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Anixter Customers Still Sleeping

The company discloses moribund earnings growth.

Computer and communications wire manufacturer


(AXE) - Get Anixter International Inc. Report

reported soft revenue and earnings that were roughly in line with expectations, but repeated that it has not seen its customers increase spending on larger capital projects.

The Glenview, Ill.-based manufacturer produces over 185,000 different types of wires and fasteners used to connect personal computers, peripheral equipment, mainframe equipment and security equipment, and its results are indicative of capital spending trends.

For the third quarter, the company earned $11.3 million, or 31 cents a share, on revenue of $653 million, nearly identical to the $11.6 million, or 30 cents a share, on revenue of $626 million the company earned in the year-ago period. The 4% revenue and penny-a-share earnings jump was due entirely to its acquisition of Pentacon last year, which contributed $47 million to revenue and a penny a share to earnings.

Operating income and margins were also unchanged vs. last year at $23 million, or about 3.5%.

Management emphasized that its customers are focusing on smaller projects and remain "very cautious about committing to larger capital projects." The company also reiterated that its revenue and earnings will be down sequentially, blaming fewer available selling days in the fourth quarter. It added, however, that it is "waiting to see a few solid quarters of improved revenue and earnings results in our customer base." The company expects to earn 28 cents a share on revenue of $638 million for the fourth quarter.

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While management chose to emphasize its quarter-over-quarter cash flow performance, it failed to account for a dramatic 34% rise in accounts receivable since the beginning of the year. While inventory has declined a bit, customers owe the company a lot more money and management did not offer reasons for the change, though cash flow for the nine months ended October 2003 is off 34% vs. the same period last year.

The market has responded to the flat results in kind, leaving the stock roughly unchanged for the year at $23.26. The stock trades at a price-to-earnings ratio of 17 times expected 2004 earnings vs. 24 for competitors

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