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Anixter CEO Discusses Q3 2010 Results - Earnings Call Transcript

Anixter CEO Discusses Q3 2010 Results - Earnings Call Transcript

Anixter International Inc. (

AXE

)

Q3 2010 Earnings Call Transcript

October 26, 2010 10:30 am ET

Executives

Chris Kettmann – IR

Dennis Letham – EVP, Finance and CFO

Bob Eck – President and CEO

Ted Dosch – SVP, Global Finance

Analysts

Shawn Harrison – Longbow Research

Hamzah Mazari – Credit Suisse

Ryan Merkel – William Blair

David Manthey – Robert W. Baird

Anthony Kure – KeyBanc

TheStreet Recommends

Ted Wheeler – Buckingham Research

Brent Rakers – Morgan, Keegan

Jeff Beach – Stifel Nicolaus

Presentation

Operator

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Previous Statements by AXE
» Anixter International Inc. Q2 2010 Earnings Call Transcript
» Anixter International Q1 2010 Earnings Call Transcript
» Anixter International Inc. Q4 2009 Earnings Call Transcript
» Anixter International Inc. Q3 2009 Earnings Call Transcript

Good day, and welcome to the Anixter International third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Chris Kettmann for opening comments and introduction. Please begin when ready, Mr. Kettmann.

Chris Kettman

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Thank you, operator. Good morning, everyone, and thank you all for joining us to discuss Anixter's third quarter 2010 results. By now, everyone should have received the copy of the press release, which was sent out earlier this morning. If anyone still needs a copy, you can go to Anixter's Web site or call Chris Kettmann at 312-553-6716 and I can resend the information.

On the line today from Anixter's management team are Bob Eck, President and CEO; Dennis Letham, Chief Financial Officer; and, Ted Dosch, Senior VP of Finance. After management completes their opening remarks, we will open the line for Q&A session.

Before we begin, I want to remind everyone that statements in this conference call, including words such as believe, expect, intend, anticipate, contemplate, estimate, plan, project, should, may, will, or similar expressions are forward-looking statements. They are subject to a number of factors that could cause the company's actual results to differ materially from what is indicated here.

These factors include general economic conditions, including the severity of current economic and financial market conditions; the level of customer demand, particularly for capital projects in the markets we serve; changes in supplier sales strategies or financial viability; political, economic, or currency risks related to foreign operations; inventory obsolescence; copper price fluctuations; customer viability; risks associated with accounts receivable; the impact of regulation and regulatory investigated in legal proceedings and legal compliance risks; and, potential impairment of goodwill and risks associated with the integration of acquired companies.

These uncertainties may cause our actual results to be materially different from those expressed in any forward-looking statements. We do not undertake to update any forward-looking statements. Please see the company's SEC filings for more information.

At this point, I'll turn the call over to Dennis.

Dennis Letham

Thank you, Chris. Good morning, everyone, and thank you for joining us. Before going into the details on the drivers behind the third quarter operating performance, let me begin by saying we're very pleased with the strong 90-basis point improvement in year-on-year operating margins and the sequential 40-basis point improvement in operating margin.

We delivered another quarter of incremental operating margin leverage of more than 15% combined with excellent cash flow performance. In the midst of a slower than anticipated economic recovery, it will take some time to get back to our pre-recession levels of sales and earnings. However, our progress to date demonstrates both the strength and scalability of our robust business model. As we continue to see revenues recover, we anticipate being able to generate strong incremental operating margins and improving overall operating margins throughout our end markets and geographies.

Let me begin with a more detailed discussion of our third quarter sales results. In the third quarter, we reported a 10% increase in year-on-year sales. After adjusting for $3.7 million of unfavorable foreign exchange effects, an estimated $15.6 million of favorable copper prices and $30.7 million of unfavorable effects stemming from our decision to exit the Alcatel-Lucent contract, organic sales grew by 12% over the prior year period.

In addition to the year-on-year sales growth, we also saw 2% sequential sales growth. The year-on-year growth we're seeing in all three of our end markets and each geographic segment despite one less shipping day in the current year's third quarter. Sequentially, the third quarter had one less shipping day than the second quarter, but yet we experienced sequential quarter sales growth in all three end markets and each geographic segment with the exception of Europe.

The sequential decline in Europe was expected as a result of the typical summer vacation and OEM planned shutdown impact in that region. We believe our sales results are indicative of our company being well positioned to not only benefit from improving macroeconomic factors, but to also grow our share in each end market worldwide.

Looking at the third quarter sales trends within each of our end markets, we experienced the following, on a worldwide basis, enterprise cabling and security solution sales increased organically by 9% as compared to the third quarter of last year, excluding the previously mentioned exit of the Alcatel-Lucent contract within this end market; security sales grew an estimated 10%, compared to the third quarter of 2009, exclusive of foreign exchange effects. Geographically, our enterprise cabling and security solution sales reflected organic sales growth of 10% in North America, 14% in Europe, and 3% in the emerging markets as compared to the year ago quarter.

Despite the previously mentioned seasonality from the second to third quarter, including the additional holiday in the third quarter and the normal Europe vacation impact, it's important to note that on a sequential basis from the second quarter of 2010 to the third quarter of 2010, enterprise cabling sales increased by 1% organically. Worldwide electrical wiring cable sales, exclusive of foreign currency and estimated copper price effects, experienced a year-on-year organic sales improvement of 11% globally, with North America and Europe showing increases of 11% and 5%, respectively. In addition, sales were up 72% in the much smaller but strategically important emerging markets.

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