Anixter International Management Discusses Q2 2012 Results - Earnings Call Transcript

Anixter International (AXE)

Q2 2012 Earnings Call

July 24, 2012 10:30 am ET

Executives

Chris Kettmann - Senior Vice President

Theodore A. Dosch - Chief Financial Officer and Executive Vice President of Finance

Robert J. Eck - Chief Executive Officer, President, Director, Chief Executive Officer of Anixter Inc. and President of Anixter Inc

Analysts

Ryan Merkel - William Blair & Company L.L.C., Research Division

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Matthew S. McCall - BB&T Capital Markets, Research Division

Steven Bryant Fox - Cross Research LLC

Edward W. Wheeler - The Buckingham Research Group Incorporated

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Shawn M. Harrison - Longbow Research LLC

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

Brent D. Rakers - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good day, and welcome to the Anixter International's Second Quarter 2012 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Chris Kettmann for opening remarks and comments. Please begin when ready, Mr. Kettmann.

Chris Kettmann

Great, thank you. Good morning, and thank you all for joining us today to discuss Anixter's second quarter 2012 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; and Ted Dosch, Executive Vice President of Finance. After management completes their opening remarks, we will open the line for a 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, investigative and 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 than 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 Ted.

Theodore A. Dosch

Thank you, Chris. Good morning, and thank you, everyone, for joining us. Before I discuss our results for the quarter, I would like to quickly remind everyone of 3 significant transactions that occurred during the quarter, and more importantly, highlight the impact on our earnings and balance sheet. First, we announced and paid a $4.50 per share special dividend; second, we took advantage of the favorable credit market conditions in April to issue a 7-year $350 million bond, ultimately intended to fund the redemption of the February 2013 convertible notes; and third, we completed the strategic acquisition of Jorvex, an Electrical Wire & Cable distributor in Peru. These actions resulted in $600,000 of M&A-related operating expense, $3.2 million of incremental interest expense, a cash outlay of over $150 million for the special dividend and $56 million for the acquisition. There was no P&L impact in the second quarter from the acquisition as the deal was closed on the last day of the quarter. For the second quarter, we reported $1.28 earnings per diluted share as compared to $1.33 in the prior year quarter. While we experienced softness in our top line growth compared to our beginning of year expectations, the relative strength of our businesses in the face of weaker global activity can be attributed to our intense focus on helping our customers manage the cost and complexity of their supply chains, while minimizing working capital risks. In addition, I think it is important to note the headwind from both currency and copper in the second quarter of 2012 compared to the strong tailwind from both currency and copper in the prior year quarter. While currency and copper each contributed a positive 2% to revenue in the second quarter of 2011, currency and copper contributed an unfavorable 2% and 1%, respectively in the current quarter. In addition to the impact on revenue, a 15% drop in average copper prices year-on-year for the quarter reduced gross profit by $3.7 million and earnings per diluted share by $0.07.

For the second quarter, we recorded a 1% increase in year-on-year sales, resulting in the 10th consecutive quarter of sales growth. After adjusting for an estimated $17 million from the unfavorable effects of copper prices and $34 million of unfavorable foreign exchange effects, organic sales grew by 4% over the prior year period. During the quarter, we saw year-on-year growth in all 3 of our end markets, as well as all 3 geographic regions, including Europe despite continued weak macroeconomic conditions in that region. The 4% sequential increase in sales was somewhat less than the longer term historical trend, primarily due to a stronger U.S. dollar, less favorable copper effects, as well as softer project business.

Similar to recent quarters, our positive sales results reflect the success of our global strategic growth initiatives, which were partially offset by the impact of the relatively weak global macroeconomic factors that continue to persist.

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