Distributors

Anixter Q4 Earnings and Revenues Top Estimates

AnixterGLENVIEW, Ill. — Anixter International Inc. today announced its results for the fourth quarter of 2018.

“Sales growth was above the mid-point of our outlook range, driven by the UPS segment, complex and global accounts customers, and our security business. In addition to strong sales growth, we were pleased to deliver meaningful improvement in gross margin, driven by actions we have implemented across the business,” commented Bill Galvin, President and Chief Executive Officer. “During the quarter we accelerated investment in innovation and business transformation, with a focus on customer-facing technologies that will enhance our digital capabilities and enterprise efficiencies. We are streamlining and standardizing our global business processes, making it easier and more efficient for our customers to engage with us anywhere in the world. In addition to the gross margin actions already taken, we expect our business transformation to deliver significant long term operating expense savings.”

The following results are for the 13 weeks ended December 28, 2018, compared to the 13 weeks ended December 29, 2017. Unless otherwise noted, all comparisons are versus the prior year quarter. Both the current and prior year quarters had 62 billing days.

  • Sales increased 5.2% to $2.1 billion. Current quarter sales include the favorable impact of the security acquisitions completed in the second quarter of 2018 and the unfavorable impacts of lower average copper prices and generally weaker foreign currencies. Adjusting for these impacts, organic sales increased 5.1%, as detailed in the table on page 9 of this release.
  • Gross profit increased 7.9% to $430.0 million. Gross margin of 20.3% increased by 80 basis points sequentially and 50 basis points year-over-year.
  • Operating expense of $342.7 million compares to $317.8 million. Operating expense ratio of 16.2% compares to 15.8%.
  • Operating income increased 8.3% to $87.3 million. Operating margin of 4.1% compares to 4.0%.
  • Interest expense of $19.8 million compares to $19.0 million.
  • Other, net expense of $7.6 million compares to $0.1 million. The change was driven by $4.6 million of expenses due to the loss on extinguishment of the $350 million of 5.625% Senior Notes due 2019.
  • The effective tax rate of 30.2% compares to 99.4%. The lower effective tax rate in the current quarter is due primarily to higher tax expense recorded in the fourth quarter of 2017 related to the Tax Cuts and Jobs Act of 2017.
  • Net income of $41.8 million compares to $0.4 million. The largest driver of the increase was driven by the 2017 tax expense noted above.
  • Earnings per diluted share of $1.22 compares to $0.01.
  • Full year 2018 cash flow from operations of $137.7 million compares to $183.8 million in 2017. The difference is due primarily to increased working capital investment to support growth in the business.
  • Full year 2018 capital expenditures of $42.4 million compares to $41.1 million in 2017. The increase is due to higher capital investment in facilities and innovation.
  • Working capital as a percentage of sales of 18.2% compares to 18.4%.

Non-GAAP Measures

  • Adjusted operating expense of $333.8 million compares to $301.6 million, up 10.7%. Adjusted operating expense ratio of 15.8% compares to 15.0%. The increase in adjusted operating expense is due to $7.4 million of incremental expense from the acquisitions and $7.2 million of investment in innovation and business transformation strategies, combined with higher volume and inflationary pressures, primarily from freight and medical costs.
  • Adjusted operating income of $96.2 million compares to $96.8 million. Adjusted operating margin of 4.5% compares to 4.8%.
  • Adjusted effective tax rate of 28.6% compares to 38.5%. The lower tax rate is driven by the impact of the Tax Cuts and Jobs Act of 2017.
  • Adjusted net income increased 9.5% to $52.4 million.
  • Adjusted diluted earnings per share increased 8.5% to $1.53.
  • Adjusted EBITDA of $108.5 million compares to $108.3 million. Adjusted EBITDA margin of 5.1% compares to 5.4%.

Segment Update

Network & Security Solutions (“NSS”) reported record fourth quarter sales of $1.1 billion, an increase of 6.4%, or 4.7% on an organic basis. NSS security sales of $499.5 million, which represents approximately 45% of segment sales, increased 18.5%. NSS operating income of $77.6 million compares to $68.4 million. NSS adjusted operating income increased 5.1% to $81.7 million. Adjusted EBITDA increased 5.2% to $83.5 million. Adjusted EBITDA margin of 7.5% compares to 7.6%.

Electrical & Electronic Solutions (“EES”) reported fourth quarter sales of $571.3 million, a reported decrease of 1.8% and an increase of 0.5% organically. EES operating income of $31.2 million compares to $30.0 million. EES adjusted operating income increased 1.9% to $32.7 million. Adjusted EBITDA increased 1.8% to $33.6 million. Adjusted EBITDA margin increased 20 basis points to 5.9%, driven by gross margin improvement from our initiatives.

Utility Power Solutions (“UPS”) reported record fourth quarter sales of $429.9 million, an increase of 12.7%, or 13.3% on an organic basis. UPS operating income of $21.2 million compares to $15.8 million. UPS adjusted operating income increased 28.1% to $24.6 million. Adjusted EBITDA increased 24.5% to $25.5 million. Adjusted EBITDA margin increased 50 basis points to 5.9%, driven by volume growth and strong operating leverage, resulting in adjusted EBITDA leverage of 1.9 times.

Capital Structure and Credit Metrics

In the fourth quarter we refinanced $350 million of 5.625% Senior Notes due 2019 with $250 million of 6.00% Senior Notes due 2025 and borrowings under our secured accounts receivable facility. We also extended the maturity of our secured accounts receivable and inventory facilities to 2023.

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

  • Debt-to-total capital ratio of 44.4%, compares to 46.1% at the end of 2017
  • Debt-to-adjusted EBITDA ratio of 3.0 times compares to 3.1 times at the end of 2017
  • Weighted average cost of borrowed capital of 5.5%, compares to 5.6% in the prior year quarter
  • $598.5 million available under secured accounts receivable, inventory facilities and revolving lines of credit

Outlook

Ted Dosch, EVP and Chief Financial Officer, commented, “As we look ahead to 2019, we are optimistic that favorable sales trends will continue, based on our record backlog, strong pipeline trends, and ongoing discussions with our customers and suppliers. The demand environment remains solid, tempered by uncertainty caused by economic policies and geopolitical issues. Based on current conditions, we estimate 2019 organic sales growth in the 3 – 6% range, with first quarter 2019 organic sales growth in the 3% – 5% range. Based on our outlook for low-to-mid single digit sales growth and the related investment in working capital to support that growth, combined with our ongoing investment in innovation and business transformation, we estimate cash flow from operations of $150 – $175 million and capital investment of $55 – $60 million.”

Galvin concluded, “As we turn to 2019, we are focused on the significant opportunity to leverage our unique set of products and innovative solutions across our global network. Through our customer access strategy, comprehensive and unique global services offerings, and initiatives in high growth markets, we are positioned for top line growth and market share gains. We are beginning to benefit from actions we are taking to improve gross margin, which will fund investment in innovation and still deliver operating margin expansion. Long term, we expect our investment in innovation to deliver significant benefits, with the ultimate goal of improving profitability, generating significant cash flow from operations and creating value for all of our stakeholders.”

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