Encore Wire's 2019 sales revenue slid to $1.275 billion from $1.289 billion in 2018, despite strong demand and increased copper wire shipments, as the average selling price of copper wire fell 5.8%, company CEO Daniel Jones said Wednesday.
"Despite the strong US construction market and demand for building wire, margins were restrained by competitive pricing in the fourth quarter of 2019," Jones said during a call with investors.
Jones said Encore was able to raise its copper shipment volume in 2019 by 4.1% from 2018 in a competitive market environment, but the decline in average selling price more than offset the revenue gained from higher shipments. Encore did not provide exact figures for the sales prices.
Jones said production margins were harmed as competitive pressure tightened the spread between the price of copper wire sold and the cost of raw copper purchased.
"The copper spread contracted 11.2% as the average price of copper purchased decreased 2.8% [Q4] 2019 versus [Q4] 2018, while the average selling price of wire sold decreased 5.8%," Jones said.
The volatility in COMEX copper prices during Q4 also affected Encore's sales revenue, Jones said.
"We got 30-some-odd cents of volatility from the first week of October to Christmas Day," Jones said, adding that it was difficult to gain traction on any price increases.
"I think it's more of the timing of the way the volatility in COMEX was hitting because you announced a price increase, and the day you announced it, you lost 6 or 7 cents/lb in COMEX," Jones said. "We just don't have the ability to hang on to that price increase."
Encore reported a Q4 net income of $10.5 million, down sharply from net income of $25 million in Q4 2018. Full-year 2019 income also fell significantly to $58 million from $78 million in 2018.
Encore bullish on demand
Jones said strong end-market demand in 2020 could support the tight margin levels if they continued.
"The US economy appears strong, as is construction activity," Jones said. "We believe there is a good outlook for construction projects for the next year."
Privately‐owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of about 1.551 million up 9.2% from December's rate and up 17.9% from the January 2019 rate.
Encore CFO Bret Eckert said about 21.8% of the company's shipments supplied the residential housing market in 2019.
To take advantage of strong demand, Jones said Encore would begin expanding its Texas manufacturing facility in 2020 to increase the speed of its order delivery capabilities, improve the company's competitiveness in the market and grow manufacturing capacity.
"There are only two things that sell building wire, price and delivery," Jones said. "Anyone can cut the price, so we are after the delivery side to maintain a 1-2% advantage in the marketplace."
Source: Platts |
