HIGHLAND HEIGHTS, Ky. - Wednesday, November 2nd 2011 [ME NewsWire]
(BUSINESS WIRE)-- General Cable Corporation(NYSE: BGC), one of the most globally diversified industrial companies, reported today results for the third quarter ended September 30, 2011. Diluted earnings per share for the third quarter of 2011 were $0.07. Included in these results were $0.10 per share of non-cash convertible debt interest expense and $0.16 per share of mark to market losses on financial derivatives accounted for as economic hedges. Before the impact of these items, adjusted non-GAAP earnings per share for the third quarter of 2011 would have been $0.33.
Earnings versus expectations in the third quarter of 2011 were further burdened by foreign currency transaction losses of $0.23 per share caused by the strengthening of the US dollar against most major currencies in the latter half of the quarter and an increase to the Company’s estimated full year effective tax rate resulting in $0.13 per share of additional tax expense in the quarter versus expectations as a result of the impact to the first half of the year being reported in the third quarter.
Highlights
Despite increased economic uncertainty and a rapid fall in metal prices, operating income in the third quarter of 2011 increased 51% or $21.3 million compared to the third quarter of 2010
Global volume as measured in metal pounds sold in the third quarter of 2011 increased 2% sequentially and 6% year over year, marking the fifth consecutive quarter of year over year growth
Brazilian growth helped lift ROW sequential metal pounds sold by 15%
Board of Directors authorized a $125.0 million share repurchase program
Third Quarter Results
Net sales for the third quarter of 2011 were $1,517.8 million, an increase of $190.3 million, or 14%, compared to the third quarter of 2010 on a metal-adjusted basis. Before the impact of favorable foreign currency exchange rate changes of $58.5 million, net sales for the third quarter increased 10% compared to the third quarter of 2010. Volume based on metal pounds sold increased 6% in the third quarter of 2011 compared to 2010 partly as a result of increased aluminum based product shipments for metal intensive, aerial transmission projects in Brazil. Sequentially, volume in the third quarter increased 2% as metal pounds sold in the Company’s Rest of World segment increased 15%, more than offsetting typical seasonal declines in North America and Europe and Mediterranean.
Operating income in the third quarter of 2011 decreased 21% or $16.4 million to $63.4 million compared to $79.8 million in the second quarter of 2011, and was up 51% compared to the third quarter of 2010. Operating income for the third quarter of 2011 reflects the seasonally lower results of the Company’s electric utility and telecommunication businesses in North America following a strong result in the second quarter; the impact of a planned seasonal reduction of inventory quantities globally; and ongoing weakness in Iberia coupled with the summer holiday period in Europe. Partially offsetting these decreases sequentially were operating results in ROW where the Company continues to experience strength particularly in its businesses in Latin America. On a metal adjusted basis, operating margin of 4.2% in the third quarter of 2011 was down 110 basis points as compared to the second quarter of 2011, and was up 100 basis points as compared to the third quarter of 2010.
Gregory B. Kenny, President and Chief Executive Officer of General Cable, said, “Our third quarter results reflect continuing weak conditions in Europe and the impact of significant currency volatility and rapid commodity deflation in the latter portion of the quarter. In ROW, results were generally consistent with expectations through the first couple months of the quarter. However, the extreme volatility experienced in metal prices in the final weeks of September reduced volumes as we believe some distributors and copper rod customers deferred purchases. Copper and aluminum prices declined 20% and 5%, respectively, in the final 15 days of the quarter and 30% and 15%, respectively, from quarterly highs established in July. In North America, volumes were broadly a bit lower than expected but in line with normal seasonal patterns and consistent with buying behavior in a rapidly falling metals market. In Europe, project related activities in our submarine power and terrestrial high voltage and extra-high voltage businesses were more than offset by broader market weakness, particularly in the Mediterranean region.”
In ROW, volume as measured in metal pounds sold increased 14% in the third quarter of 2011 compared to the third quarter of 2010 and was up 15% sequentially as compared to the second quarter of 2011. The sequential increase in volume was broad-based as the uneven order patterns experienced during the second quarter improved during much of the third quarter as projects were released and aerial transmission cables were shipped. Putting aside metal pounds attributable to aerial transmission projects in Brazil, volume increased 9% sequentially and 5% year over year. Sequentially, the Company benefited from higher spending on electrical infrastructure in Brazil and Venezuela, construction and mining activities in Chile and the release of industrial projects in Thailand. These improvements in overall volume were tempered late in the quarter as some customers delayed placing copper rod orders in Zambia and Chile as a result of the significant decline in copper prices at the end of third quarter.
