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Anixter Announces Record Breaking 1Q Earnings

Anixter Announces Record Breaking 1Q Earnings

GLENVIEW, Ill. — Anixter International Inc. reported sales of $1.9 billion for the quarter ended March 31, 2017, a 4.4% increase compared to the prior year quarter. Organic sales increased 4.0% year-over-year, excluding the impact of the following items:

  • $14.9 million favorable impact from the higher average price of copper
  • $8.3 million unfavorable impact from the fluctuation in foreign currencies

The current quarter had 64 billing days, compared to 65 billing days in the first quarter of 2016. Excluding the unfavorable impact from one less billing day, organic sales increased 5.6% versus prior year.

All commentary in this release reflects results from continuing operations unless otherwise noted. Please refer to the tables at the end of this release for the reconciliations from our reported results prepared in accordance with U.S. GAAP to the non-GAAP measures.

Net income of $30.9 million includes amortization of intangible assets expense of $9.0 million pre-tax and $6.1 million after-tax. Net income of $23.2 million in the first quarter of 2016 includes amortization of intangible assets and acquisition and integration costs which together had an $11.9 million pre-tax and $7.4 million after-tax impact.

Excluding the impact of the above items, first quarter 2017 adjusted net income of $37.0 million compares to $30.6 million in the prior year quarter, a 20.7% increase.

Diluted earnings per share of $0.91 compares to $0.70, and adjusted diluted earnings per share of $1.09 compares to $0.92, both versus the prior year quarter.

Adjusted EBITDA increased 7.5% to $89.5 million, or 4.7% of sales, compared to prior year adjusted EBITDA of $83.3 million, or 4.6% of sales.

“First quarter 2017 year-over-year organic sales growth of 5.6% on a per day basis was our strongest sales growth since the fourth quarter of 2014, as our business continues to benefit from synergy initiatives and a slowly recovering industrial economy. We were pleased to deliver organic growth in all 3 segments and all 3 geographies, including 19.3% growth on an organic, per day basis in our EMEA geography,” commented Bob Eck, President and CEO. “Sales in our Network & Security Solutions segment increased by 5.8%, marking 14 consecutive quarters of sales growth, while our Electrical and Electronic Solutions segment delivered 4.0% growth and our Utility Power Solutions segment delivered strong 7.4% growth, each year-over-year on an organic, per day basis.”

Income Statement Detail

Gross margin of 20.0% compares to 20.4% in both the prior year quarter and the fourth quarter of 2016. The majority of the change versus both prior periods was driven by customer mix combined with segment mix.

Operating expense of $310.7 million, or 16.4% of sales, compares to prior year operating expense of $310.5 million, or 17.1% of sales. Excluding current quarter expense of $9.0 million and first quarter 2016 expense of $11.9 million, as detailed above, first quarter 2017 adjusted operating expense of $301.7 million compared to $298.6 million in the prior year quarter. Current quarter adjusted operating expense of 15.9% of sales compared to 16.4% of sales in the first quarter of 2016, driven primarily by expense reduction initiatives and leveraging growth in the business.

Operating income of $69.0 million, or 3.6% of sales, compares to $60.3 million, or 3.3% of sales, in the prior year quarter. Excluding operating expense items outlined above, first quarter 2017 adjusted operating income increased 8.0% to $78.0 million compared to $72.2 million in the first quarter of 2016. Adjusted operating margin increased 10 basis points to 4.1% compared to 4.0% in the prior year quarter.

Interest expense of $18.9 million compares to $20.1 million in the prior year quarter, reflecting our focus on decreasing debt with the strong cash flow we continue to generate. Foreign exchange and other expense of $0.2 million compares to $2.8 million in the prior year quarter.

Our first quarter 2017 U.S. GAAP effective tax rate was 38.1% versus 37.9% in the first quarter of 2016 and our non-GAAP rate of 37.2% in the current quarter compared to 37.9% in the first quarter of 2016, driven primarily by the country mix of earnings.

Segment Update

Network & Security Solutions (“NSS”) sales of $984.9 million increased by 3.8% over the prior year period, driven by broad-based growth in the business. Adjusting for the $3.9 million unfavorable impact from foreign exchange, NSS organic sales increased 4.2%, a 5.8% increase on a per day basis.

First quarter NSS security sales of $398.4 million, which represents approximately 40% of segment sales, increased 2.2% from the prior year quarter. Adjusted for the $1.8 million negative currency impact, organic security sales growth was 2.7%.

