Houston Wire & Cable Company (NASDAQ:HWCC) (the “Company”)
announced operating results for the fourth quarter and year ended
December 31, 2017.
Selected quarterly results were:
- Sales of $82.1 million up 18.6% over 2016
- Gross margin of 25.4% up 360 basis points
- Operating income of $3.0 million compared to a loss of $(1.6)
million in 2016
- Net income of $2.0 million compared to a net loss of $(1.8)
million in 2016
- Diluted EPS of $0.12
Selected annual results were:
- Sales of $317.7 million, up 21.4%
- Gross margin of 22.9% up 270 basis points
- Operating income of $4.6 million compared to a loss of $(6.5)
million in 2016, of which $2.4 million was attributable to an
impairment charge,
- Net loss of $(0.2) million compared to a net loss of
$(6.0) million in 2016
- Diluted EPS of $(0.01)
Fourth Quarter Summary Jim Pokluda, President
and Chief Executive Officer commented, “We are pleased that the
upward momentum we experienced in the third quarter continued in
the fourth quarter. Although not unexpected, demand in the latter
part of the quarter fell in line with the normal lackluster
historical trend for this time of year. We estimate that
higher metals prices in 2017 represented approximately 7% of the
increase in sales. We estimate sales for our project business,
which targets end markets for Utility Power Generation,
Environmental Compliance, Engineering & Construction,
Industrials, and Mechanical Wire Rope, increased 33%, while
Maintenance, Repair, and Operations (MRO) sales increased 16%, as
compared to the fourth quarter of 2016.
Gross margin at 25.4% increased 360 basis points from the fourth
quarter of 2016, primarily due to incrementally higher product
margins driven by continued pricing discipline, prudent purchasing,
and metals inflation. Sequentially, gross margin increased
250 basis points, which is indicative that our margin improvement
plan is working. Operating expenses at $17.9 million were up
$1.2 million or 7.0% from the prior year period, primarily due to
higher variable compensation, as sales and profitability improved,
and to higher distribution labor costs to handle the volume
increase. Operating expenses as a percentage of revenue decreased
230 basis points from 24.1% in Q4 2016 to 21.8% in Q4 2017.
Interest expense of $0.6 million was up 48.2% from $0.4 million
in the prior year period, primarily due to the additional debt
incurred to fund the 2016 Vertex acquisition and additional funds
for working capital to service the higher activity levels.
Average debt levels for the quarter increased 19.8% from
$62.8 million in 2016 to $75.3 in 2017, while the effective
interest rate increased from 2.4% in 2016 to 3.0% in 2017.
The effective tax rate for the quarter was 16.4%, which included
a credit for a valuation allowance of 43.7% and additional deferred
tax expense of 13.7%, both due to the impact of the Tax Cuts and
Jobs Act (“the Act”).
Mr. Pokluda further commented, “We are encouraged that we have
now experienced two quarters of increased sales and improved
operating performance. A full year of Vertex activities,
coupled with increasing contributions from our commercial products
lines and generally higher demand for our products and services,
all contributed to these improved results.”
Twelve Month SummarySales for the twelve month
period were $317.7 million, up 21.4% from the $261.6 million level
in 2016. We estimate that higher metals prices in 2017 represented
approximately 3% of the revenue increase. We estimate sales
for our project business, increased 3%, while MRO sales increased
15%, as compared to 2016.
Gross margin at 22.9% was up 270 basis points from the 2016
period. “Improved pricing discipline, higher product margins
from Vertex for a full year in 2017, and greater customer product
demand, contributed to the margin increase” said Mr. Pokluda.
Operating expenses at $68.1 million increased 14.4% from the
prior year amount of $59.5 million. The majority of the increase
was due to a full year of Vertex’s operating expenses in 2017, as
compared to only three months in 2016, partially offset by the
absence in 2017 of the $2.4 million impairment charge recorded in
2016. Operating expenses as a percentage of revenue decreased 130
basis points from 22.7% in 2016 to 21.4% in 2017.
Interest expense of $2.1 million increased 145% from $0.8
million in 2016 due primarily to higher debt levels and an increase
in average interest rates which moved from 2.0% in 2016 to 2.8% in
2017.
The full year effective tax rate of 108.8% included a 41% charge
for a valuation allowance on deferred tax assets not currently
expected to be realized, 15.2% for stock compensation expense and
12.9% for deferred tax assets in respect of the Act rate
change.
The results of operations generated a net loss of $0.2 million,
compared to a net loss of $6.0 million in 2016.
Conference CallThe Company will host a
conference call to discuss fourth quarter results today, Friday,
March 16, 2018, at 10:00 a.m., C.D.T. Hosting the call will
be James Pokluda, President and Chief Executive Officer and Nicol
Graham, Vice President and Chief Financial Officer.
