Houston Wire & Cable Company (NASDAQ:HWCC) announced operating results for the third quarter ended September 30, 2016.
Selected quarterly results were:
- Sales of $65.2 million
- Net loss from operations of $1.4 million
- Cash flow from operations of $2.9 million
- Repurchased 92,000 shares
- Purchased Vertex Distribution on October 3, 2016
Third Quarter Summary
Jim Pokluda, President and Chief Executive Officer commented, “Industrial market conditions including the oil and gas industry did not improve during the third quarter as demand levels remained inconsistent. Sales decreased 16.7% or approximately 10% on a metals adjusted basis from the third quarter of 2015. We estimate that Maintenance, Repair and Operations (MRO) sales increased 1% or approximately 8% on a metals adjusted basis, while project sales decreased 52% or approximately 45% on a metals adjusted basis. There was a slight uptick in activity in the latter part of the quarter as overall transaction activity, measured by invoice count, rose 1.0% over the prior year period. While transaction activity was flat with the second quarter, sales increased 4.4% sequentially.”
Gross margin at 18.5% decreased 210 basis points from the third quarter of 2015 as market pricing remained intensely competitive and as freight and shrinkage costs increased while vendor rebates decreased due to continuing low activity levels. Operating expenses at $13.8 million were down $0.5 million or 3.5% from the prior year period, as we continued to drive our goal of disciplined expense management.
Interest expense of $0.1 million was down 45.6% from $0.2 million in the prior year period. Average debt levels decreased by 31.4% from $41.5 million in 2015 to $28.5 in 2016, while the effective interest rate decreased from 2.2% in 2015 to 1.7% in 2016.
The results of operations produced a net loss of $1.4 million, as compared to net income of $0.7 million in the prior year period.
Mr. Pokluda further commented, “The present sales levels continue to negatively impact our operating results and the savings realized from our operating expense reduction initiative cannot offset the reduced margin contribution from the lower sales. Our success in the expansion of our commercial product lines continues to contribute to sales and operating margins, but it cannot offset the impact of ongoing depressed industrial marketplace demand. Despite the difficult market conditions, I was pleased that we again achieved success in reducing our working capital investment, generating operating cash flow and reducing our debt to its lowest level since 2010. The reduction in our debt levels allowed us to complete the acquisition of Vertex Distribution in early October, which is the most recent example of our efforts to broaden our product offering to the industrial market. As we redirect our capital allocation through this platform expansion and the additional debt assumed, we are suspending the dividend. In addition, going forward we will take an opportunistic approach with regards to the stock buy-back program.”
Nine month summary
Sales for the nine month period were down 19.1% versus the prior year period and down approximately 11% on a metals adjusted basis. We estimate that MRO sales decreased 2% and project sales decreased 30%, in each case on a metals adjusted basis.
Gross margin at 19.7% was down 170 basis points from the 2015 period. “The depressed industrial market condition continues to put pressure on prices,” said Mr. Pokluda. Gross profit dollars decreased $12.9 million from $50.8 million in the prior year period.
Operating expenses decreased by 6.0% or $2.7 million. Excluding the $2.4 million impairment charge in the current year and the $3.0 million charge in the prior year, operating expenses decreased by 5.0% or $2.1 million in the current year period, principally due to lower facility costs from the facility rationalization, reduced commissions resulting from lower sales and gross margin, and lower employee related expenses.
Interest expense of $0.5 million decreased 37.0% from $0.7 million. Average debt levels decreased by 28.3% from $45.2 million in 2015 to $32.4 million in 2016, while interest rates fell from 2.1% in 2015 to 1.7% in 2016.
The results of operations generated a net loss of $4.2 million, compared to net income of $2.2 million in 2015.
The Company will host a conference call to discuss third quarter results today, Tuesday, November 8, 2016, at 10:00 a.m., C.S.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.
Approximately two hours after the completion of the live call, a telephone replay will be available until November 15, 2016.
Replay, Toll-Free #: 855-859-2056
Replay, Toll #: 404-537-3406
Conference ID # 4866565
About the Company
With over 40 years of experience in the industry, Houston Wire & Cable Company is one of the largest providers of wire and cable in the U.S. market. Headquartered in Houston, Texas, the Company has sales and distribution facilities strategically located throughout the nation.
Standard stock items available for immediate delivery include continuous and interlocked armor cable; instrumentation cable; medium voltage cable; high temperature wire; portable cord; power cables; primary and secondary aluminum distribution cables; 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.