Distributors

Anixter Reports Record 4Q Sales

GLENVIEW, Ill. — Anixter International Inc. today reported sales of $2.0 billion for the quarter ended December 29, 2017, a 6.3% increase versus the prior year quarter. Organic sales increased 4.2%, excluding the impact of the following items:

  • $16.8 million favorable impact from the higher average price of copper
  • $22.5 million favorable impact from the fluctuation in foreign currencies

All commentary in this release reflects fourth quarter 2017 results from continuing operations, and all comparisons are versus the prior year quarter, 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. Both the current and prior year quarters had 62 billing days.

Net income of $0.4 million includes amortization and impairment of intangible assets and acquisition and integration costs, which combined had a $16.2 million pre-tax impact and an $11.8 million after-tax impact. Additionally, net income includes $35.6 million of tax expense related to the impact of recent U.S. tax legislation. Combined, these items had a $47.4 million after-tax impact.

Prior year net income of $36.8 million included amortization of intangible assets and acquisition and integration costs, which combined had a $9.8 million pre-tax and $7.6 million after-tax impact. Excluding the impacts of the above items, adjusted net income increased 7.8% to $47.8 million.

Adjusted EBITDA increased 6.3% to $108.1 million, resulting in an adjusted EBITDA margin of 5.4%, flat with the prior year quarter.

“Our sales growth was broad based, driven by strength in our EES and UPS segments, and including a return to growth in our NSS segment against a challenging prior year comparison,” commented Bob Eck, Chief Executive Officer. “For the full year, we delivered growth in all segments and geographies, including double digit growth in our EMEA and Emerging Markets regions, validating our belief that our specialized distribution model continues to deliver value to our customers and suppliers on a worldwide basis.”

Income Statement Detail

Gross margin of 19.8% compares to 20.4%. The year-over-year decline in margin was caused by customer and product mix, combined with the impact of lower vendor rebates and competitive pressure. On a sequential basis, gross margin increased by 10 basis points.

Operating expense of $318.0 million compares to $306.1 million. Excluding operating expense items as detailed above, adjusted operating expense of $301.8 million compares to $296.3 million, with the increase driven by higher volume. The corresponding adjusted operating expense ratio improved by 60 basis points to 15.0% of sales. On a sequential basis, adjusted operating expense decreased by 1.6% and adjusted operating expense ratio improved by 20 basis points.

Operating income of $80.4 million compares to $81.0 million. Excluding operating expense items as detailed above, adjusted operating income increased 6.6% to $96.6 million and the adjusted operating margin of 4.8% was flat. On a sequential basis, adjusted operating income increased 6.5% and adjusted operating margin improved by 30 basis points.

Fourth quarter U.S. GAAP effective tax rate (“ETR”) of 99.4% compares to 37.2%, the increase is primarily due to the impact of tax legislation recognized in the fourth quarter 2017. Fourth quarter non-GAAP ETR of 38.5% compares to 35.1%. Full year 2017 non-GAAP effective tax rate of 37.8% compares to our full year 2016 non-GAAP effective tax rate of 37.0%, with the difference due primarily to country mix of earnings.

Segment Update

Network & Security Solutions (“NSS”) sales of $1.1 billion compares to $1.0 billion. Adjusted for the $11.6 million favorable impact from foreign exchange, NSS organic sales were approximately flat. NSS security sales of $421.1 million, which represents approximately 40% of segment sales, increased 1.5%. Adjusted for the $5.3 million favorable currency impact, organic security sales increased 0.2%.

NSS operating income of $68.4 million compares to $77.2 million. Excluding $9.3 million of impairment of intangible assets and amortization of intangible assets in the current year, and $3.5 million of expense, primarily amortization of intangible assets, in the prior year, NSS adjusted operating income of $77.7 millioncompares to $80.7 million. NSS adjusted EBITDA of $79.4 million, or 7.6% of sales, compares to $81.9 million, or 7.9% of sales.

Electrical & Electronic Solutions (“EES”) sales of $581.6 million compares to $507.0 million. Adjusted for the $8.8 million favorable impact from foreign exchange and the $16.4 million favorable impact from higher average copper prices, EES organic sales increased 9.8%. The strong growth was driven by a recovery in North America industrial project activity, ongoing growth with OEM customers and synergistic growth from sales of low voltage products to legacy Anixter customers.

EES operating income increased 33.5% to $30.0 million. Excluding $2.0 million and $2.2 million of amortization of intangible assets, from current and prior year, respectively, EES adjusted operating income increased 30.7% to $32.0 million. EES adjusted EBITDA increased 29.0% to $33.0 million, with a corresponding improvement in adjusted EBITDA margin of 60 basis points. Strong adjusted EBITDA leverage of 2.0x was driven by increased volume combined with operating expense leverage.

Utility Power Solutions (“UPS”) sales of $381.3 million compares to $347.5 million. Adjusted for the $2.1 million favorable impact from foreign exchange and the $0.4 million favorable impact from higher average copper prices, UPS organic sales increased 9.0%.

UPS operating income increased 8.6% to $15.8 million. Excluding $3.4 million and $3.1 million of expense, primarily amortization of intangible assets, from current and prior year, respectively, UPS adjusted operating income increased 8.3% to $19.2 million. UPS adjusted EBITDA increased 6.8% to $20.5 million, or 5.4% of sales, compared to $19.2 million, or 5.5% of sales.

Cash Flow and Leverage

Full year cash flow from operations of $183.8 million compares to $279.1 million in 2016. The decrease is primarily due to higher working capital investment to support growth in the business. Our ongoing focus on our working capital efficiency drove a 40 basis point improvement to 18.4% of sales from the prior year quarter. Finally, we invested $41.1 million in capital expenditures in 2017, which compares to $32.6 million in 2016, reflecting higher capital investment in facilities and information technology.

“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 continue to generate, 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 continue to 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 46.1% from 51.6% at the end of 2016
  • Debt-to-adjusted EBITDA ratio improved to 3.1 times from 3.5 times at the end of 2016
  • Weighted average cost of borrowed capital of 5.6% compares to 5.1% at the end of 2016
  • $667.1 million available under revolving lines of credit and secured accounts receivable and inventory facilities

Business Outlook

“Full year 2017 organic sales growth on a per day basis of 3.5% was near the high end of our initial 2017 range and included growth in all segments and all geographies. We were especially pleased to deliver double digit organic sales growth in our UPS segment and in our EMEA and Emerging Markets geographies,” commented Bill Galvin, President and Chief Operating Officer. “Looking ahead, we are optimistic regarding our business based on multiple indicators. We experienced strong momentum in the fourth quarter, including a recovery in large capital project activity in our EES business, an improving backlog, and strong pipeline activity. The external environment remains favorable in all of our major geographies, reflected by broad favorable economic growth indicators across global markets. Additionally, we see the recent tax reform legislation as a potential catalyst for our customers to increase capital expenditures.”

We estimate the following impacts as a result of the recently passed Tax Cuts and Jobs Act:

  • $35.6 million expense recorded in the fourth quarter 2017 related to the impact of tax legislation which includes the following;
    • $50.0 million unfavorable transition tax on deferred foreign income, to be paid over 8 years; and
    • $14.4 million favorable rate change impact of net deferred tax liability
  • A 2018 effective tax rate in the 28.5% – 29.5% range.

For the full year 2018, we estimate organic sales growth of 2.0 – 5.0%, cash flow from operations of $180 – $200 million and capital expenditures of $60 – $70 million. For the first quarter of 2018, we estimate organic sales growth in the 2.0 – 3.0% range.

Tagged with

Comment on the story

Your email address will not be published.