(BUSINESS WIRE) General Cable Corporation (NYSE: BGC) reported today results for the second quarter ended June 28, 2013. Adjusted operating income was above management’s expectations for the second quarter as pricing held up better than anticipated in a declining metal cost environment and the Company’s Europe and Mediterranean businesses performed relatively stronger. Excluding certain items, adjusted earnings per share of $0.69 and adjusted operating income of $84.5 million were stronger than anticipated. For the second quarter, reported operating income was $71.8 million and reported earnings per share were $0.24. A reconciliation of adjusted earnings per share to reported earnings per share and adjusted operating income to reported operating income is included on page 4 of this press release.
Highlights
Adjusted operating income, including acquisitions, improved 83% sequentially
Supplied medium-voltage submarine power cables for two projects in the North Sea
Sharp sequential demand improvement in Asia Pacific, Latin America and Europe
Repurchased $19.0 million, or about 1% of common shares during the second quarter under the terms of the Company’s $125 million Share Repurchase Program and initiated a quarterly dividend at $0.18 per share
Second Quarter Results
Sequentially, net sales in the second quarter of 2013 increased $180.9 million to $1,645.9 million, or 12% on a metal-adjusted basis as compared to the first quarter of 2013. This increase is principally due to seasonal demand and a greater mix of copper-based product shipments. Sequentially, adjusted operating income for the second quarter of 2013 was up $38.3 million, or 83% compared to $46.2 million in the first quarter of 2013. Helping to mitigate the impact of selling higher average cost inventory into a lower metal price environment in the second quarter were improved adjusted operating results in Venezuela and Europe as well as the benefit of seasonal demand patterns in the Americas. Asia Pacific remains a source of ongoing strength principally due to construction and electrical infrastructure investments in Thailand and the Philippines.
Gregory B. Kenny, President and Chief Executive Officer of General Cable, said, “Adjusted operating results exceeded our expectations for the second quarter of 2013 despite persistent metal cost headwinds due to selling higher average cost inventory into a lower metal price environment. Excluding acquisitions and aerial transmission projects in North America and Brazil, global unit volume improved sequentially 7% as seasonal demand and construction activity as well as reliability and reinforcement work by electric utilities increased as compared to the first quarter of 2013. Despite a sharp improvement in seasonal demand, unit volume was below expectations in some businesses in North America and ROW as were metal intensive aerial transmission product shipments in North America. In Europe and Mediterranean, demand improved sequentially 8% in the second quarter of 2013, which was consistent with our expectations. Overall, seasonally adjusted demand remains relatively flat in most of our major markets but we are encouraged by the continued strong financial performance of our recent acquisitions in the U.S., Canada and China. We are also encouraged by the progress in our submarine power turnkey project business in Europe as well as Spain, both of which performed better than expected in the second quarter.”
The following comparisons reflect volume as measured in metal pounds sold in the Company’s base businesses (excluding acquisitions completed in 2012):
In North America, volume increased 10% in the second quarter of 2013 compared to the first quarter of 2013. Demand for electrical infrastructure and specialty cables in the second quarter of 2013 was stable as compared to the first quarter of 2013 while utility cable demand rose seasonally.
In ROW, volume increased 13% in the second quarter of 2013 compared to the first quarter of 2013. In Venezuela, the political and economic uncertainty as well as the extended statutory leave requirements that hampered activity throughout the country in the early part of the year subsided as construction and electrical infrastructure investment accelerated during the second quarter of 2013. In Brazil, unit volume improved in the second quarter of 2013 as the next phase of aerial transmission projects began to ship in the latter part of the quarter as did products from the Company’s start-up specialty cable business.
In Europe and Mediterranean, volume increased 8% in the second quarter of 2013 compared to the first quarter of 2013 principally due the seasonal improvement in the Company’s submarine turnkey project business. During the second quarter of 2013, the Company made meaningful progress on its submarine turnkey project backlog as installation activity increased and production advanced on other projects. The Company’s turnkey project backlog was around $550 million at the end of the second quarter; evenly split between submarine and land-based turnkey cable projects. Putting aside volume attributable to the Company’s submarine turnkey project business, unit volume improved 2% as compared to the first quarter of 2013 driven principally by seasonal demand in France and higher unit volume in Spain driven by stronger exports.