In North America, volume as measured in metal pounds sold decreased 4% in the third quarter of 2011 compared to the third quarter of 2010 and was down 9% sequentially when compared to the second quarter of 2011. The sequential decrease in volume was principally the result of the strong seasonal demand experienced during the second quarter particularly for the Company’s electric utility and telecommunication products. Excluding these products, volume was flat sequentially and up 1% year over year. Demand remains stable for many of the Company’s electrical infrastructure products including cables used in natural resource extraction as well as networking and original equipment manufacturing applications.
In Europe and Mediterranean, volume as measured in metal pounds sold increased 6% in the third quarter of 2011 compared to the third quarter of 2010 and was down 4% sequentially when compared to the second quarter of 2011. Sequentially, volume was lower than expected as conditions were difficult throughout Europe during the quarter particularly in the Mediterranean region. The Company’s backlog continued to build during the quarter for submarine and land based turnkey cable projects and as of the end of the quarter was approximately $600 million.
Other expense was $31.5 million in the third quarter of 2011 which primarily consists of $18.6 million of foreign currency transaction losses and $12.9 million of mark to market losses on derivative instruments accounted for as economic hedges. Foreign currency losses in the third quarter of 2011 reflect the impact of the strengthening US dollar against most major currencies. The mark to market losses on derivative instruments accounted for as economic hedges were principally related to project timing movements.
Liquidity
Net debt was $647.9 million at the end of the third quarter of 2011, a decrease of $49.2 million from the end of the second quarter of 2011. The decrease in net debt is principally due to reductions in working capital as a result of normal seasonal demand patterns. The Company continues to maintain adequate liquidity to fund operations, which could include increased working capital requirements as a result of higher raw material cost inputs, internal growth and continuing product and geographic expansion opportunities.
Taxes
The higher than expected effective tax rate in the third quarter includes additional tax expense related to the first half of 2011 as the estimated full year effective tax rate was increased. This cumulative adjustment for the first half of 2011 resulted in a significant increase in the third quarter effective tax rate percentage due to the relatively lower pre-tax income in the third quarter.
Preferred Stock Dividend
In accordance with the terms of the Company’s 5.75% Series A Convertible Redeemable Preferred Stock, the Board of Directors has declared a regular quarterly preferred stock dividend of approximately $0.72 per share. The dividend is payable on November 28, 2011 to preferred stockholders of record as of the close of business on October 31, 2011. The Company expects the quarterly dividend payment to be less than $0.1 million.
Share Repurchase Program
“Given the Company’s solid balance sheet and the strong long-term fundamentals for global energy infrastructure investment, the Board of Directors has authorized management to purchase up to $125 million of General Cable common shares in the open market over the next year,” Kenny said. “We will utilize this buyback authority in the context of economic conditions and alternative capital uses. Concurrently, consistent with our growth strategy, we will stay on the offensive as our liquidity position coupled with strong operating cash flow allows us to continue to pursue the numerous global opportunities we see and anticipate.”
The Company expects to primarily fund its share repurchases from available credit facilities and operating cash flow. The number of shares to be repurchased and timing of the purchases will be at the discretion of the Company and will be influenced by a number of factors, including the then prevailing market price of the common stock of the Company, regulatory requirements, as well as other capital investment alternatives that may become available to the Company.
Fourth Quarter 2011 Outlook
Given the extreme metal price volatility, the Company has broadened its fourth quarter operating income forecast range to $38 to $50 million. Revenues are expected to be approximately $1.40 to $1.45 billion. “Results in the fourth quarter will be burdened by the impact of selling higher average cost inventory into a lower and volatile metal price environment. The Company expects volume to be sequentially flat in the fourth quarter as normal seasonal declines in North America and ROW are offset primarily by the impact of metal pounds attributable to transmission projects as well as progress our recent investments are making in capturing opportunities in the emerging markets. Despite broader market weakness, Europe and Mediterranean overall should show some improvement in operating income as production increases in our submarine and terrestrial high voltage and extra high voltage project businesses in the fourth quarter. For the fourth quarter, we are assuming average metal prices for the 30 day period ended October 31 and seasonally lower inventory quantities,” Kenny concluded.
To view the full report including tables please click here.
Contacts
General Cable Corporation
Len Texter
Manager, Investor Relations
859-572-8684
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