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

Good morning. My name is Rachel, and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's Third Quarter 2011 Earnings Conference Call. This call is being recorded at the request of General Cable. [Operator Instructions] General Cable, you may begin your conference.

Len Texter

Good morning, everyone, and welcome to General Cable's Third Quarter 2011 Earnings Conference Call. I'm Len Texter, Manager of Investor Relations at General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer; Brian Robinson, our Chief Financial Officer; Bob Siverd, our General Counsel; Greg Lampert, our President and Chief Executive Officer of General Cable North America; and Patrick Gorman, our Vice President of General Cable North America Energy Market Strategy and Development.

Many of you have already seen a copy of our press release from last night. For those of you who have not, it is available on First Call and on our website at generalcable.com. Today's call will be accompanied by a slide presentation, also available on our website. If you have not downloaded a copy, we recommend that you do so as we will refer to the presentation throughout our prepared remarks today.

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.

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