Company Overview

Encore Wire Corporation manufactures copper and aluminum electrical wires and cables. The company has a substantial inventory to meet customer delivery requirements promptly. It provides longer payment terms to customers compared to what it receives from suppliers. This requires having sufficient cash and access to capital to finance working capital needs. The company has historically satisfied liquidity and capital needs through cash from operations and debt arrangements.

Recent Developments

On April 14, 2024, Encore Wire announced it has entered into an agreement to be acquired by Prysmian S.p.A. in a transaction valued at approximately $3 billion. Under the terms of the agreement, Encore Wire shareholders will receive $290 per share in cash, plus an additional amount if the deal closes after April 14, 2025. The transaction is expected to close in the second half of 2024.

First Quarter 2024 Financial Results

• Net sales decreased 4% to $632.7 million compared to $660.5 million in first quarter 2023
  • Copper unit volume increased 19.7% but average selling prices decreased 16.2%
• Gross profit margin declined from 31.1% to 21.5%
  • Lower average selling prices combined with only a 5% decrease in average copper costs
• Net income decreased 47% to $63.3 million or $3.92 per share
• Increase in total raw material costs and overhead expenses as a percentage of sales

Liquidity and Capital Resources

• Operating cash flow was $86.1 million compared to $126.9 million in first quarter 2023
  • Lower net income and smaller decreases in accounts receivable and inventory
• Capital expenditures increased to $34.1 million from $31.8 million
• Cash balance declined to $614.1 million from $697.4 million on March 31, 2023
• Expects continued investments in manufacturing equipment and expansion projects

Analysis

Encore Wire’s first quarter financial performance reflects difficult industry conditions with lower average selling prices squeezing profit margins. However, the company continues to invest in expanding production capacity to drive future growth. The pending acquisition by Prysmian S.p.A. will provide additional resources and capabilities to strengthen Encore Wire’s competitive position. Key focus areas going forward include maintaining low costs, providing exceptional customer service and quickly delivering complete orders.