Anixter International Inc. (AXE)

Q2 2010 Earnings Call

July 27, 2010 10:30 a.m. ET


Chris Kettmann - IR

Dennis Letham - EVP, Finance & CFO

Bob Eck - President & CEO

Ted Dosch - SVP, Global Finance


Matt McCall - BB&T Capital Markets

Shawn Harrison - Longbow Research LLC

David Manthey - Robert W. Baird

Ryan Merkel - William Blair

Chris Parkinson - Credit Suisse

Gary Farber - CL King

Ted Wheeler - Buckingham Research

Brent Rakers - Morgan Keegan

Jeff Beach - Stifel, Nicolaus



Good day everyone and welcome to the Anixter International Second Quarter Earnings Conference Call. (Operator Instructions) At this time it is my pleasure to turn the conference over to Mr. Chris Kettmann for opening remarks and introductions. Chris?

Chris Kettmann

Thank you, Lorrie. Good morning, and thank you, all for joining us to discuss Anixter's Second Quarter 2010 Results. By now, everyone should have received a copy of the press release, which was sent out earlier this morning. If anyone still needs a copy, you can go to Anixter's website 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 liability, risks associated with accounts receivable, the impact of regulation and regulatory investigated in legal proceedings and legal compliance risks, 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 and thank you for joining us. Before going into the current quarter's results, let me start by highlighting our expectations for the second quarter as we discussed on our call three months ago. For those of who were with us on the last earnings call, you will recall we described the start to the first quarter of 2010 where daily sales continued their nearly nine month pattern of being virtually flat.

As discussed that trend changed in March with a noticeable improvement in daily sales rates that continued through early April as we released our first quarter results. Those positive trends then became more broad-based across the various end markets and geographies in which we operate. Daily sales rates continue to rise through the first two months of the second quarter before leveling off, but not progressing in June.

Now three weeks into the third quarter, these higher sales levels that we're experienced in June up continued into the early part of the third quarter. As a result, we are on track with our previously discussed expectations at this stage of the recovery. As a reminder, our backlog equals approximately four weeks of sales and a high percentage of our orders continue to ship within 24 to 48 hours of receipt.

So while the trends over the last four to five months have been positive, some uncertainty in the macro economic environment remains, and there is no guarantee that this positive trends will continue for the remainder of 2010. Furthermore, we believe that a more significant improvement in financial results will require extended positive trends in the expansion of those macro economic trends to more fully include Europe. Before turning to the details of the drivers of our second quarter operating performance, let me note that the net sales were at the highest level in seven quarters, and operating earnings were at the highest level in eight quarters.

We realize however that we're only part of the way back to the operating levels of both revenue and earnings that were achieved prior to the recent recession. Nonetheless the strong operating leverage that we delivered in the second quarter combined with another quarter of strong cash flow performance is a significant positive first step towards the previous record levels of financial performance.

Let's begin with a more detailed discussion of our second quarter sales results. Consistent with our expectations sales were up 8% sequentially and up 12% year-on-year on an organic basis. The sequential improvement was evident in all three end markets and each geographic segments despite one less billing day in the second quarter compared to the first quarter.

We believe this is indicative of our company been well positioned to not only benefit from improving macroeconomic factors but to also grow our share in each end market worldwide. In the second quarter we reported a 12% increase in year-on-year sales.

After adjusting for 12.9 million of favorable foreign exchange FX, an estimated $19.6 million of favorable copper prices, and 33 million of unfavorable FX resulting from our decision to exit the Alcatel-Lucent contract, in late 2009, organic sales would have still grown by 12%, non surprisingly with the European OEM supply business down the greatest percentage last year. It was the portion of our business with the highest year-on-year growth in this quarter.

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