A live audio web cast of the call will be available on the
Investor Relations section of the Company’s website
www.houwire.com.
Live call dial-in numbers are as follow:Toll-Free: (800)
936-7954International: (720) 545-0048Conference ID # 5139879
Approximately two hours after the completion of the live call, a
telephone replay will be available until March 23, 2018.
Replay, Toll-Free #: (855)859-2056 Replay, Toll #: (404)
537-3406 Conference ID # 5139879
About the Company
With over 40 years’ experience in the industry,
Houston Wire & Cable Company, an industrial distributor, is a
large provider of products in the U.S market. Headquartered in
Houston, Texas, the Company has sales and distribution facilities
strategically located throughout the United States.
Standard stock items available for immediate
delivery include continuous and interlocked armor cable;
instrumentation cable; medium voltage cable; high temperature wire;
portable cord; power cable; primary and secondary aluminum
distribution cable; private branded products, including LifeGuard™,
a low-smoke, zero-halogen cable; mechanical wire and cable and
related hardware, including wire rope, lifting products and
synthetic rope and slings; corrosion resistant fasteners, hose
clamps, and rivets.
Comprehensive value-added services include
same-day shipping, knowledgeable sales staff, inventory management
programs, just-in-time delivery, logistics support, customized
online ordering capabilities and 24/7/365 service.
Forward-Looking Statements
This release contains comments concerning
management’s view of the Company’s future expectations, plans and
prospects that constitute forward-looking statements for purposes
of the safe harbor provisions under the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that
forward-looking statements are inherently uncertain and projections
about future events may, and often do, vary materially from actual
results.
Other risk factors that may cause actual results to differ
materially from statements made in this press release can be found
in the Company’s Annual Report on Form 10-K and other documents
filed with the SEC. These documents are available under the
Investor Relations section of the Company’s website at
www.houwire.com.
Any forward-looking statements speak only as of
the date of this press release and the Company undertakes no
obligation to publicly update such statements.
Houston Wire & Cable
CompanyConsolidated Balance Sheets (In
thousands except, share data)
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts
receivable, net |
|
$ |
57,396 |
|
|
$ |
44,677 |
|
Inventories, net |
|
|
88,115 |
|
|
|
79,783 |
|
Income
taxes |
|
|
449 |
|
|
|
1,948 |
|
Prepaids |
|
|
1,938 |
|
|
|
570 |
|
Total current
assets |
|
|
147,898 |
|
|
|
126,978 |
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
11,355 |
|
|
|
11,261 |
|
Intangible assets,
net |
|
|
12,015 |
|
|
|
13,378 |
|
Goodwill |
|
|
22,353 |
|
|
|
22,770 |
|
Deferred income
taxes |
|
|
— |
|
|
|
892 |
|
Other assets |
|
|
418 |
|
|
|
591 |
|
Total assets |
|
$ |
194,039 |
|
|
$ |
175,870 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
stockholders’ equity |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Book
overdraft |
|
$ |
3,028 |
|
|
$ |
3,181 |
|
Trade
accounts payable |
|
|
8,449 |
|
|
|
8,406 |
|
Accrued
and other current liabilities |
|
|
16,823 |
|
|
|
13,248 |
|
Total current
liabilities |
|
|
28,300 |
|
|
|
24,835 |
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
73,555 |
|
|
|
60,388 |
|
Deferred income
taxes |
|
|
414 |
|
|
|
— |
|
Other long-term
obligations |
|
|
1,026 |
|
|
|
516 |
|
Total liabilities |
|
|
103,295 |
|
|
|
85,739 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized, none issued
and outstanding |
|
|
— |
|
|
|
— |
|
Common
stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952
shares issued: 16,491,181 and 16,457,525 shares outstanding at
December 31, 2017 and 2016, respectively |
|
|
21 |
|
|
|
21 |
|
Additional paid-in capital |
|
|
54,006 |
|
|
|
53,824 |
|
Retained
earnings |
|
|
97,336 |
|
|
|
97,550 |
|
Treasury
stock |
|
|
(60,619 |
) |
|
|
(61,264 |
) |
Total stockholders’
equity |
|
|
90,744 |
|
|
|
