Encore Wire's Q3 2016 margins hit by decline in aluminium wire sales in the US market

Noted electrical wire manufacturer and supplier Encore Wire Corporation announced financial results for the third quarter of 2016-17 fiscal year. The unit volumes were up one per cent in copper pounds shipped and four per cent aluminium pounds shipped over the third quarter of last year. Margins, however, declined in both copper and aluminium wire sales.

According to the Texas based company's Q3 disclosure, the margin declines were due to the competitive pricing environment in the industry.

One of the key metrics to Encore's earnings is the spread between the price of aluminium wire sold and the cost of raw aluminium purchased in any given period. The company's aluminium spreads were down 17.9 per cent in Q3 2016 versus Q3 2015 and 3.6 per cent in Q3 2016 versus the Q2 2016.



Commenting on the results, CEO Daniel Jones said, "One of our largest competitors announced the purchase of a smaller competitor during the quarter and while these industry consolidations generally lead to better industry margin discipline in the long term, in the short term it can lead to erratic pricing if the selling company pumps sales volumes into the market pre-sale and dumps remaining inventory post-sale.

"In addition, we believe a different, financially stressed competitor, has been acting erratically in the aluminium wire market. We believe both of these factors have impacted our spreads negatively."

The copper and aluminium wire manufacturer also took a non-recurring write down of assets in the quarter that affected EPS by $0.05 per share.

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On the future outlook of the residential, commercial and industrial wire industry, Jones said, "Based on discussions with our distributor customers and their contractor customers, we believe there is a good outlook for construction projects for next year, although we are steering through headwinds generated by the concern about the political landscape going forward."

"As orders come in from electrical contractors, the distributors can count on our order fill rates to ensure quick deliveries coast to coast."