NSS operating income of $61.8 million compares to $58.8 million in the first quarter of 2016 and $77.2 million in the fourth quarter of 2016. NSS adjusted EBITDA of $66.6 million increased 4.3% versus the first quarter of 2016. The corresponding adjusted EBITDA margin of 6.8% compares to 6.7% in the prior year quarter and 7.9% in the fourth quarter of 2016.

Electrical & Electronic Solutions (“EES”) sales of $527.4 million compares to $506.0 million in the prior year period, an increase of 4.2%. Adjusted for the $5.7 million unfavorable impact from foreign exchange and the $14.7 million favorable impact from higher average copper prices, EES organic sales increased 2.4%, a 4.0% increase on a per day basis, driven by synergies and the slowly recovering industrial economy.

EES operating income of $27.9 million compares to $22.5 million in the prior year quarter and $22.4 million in the fourth quarter of 2016. The 23.8% increase in operating income versus prior year was driven by strong sales growth, combined with ongoing expense discipline, resulting in improved profitability in the business.

EES adjusted EBITDA of $30.4 million increased 19.7%, from $25.4 million in the prior year period, and compares to $25.6 million in the fourth quarter of 2016. The corresponding current quarter adjusted EBITDA margin of 5.8% compares to 5.0% in the prior year period and 5.1% in the fourth quarter of 2016.

Utility Power Solutions (“UPS”) sales of $383.5 million compares to $361.1 million in the prior year period, an increase of 6.2%. Adjusted for the $1.3 million favorable impact from foreign exchange and the $0.2 million favorable impact from higher average copper prices, UPS organic sales increased 5.8%, a 7.4% increase on an organic per day basis, driven by synergistic sales to service a new investor-owned utility customer.

UPS operating income of $16.2 million compares to $14.3 million in the prior year quarter and $14.6 million in the fourth quarter of 2016. The 13.9% increase in operating income versus prior year was driven by strong sales growth combined with ongoing expense discipline.

UPS adjusted EBITDA of $20.9 million compares to $20.1 million in the prior year quarter and $19.2 million in the fourth quarter of 2016. The corresponding adjusted EBITDA margin of 5.5% compares to 5.6% in the prior year quarter and 5.5% in the fourth quarter of 2016.

Cash Flow and Leverage

We generated $51.5 million in cash flow from operations in the first quarter of 2017, which compares to $65.2 million in the first quarter of 2016. The decrease reflects higher working capital investment to support an acceleration in sales growth, partially offset by stronger earnings. We are increasing our estimate of full year 2017 cash flow from operations to the range of $200 – $220 million. In the first quarter of 2017 we invested $8.6 million in capital expenditures, which compares to $7.0 million in the prior year period. For the full year we expect to invest $40 – $50 million in capital expenditures.

“Our solid financial performance, as highlighted by a 7.5% increase in adjusted EBITDA on a 4.4% increase in sales, underscores the operating leverage of our business. Meanwhile we remain focused on our strategic initiatives, including delivering on our synergy goals, continuing to improve our cost structure and working capital efficiency,” commented Ted Dosch, Executive Vice President – Finance and CFO. “We were pleased to deliver another quarter of strong cash flow from operations, enabling us to further reduce our debt. Turning to our capital structure, the strong free cash flow we are generating from our repositioned platform and working capital initiatives has enabled us to return our debt-to-capital ratio to our target range of 45 – 50% in the first quarter of 2017, ahead of our second half of 2017 target. We remain on track to return our debt-to-adjusted EBITDA ratio to our target range of 2.5 – 3.0 times by the end of the year.”

Key capital structure and credit-related statistics for the quarter:

  • Debt-to-total capital ratio improved to 49.9% from 51.6% at the end of 2016
  • Weighted average cost of borrowed capital of 5.2% compares to 4.7% in the prior year quarter
  • $571.4 million available under revolving lines of credit and secured accounts receivable and inventory facilities

Business Outlook

“We were pleased with our sales momentum in the first quarter, which reflected a slowly improving economic environment and solid execution of our growth initiatives. As we enter the second quarter of 2017, we are cautiously optimistic that the positive momentum we experienced in the quarter will continue, as we maintain our focus on our growth initiatives which include synergistic sales and global accounts,” commented Bob Eck. “Together with our current sales and backlog trends, and our conservative view of the macro environment, we expect second quarter 2017 organic sales growth in the 1.5 – 3% range. For the full year 2017 we have increased the midpoint of our outlook range by 100 basis points, and now expect full year organic sales growth in the 2 – 5% range.”

 

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