90,131 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders’ equity |
|
$ |
194,039 |
|
|
$ |
175,870 |
|
|
|
|
|
|
|
|
|
|
Houston Wire & Cable Company
Consolidated Statements of Operations (In thousands
except, share and per share data)
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
82,146 |
|
|
$ |
69,257 |
|
|
$ |
317,697 |
|
|
$ |
261,644 |
|
Cost of sales |
|
|
61,303 |
|
|
|
54,181 |
|
|
|
245,035 |
|
|
|
208,694 |
|
Gross profit |
|
|
20,843 |
|
|
|
15,076 |
|
|
|
72,662 |
|
|
|
52,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions |
|
|
9,923 |
|
|
|
8,474 |
|
|
|
36,570 |
|
|
|
29,369 |
|
Other
operating expenses |
|
|
7,413 |
|
|
|
7,412 |
|
|
|
28,716 |
|
|
|
24,714 |
|
Depreciation and amortization |
|
|
538 |
|
|
|
820 |
|
|
|
2,772 |
|
|
|
3,018 |
|
Impairment charge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,384 |
|
Total operating
expenses |
|
|
17,874 |
|
|
|
16,706 |
|
|
|
68,058 |
|
|
|
59,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,969 |
|
|
|
(1,630 |
) |
|
|
4,604 |
|
|
|
(6,535 |
) |
Interest expense |
|
|
581 |
|
|
|
392 |
|
|
|
2,073 |
|
|
|
845 |
|
Income before income
taxes |
|
|
2,388 |
|
|
|
(2,022 |
) |
|
|
2,531 |
|
|
|
(7,380 |
) |
Income taxes |
|
|
392 |
|
|
|
(196 |
) |
|
|
2,753 |
|
|
|
(1,374 |
) |
Net income |
|
$ |
1,996 |
|
|
$ |
(1,826 |
) |
|
$ |
(222 |
) |
|
$ |
(6,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.12 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
Diluted |
|
$ |
0.12 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
16,295,570 |
|
|
|
16,216,978 |
|
|
|
16,269,611 |
|
|
|
16,345,679 |
|
Diluted |
|
|
16,391,330 |
|
|
|
16,216,978 |
|
|
|
16,269,611 |
|
|
|
16,345,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared per
share |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Wire & Cable
CompanyConsolidated Statements of Cash
Flows(In thousands)
|
|
Year Ended December 31, |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
(222 |
) |
|
$ |
(6,006 |
) |
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Impairment charge |
|
|
— |
|
|
|
2,384 |
|
Depreciation and amortization |
|
|
2,772 |
|
|
|
3,018 |
|
Amortization of unearned stock compensation |
|
|
1,176 |
|
|
|
856 |
|
Provision
for doubtful accounts |
|
|
68 |
|
|
|
285 |
|
Provision
for inventory obsolescence |
|
|
34 |
|
|
|
93 |
|
Deferred
income taxes |
|
|
1,314 |
|
|
|
6 |
|
Other
non-cash items |
|
|
222 |
|
|
|
(116 |
) |
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(12,719 |
) |
|
|
4,019 |
|
Inventories |
|
|
(7,942 |
) |
|
|
10,483 |
|
Book
overdraft |
|
|
(153 |
) |
|
|
(517 |
) |
Trade
accounts payable |
|
|
38 |
|
|
|
896 |
|
Accrued
and other current liabilities |
|
|
3,571 |
|
|
|
2,473 |
|
Income
taxes |
|
|
1,499 |
|
|
|
(1,016 |
) |
Prepaid
expenses |
|
|
(1,368 |
) |
|
|
124 |
|
Other
operating activities |
|
|
368 |
|
|
|
147 |
|
Net cash provided by
operating activities |
|
|
(11,342 |
) |
|
|
17,243 |
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
|
|
Expenditures for property and equipment |
|
|
(1,769 |
) |
|
|
(1,319 |
) |
Proceeds
from disposals of property and equipment |
|
|
8 |
|
|
|
5 |
|
Cash paid
for acquisition |
|
|
193 |
|
|
|
(32,370 |
) |
Net cash used in
investing activities |
|
|
(1,568 |
) |
|
|
(33,684 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
|
|
|
Borrowings on revolver |
|
|
333,301 |
|
|
|
302,898 |
|
Payments
on revolver |
|
|
(320,133 |
) |
|
|
(281,698 |
) |
Proceeds
from exercise of stock options |
|
|
— |
|
|
|
— |
|
Payment
of dividends |
|
|
(81 |
) |
|
|
(2,495 |
) |
Purchase
of treasury stock |
|
|
(177 |
) |
|
|
(2,264 |
) |
Net cash used in
financing activities |
|
|
12,910 |
|
|
|
16,441 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
— |
|
|
|
— |
|
Cash at beginning of
year |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cash at end of
year |
|
$ |
— |
|
|
$ |
— |
|
Supplemental
disclosures |
|
|
|
|
|
|
|
|
Cash paid
during the year for interest |
|
$ |
1,961 |
|
|
$ |
728 |
|
Cash paid
during the year for income taxes |
|
$ |
64 |
|
|
$ |
233 |
|
CONTACT:
Nicol G. Graham
Chief Financial Officer
Direct: 713.609.2125
Fax: 713.609.2168
ngraham@houwire.com
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