although at much different amounts, resulting in a use of cash of $6.2 million and $56.4 million, respectively, driving a lower use of cash of $50.2 million in 2012 versus 2011. Accounts receivable increased in the first six months of both years, primarily due to the timing of sales in the quarters. With an average of 60 to 75 days of sales outstanding, quarters in which sales are more back-end loaded will have higher accounts receivable balances outstanding at quarter-end. Inventory dollars decreased in 2012, which provided an $11.0 million source of cash, while inventory increased in 2011, resulting in a $13.1 million use of cash. This swing in inventory resulted in an overall increase in cash provided of $24.0 million in the first six months of 2012 versus the first six months of 2011. Trade accounts payable and accrued liabilities resulted in a $14.2 million increase in cash provided in the first six months of 2012 versus the first six months of 2011 due primarily to the decrease in accounts payable, attributable primarily to the timing of inventory receipts at quarter end. These changes in cash flow were the primary drivers of the $77.6 million increase in cash provided in operations in the first six months of 2012 versus the first six months of 2011.
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