Distributors

Anixter Misses Revenue Goal in 3Q Earnings

GLENVIEW, Ill. — Anixter International Inc. today reported sales of $2.0 billion for the quarter ended September 29, 2017, a 3.1% increase compared to the prior year quarter. Organic sales increased 1.5% year-over-year, excluding the impact of the following items:

  • $19.9 million favorable impact from the higher average price of copper
  • $11.1 million favorable impact from the fluctuation in foreign currencies

Both the current and prior year quarters had 63 billing days.

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 $37.6 million includes amortization of intangible assets, as well as acquisition and integration costs, which combined had a $9.9 million pre-tax and $6.6 million after-tax impact. Prior year third quarter net income of $40.3 million included amortization of intangible assets, acquisition and integration costs, and a favorable tax benefit, which combined had a $9.9 million pre-tax and $6.0 million after-tax impact. Excluding the impacts of the above items, adjusted net income of $44.2 million compares to third quarter 2016 adjusted net income of $46.3 million.

Diluted earnings per share of $1.11 compares to $1.20, and adjusted diluted earnings per share of $1.30 compares to $1.38, both versus the prior year quarter.

Current quarter adjusted EBITDA of $102.7 million, or 5.1% of sales, compares to $108.2 million, or 5.5% of sales, in the prior year quarter.

Year-to-date cash flow from operations was $110.1 million. Working capital was 18.2% of sales in the third quarter, a 40 basis point improvement from the prior year quarter, as we continue to focus on working capital efficiency.

“Third quarter 2017 year-over-year organic sales growth of 1.5% reflected continued strong organic growth in our Utility Power Solutions segment, as we continue to build our industry-leading utility distribution platform. Sales performance in our NSS and EES segments was impacted by a reduction in capital project spend in North America and disruption caused by hurricanes and earthquakes,” commented Bob Eck, Chief Executive Officer. “Driven by performance with our multi-national customers, we were pleased to deliver strong organic growth in both our EMEA and Emerging Markets regions for the third consecutive quarter, validating our belief that our specialized distribution model delivers value to our customers and suppliers on a worldwide basis. Our unique business model, differentiated by our global footprint, supply chain capabilities and technical expertise, positions us for sustainable growth as we help our customers reduce cost and complexity in their global supply chains.”

Income Statement Detail

Gross margin of 19.7% compares to 20.3% in the prior year quarter, and 19.8% in the second quarter of 2017. The year-over-year margin decline was due to customer, product and segment mix.

Operating expense of $316.2 million, or 15.7% of sales, compares to prior year operating expense of $309.4 million, or 15.8% of sales. Excluding current and prior year quarter expense of $9.9 million, detailed above, adjusted operating expense of $306.3 million compares to third quarter 2016 adjusted operating expense of $299.5 million. Current quarter adjusted operating expense was 15.2% of sales, a 10 basis point improvement versus 15.3% in the third quarter of 2016.

Operating income of $81.0 million, or 4.0% of sales, compares to $87.3 million, or 4.5% of sales, in the prior year quarter. Excluding operating expense items outlined above, third quarter 2017 adjusted operating income was $90.9 million compared to $97.2 million in the third quarter of 2016. Adjusted operating margin of 4.5% compares to 5.0% in the prior year quarter.

Interest expense of $18.9 million compares to $19.8 million in the prior year quarter, reflecting the ongoing reduction in debt. Foreign exchange and other income of $0.3 million compares to $2.1 million of expense in the prior year quarter.

Third quarter 2017 U.S. GAAP effective tax rate (“ETR”) of 39.7% compares to 38.4% in the third quarter of 2016. Third quarter 2017 non-GAAP ETR of 38.8% compares to 38.5% in the prior year quarter. Our year-to-date 2017 non-GAAP effective tax rate of 37.6% differs from our second quarter effective tax rate of 36.9% and 2016 effective tax rate of 37.7% primarily due to country mix of earnings. The higher non-GAAP tax rate in the third quarter negatively impacted adjusted EPS by $0.04.

Segment Update

Network & Security Solutions (“NSS”) sales of $1,049.2 million compares to $1,049.9 million in the prior year quarter. Adjusted for the $6.2 million favorable impact from foreign exchange, NSS organic sales decreased 0.7%, due to a reduction in large project activity and the impact of hurricanes and earthquakes, combined with strong project billings in the prior year quarter. On a sequential basis, sales increased 1.9%.

Third quarter NSS security sales of $437.5 million, which represents approximately 42% of segment sales, increased 4.0% from the prior year quarter. Adjusted for the $3.3 million favorable currency impact, organic security sales growth was 3.3%.