Other expense was $15.6 million in the second quarter of 2013, which primarily consists of $19.9 million of mark to market losses on derivative instruments accounted for as economic hedges, which are used to manage currency and commodity risk principally on the Company’s project business globally, and $4.3 million of foreign currency transaction gains. The foreign currency transaction gains are principally the result of authorization received in Venezuela to purchase copper at a 4.3 Bolivars to each US Dollar exchange rate. The Company received this authorization prior to the currency devaluation on February 13, 2013. The Company expects to report a gain of approximately $4.5 million in the third quarter of 2013 for copper purchases in Venezuela that were approved prior to the devaluation.
Liquidity
Net debt was $1,086.1 million at the end of the second quarter of 2013, an increase of $37.9 million from the end of the first quarter of 2013. The increase in net debt is principally the result of higher working capital requirements due to normal seasonal trends as well as funding used for share repurchases and the Company’s newly initiated dividend. The Company continues to maintain adequate liquidity to fund operations, internal growth, and continuing product and geographic expansion opportunities as well as its share repurchase program and quarterly dividend.
The Company repurchased approximately 1% of its common shares, or $19.0 million, during the second quarter under its $125 million Share Repurchase Program authorization, which expires at the end of 2013. The Company will continue to utilize this buyback authority in the context of economic conditions as well as the then prevailing market price of the common stock of the Company, regulatory requirements, and alternative capital investment opportunities. In addition, on June 28, 2013 the Company paid a quarterly dividend of $0.18 a share, or $8.9 million, to all holders of the Company’s common stock of record as of June 10, 2013. The quarterly dividend is the first for the Company since 2002. On July 30, 2013, the Company’s Board of Directors declared a quarterly dividend payable of $0.18 per share payable on September 6, 2013 to all holders of the Company’s common stock of record at the close of business on August 19, 2013.
Taxes
The Company’s adjusted effective tax rate for the second quarter of 2013 was approximately 45%, which reflects a relative greater mix of earnings in higher tax jurisdictions and the impact of full year forecasted tax losses in certain countries and other certain quarter-discrete items. As a result, the Company expects its full year adjusted effective tax rate also to be in the range of 45%.
Preferred Stock Dividend
In accordance with the terms of the Company’s 5.75% Series A Convertible Redeemable Preferred Stock, the Board of Directors has declared a regular quarterly preferred stock dividend of approximately $0.72 per share. The dividend is payable on August 24, 2013 to preferred stockholders of record as of the close of business on July 31, 2013. The Company expects the quarterly dividend payment to be less than $0.1 million.
Full Year 2013 and Third Quarter 2013 Outlook
“Our overall business feels a bit more sluggish than we previously anticipated. In addition, metal prices have fallen materially over the last couple of months perhaps causing some customers, particularly distributors, to work down inventory. Global unit demand is now expected to improve approximately 8% in the second half of 2013 compared to the first half of 2013. Despite a challenging operating environment burdened by declining metal prices, adjusted operating income is expected to improve approximately 14% in the second half of 2013 as compared to the first half of the year. In addition to daily execution and working capital management, we are focused on getting a positive return on our recent capital investments such as subsea cable and greenfields in the developing world. Our view of the intermediate and long-term demand growth drivers in the Company’s key end markets in North America and ROW is unchanged. We are well positioned to benefit from the growth trends, energy and infrastructure related investments and construction activity in these markets,” Kenny concluded.
Copper and aluminum spot prices as of July 30, 2013 have declined approximately 6% and 9%, respectively, from the Company’s previous forward-looking metal price assumptions of $3.23 and $1.00, respectively. As a result of the current demand environment and the ongoing near-term metal cost headwind, the Company now expects adjusted operating income to be in the range of $270 to $290 million for 2013 on 1.3 to 1.35 billion metal pounds sold. At the midpoint, adjusted operating income and global unit volume over the second half of 2013 are expected to improve approximately 14% and 8%, respectively, as compared to the first half of 2013.
The Company’s third quarter revenues are expected to be in the range of $1.6 to $1.65 billion on low to mid-single digit volume improvement sequentially. The Company expects adjusted operating income to be in the range of $70 to $80 million. Adjusted earnings per share are expected to be in the range of $0.50 to $0.60 per share before the impact of non-cash convertible debt interest expense and mark to market gains or losses on derivative instruments. The Company’s outlook assumes copper and aluminum spot prices of $3.04 and $0.91 as of July 30, 2013. The benefit of slightly stronger sequential demand is expected to be burdened by the impact of selling higher average cost inventory into a lower metal price environment and planned seasonal inventory quantity reductions globally as well as lower operating profit in Venezuela following the strong spending experienced in the second quarter of 2013.
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Contacts
General Cable Corporation
Len Texter, Vice President, Investor Relations, 859-572-8684
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