General Cable (BGC) Q3 2011 Earnings Call November 01, 2011 8:30 am ET Executives Gregory B. Kenny - Chief Executive Officer, President and Director Len Texter - Manager, IR Brian J. Robinson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer Analysts Steven J O'Brien - JP Morgan Chase & Co, Research Division Gary Farber - CL King & Associates, Inc. Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division Jack C. Stimac - BB&T Capital Markets, Research Division Jeffrey Matthews - RAM Partners, L.P. Shawn M. Harrison - Longbow Research LLC Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division Richard Wesolowski - Sidoti & Company, LLC Presentation Operator
The format of today's call will first be an overview by Brian Robinson of our third quarter results. Secondly, Greg Kenny will provide comments on the company's fourth quarter 2011 outlook and business trends, followed by a question-and-answer period.Before we get started, I wanted to call your attention to our Safe Harbor provision regarding forward-looking statements and company-defined non-GAAP financial measures as defined on Slide #2 as we may refer to adjusted operating income and adjusted EBITDA in today's call. To begin, please turn to Slide #5, where we have included a reconciliation of our previously communicated outlook provided on August 1. With that, I will turn the call over to Brian Robinson. Brian J. Robinson Thank you, Len. Good morning. Third quarter operating results were broadly in lined with the low end of our seasonally adjusted expectations in North America and ROW while Europe and Mediterranean lagged our expectations as market conditions remained challenging throughout the region. Overall, underlying demand in most markets remained stable and consistent with historical seasonal patterns despite the impact of declining metal prices, the decline of which accelerates in the final 15 days of the quarter, resulting in lower-than-expected volumes in ROW as some distributors and rod customers deferred purchases. The combination of a weak Europe and Mediterranean region and volatile metals at the end of the quarter negatively impacted net sales, metal pounds sold and seasonal inventory quantity reductions as compared to our earlier communication. On the next slide, we reported adjusted earnings per share of $0.33, which exclude $0.10 per share of non-cash convertible debt interest expense and $0.16 of mark-to-market losses on derivative -- on financial derivatives accounted for as economic hedges. The company would have reported earnings per share of $0.69 in the third quarter after the impact of $0.23 per share of losses due to currency volatility and $0.13 per share as a result of cumulative impact of the effective tax rate adjustment, which were not in our August 1 outlook. As you can see, the significant volatility experienced during the latter portion of the quarter had a pronounced impact on our results as we recorded other expense of $31.5 million: $12.9 million relate to mark-to-market losses on economic hedges and $18.6 million related to foreign currency transaction losses.
The impact of this currency and commodity volatility in part was a revision to our full year effective tax rate due to the revised full year earnings mix, which resulted in a cumulative year-to-date tax expense adjustment in the third quarter. For the fiscal month just ended last Friday, October 28, approximately $12 million of the $31.5 million of other expense has been recovered due to improvements in metals and currencies since the end of the third quarter.Turning to Slide #7. We chart the movement of copper and aluminum to illustrate the volatility experienced during the quarter. Copper prices declined sharply at the end of the third quarter to $3.15 per pound, a net drop of 30% from the quarterly high of $4.47 per pound established in July and a 20% decline over the final 15 days of the quarter. As you can see, aluminum prices followed a very similar trend, which is not inconsequential, particularly from a top line perspective as a mix of aluminum-based product shipments increases as our aerial transmission businesses in Brazil and North America continue to grow. Consistent with what we said in the past, we believe this extreme volatility affect the buying behavior of some distributors in the third quarter. In addition, certain rod mill customers in ROW deferred purchases in the final days of the quarter, waiting for copper to settle. As of this fiscal month ended October 28, copper prices closed at $3.70 a pound, which represents an increase of 17% from the end of the third quarter. Read the rest of this transcript for free on seekingalpha.com