NSS operating income of $67.5 million compares to $74.9 million in the third quarter of 2016 and $64.9 million in the second quarter of 2017. NSS adjusted EBITDA of $72.3 million compares to $79.1 million in the prior year quarter and $69.8 million in the second quarter of 2017. The corresponding adjusted EBITDA margin of 6.9% compares to 7.5% in the prior year quarter and 6.8% in the second quarter of 2017.

Electrical & Electronic Solutions (“EES”) sales of $555.0 million compares to $535.1 million in the prior year quarter, an increase of 3.7%. Adjusted for the $3.3 million favorable impact from foreign exchange and the $19.6 million favorable impact from higher average copper prices, EES organic sales decreased 0.6%, as continued weakness in large industrial project activity and the impact of hurricanes offset ongoing growth with OEM customers and synergistic growth from sales of low voltage products to legacy Anixter customers.

EES operating income of $26.8 million compares to $28.7 million in the prior year quarter and $29.6 million in the second quarter of 2017. EES adjusted EBITDA of $29.7 million compares to $31.4 million in the prior year quarter and $32.8 million in the second quarter of 2017. The corresponding adjusted EBITDA margin of 5.4% in the current quarter compares to 5.9% in the prior year quarter and 5.8% in the second quarter of 2017.

Utility Power Solutions (“UPS”) sales of $412.2 million compares to $371.3 million in the prior year quarter, an increase of 11.0%. Adjusted for the $1.6 million favorable impact from foreign exchange and the $0.3 million favorable impact from higher average copper prices, UPS organic sales increased 10.5%, driven by synergistic sales to support a new investor owned electric utility customer and strong growth with existing investor-owned utility and public power customers.

UPS operating income of $19.8 million compares to $15.8 million in the prior year quarter and $21.3 million in the second quarter of 2017. UPS adjusted EBITDA of $24.8 million increased 17.7% from $21.1 million in the prior year quarter, and compares to $25.9 million in the second quarter of 2017. The corresponding adjusted EBITDA margin of 6.0% in the current quarter increased 30 basis points versus 5.7% in the prior year quarter, and compares to 6.3% in the second quarter of 2017. The performance of adjusted EBITDA and adjusted EBITDA margin versus the prior year quarter was driven by strong operating profit leverage.

Cash Flow and Leverage

We generated $110.1 million in cash flow from operations year-to-date through the third quarter of 2017, which compares to $238.6 million in the comparable year-ago period. The decrease is primarily due to higher working capital investment to support growth in the business. We continue our focus on improving working capital efficiency, further improving our efficiency level in the quarter to 18.2% of sales. We continue to estimate full year 2017 cash flow from operations in the range of $200 – $220 million. Year-to-date we have invested $30.9 million in capital expenditures, which compares to $24.9 million in the prior year period. For the full year we expect to invest $45 – $50 million in capital expenditures.

“In addition to our focus on our strategic initiatives, including delivering on our synergy goals, we continue to improve our cost structure and working capital efficiency,” commented Ted Dosch, Executive Vice President – Finance and CFO. “Turning to our capital structure, the strong free cash flow we are generating from our repositioned platform, combined with working capital initiatives, enabled us to return our debt-to-capital ratio to our target range of 45-to-50% in the first quarter of 2017 and we expect to reduce our debt-to-adjusted EBITDA below 3.0 times by early 2018.”
Key capital structure and credit-related statistics for the quarter:

  • Debt-to-total capital ratio improved to 46.6% from 51.6% at the end of 2016
  • Debt-to-adjusted EBITDA ratio improved to 3.2 times from 3.5 times at the end of 2016
  • Weighted average cost of borrowed capital of 5.4% compares to 4.7% in the prior year quarter
  • $685.9 million available under revolving lines of credit and secured accounts receivable and inventory facilities

Business Outlook

“Year-to-date, organic sales growth on a per day basis of 3.2% reflects strong 11.2% per day growth in our UPS segment, combined with low growth in both our NSS and EES segments. While industry growth in our end markets remains slow, especially in the US, we have experienced solid performance in our day-to-day business, in small and mid-sized projects, and in our international business. While the recovery in large capital project activity in North Americahas been slower than we expected, based on improving backlog trends and pipeline activity, we are cautiously optimistic that project activity will accelerate over the next several quarters,” commented Bill Galvin, President and Chief Operating Officer. “As we enter the final quarter of 2017, our focus remains on our growth initiatives which include global accounts, synergistic sales and new product initiatives. Reflecting our current sales and backlog trends through early October, we expect fourth quarter 2017 organic sales growth in the 2.5 – 3.5% range. For the full year 2017 we now expect organic sales growth on a per day basis in the 3.0 – 3.5% range.”

 

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