GLENVIEW, Ill. — Anixter International Inc. reported sales of $1.9 billion for the quarter ended December 30, 2016, a 3.2% increase compared to the prior year quarter. Organic sales increased 4.0% year-over-year excluding the impact of the following items:
- $6.1 million favorable impact from the higher average price of copper
- $20.3 million unfavorable impact from the fluctuation in foreign currencies
The current quarter had 62 billing days, compared to 61 billing days in the fourth quarter of 2015, which ended on January 1, 2016. Excluding the favorable impact from one additional billing day, organic sales increased 2.3% 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 $36.8 million includes amortization of intangible assets and acquisition and integration costs of $9.8 million pre-tax and $7.6 million after-tax. Net income of $5.5 million in the fourth quarter of 2015 includes amortization of intangible assets, acquisition and integration costs, restructuring charge, Latin America bad debt provision, write-off of deferred financing costs, foreign exchange loss from devaluation of foreign currencies, loss on extinguishment of debt and an unfavorable tax expense, which combined had a $29.8 million pre-tax and $29.5 million after-tax impact.
Excluding the impact of the above items, fourth quarter of 2016 adjusted net income of $44.4 million compares to $35.0 million in the prior year quarter, a 26.1% increase.
Diluted earnings per share of $1.09 compares to $0.17, and adjusted diluted earnings per share of $1.31 compares to $1.05, both versus prior year quarter.
Adjusted EBITDA of $101.7 million, or 5.4% of sales, compares to prior year adjusted EBITDA of $101.8 million, or 5.5% of sales.
“We are pleased to report the strongest organic growth rate in our Network and Security Solutions segment since the third quarter of 2011, driven by strength in our North America and Europe geographies and our security business. Full year sales in NSS reached a record $4.1 billion,” commented Bob Eck, President and CEO. “Consistent with what we indicated in our third quarter release, our Electrical & Electronic Solutions segment returned to growth in the fourth quarter. Sales trends in both our EES and Utility Power Solutions segments, which continue to be impacted by a sluggish industrial economy, improved as our customers’ end markets began to recover. In addition, we continue to progress with the integration of our acquired businesses, exceeding our 2016 synergy targets and remaining on track to deliver over $40 million in combined EBITDA synergies by 2018.”
Income Statement Detail
Gross margin of 20.4% compares to 20.2% in the prior year quarter and 20.3% on a sequential basis, with the increase in both periods driven by segment and product mix.
Operating expense of $306.1 million, or 16.2% of sales, compares to prior year operating expense of $305.6 million, or 16.6% of sales. Excluding current quarter expense of $9.8 million and fourth quarter 2015 expense of $25.7 million, as detailed above, fourth quarter 2016 adjusted operating expense was $296.3 million compared to $279.9 million, in the prior year quarter. Current quarter adjusted operating expense was 15.6% of sales, compared to 15.2% of sales in the fourth quarter of 2015, driven primarily by segment mix.
Operating income of $81.0 million, or 4.3% of sales, compares to $65.8 million, or 3.6% of sales, in the prior year quarter. Excluding operating expense items outlined above, fourth quarter 2016 adjusted operating income of $90.8 million, or 4.8% of sales, compares to $91.5 million, or 5.0% of sales, in the prior year quarter.
Interest expense of $19.0 million compares to $21.1 million in the prior year quarter, reflecting our focus on decreasing debt with the strong cash flow generated in 2016. Foreign exchange and other expense of $3.4 million compares to $8.1 million in the prior year quarter. Excluding a loss of $2.9 million related to the currency devaluation of the Argentine peso and $0.9 million of costs associated with the extinguishment of debt, adjusted foreign exchange and other expense was $4.3 million in the fourth quarter of 2015.
Our fourth quarter U.S. GAAP effective tax rate was 37.2% versus 84.9% in the prior year quarter and our full year U.S. GAAP effective tax rate was 38.7% compared to 47.0% in the prior year. Our full year Non-GAAP effective tax rate of 37.0% differs from our third quarter full year estimate of 37.7% primarily due to country mix of earnings.
Network & Security Solutions (“NSS”) sales of $1.0 billion increased by 6.0% over the prior year period, driven by 8.0% growth inNorth America. Adjusting for the $10.2 million unfavorable impact from foreign exchange, NSS organic sales increased 7.0%, which was a 5.3% increase on a per day basis versus the prior year period.
Fourth quarter NSS security sales of $410.0 million, which represents approximately 40% of segment sales, increased 5.1% from the prior year quarter. Adjusted for the $3.3 million negative currency impact, organic security sales growth was 5.9%.
NSS operating income of $77.2 million compares to $61.8 million in the prior year quarter and $74.9 million in the third quarter of 2016. NSS adjusted EBITDA increased 8.3% versus the prior year quarter to $81.9 million, and increased 3.5% versus the third quarter of 2016. The corresponding adjusted EBITDA margin of 7.9% compares to 7.7% in the prior year quarter and 7.5% in the third quarter of 2016.
Electrical & Electronic Solutions (“EES”) sales of $507.0 million compares to $502.6 million in the prior year period, an increase of 0.9%. Adjusted for the $10.0 million unfavorable impact from foreign exchange and the $6.1 million favorable impact from higher average copper prices, EES organic sales increased 1.7% which was the first quarter with year-over-year organic growth over the last 6 quarters. On a per day basis organic sales were unchanged.
EES operating income of $22.4 million compares to $19.2 million in the prior year quarter and $28.7 million in the third quarter of 2016. The 16.7% increase in operating income versus prior year was driven by improved profitability in our North America industrial markets while the sequential decline is consistent with the seasonality of the business.
EES adjusted EBITDA of $25.6 million compares to $24.7 million in the prior year period and $31.4 million in the third quarter of 2016. The corresponding adjusted EBITDA margin of 5.1% compares to 4.9% in the prior year period, reflecting stabilization in our industrial end markets.
Utility Power Solutions (“UPS”) sales of $347.5 million compares to $351.6 million in the prior year period, a decrease of 1.2%, which represents a decrease of 2.8% on an organic per day basis. As indicated in the prior four quarters, sales in this segment continue to be negatively impacted by weakness in oil and gas regions in Canada and the timing of utility customers’ major project spend.
UPS operating income of $14.6 million compares to $15.3 million in the prior year quarter and $15.8 million in the third quarter of 2016. UPS adjusted EBITDA was $19.2 million, or 5.5% of sales, which compares to $20.8 million, or 5.9% of sales, in the prior year quarter and $21.1 million, or 5.7% of sales, in the third quarter of 2016.
Cash Flow and Leverage
For the full year 2016 we generated $278.8 million in cash flow from operations, which compares to our previous outlook range of $280 – $300 million. The $186.9 million increase from 2015 cash flow from operations of $91.9 million was driven primarily by working capital efficiencies. Full year capital expenditures of $32.6 million compares to $28.6 million in the prior year period.
“Solid execution of our growth strategies, combined with financial discipline, resulted in record quarterly results in NSS and continued improvement in business trends in both EES and UPS. Meanwhile, across the business we have a relentless focus on improving our margin, reducing our cost structure and delivering working capital efficiency, positioning us to deliver solid operating leverage as industrial end markets recover,” 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 continue to reduce our outstanding debt. Turning to our capital structure, our priorities continue to include returning to our debt-to-capital target range of 45 – 50% by the second half of 2017, funded by the strong free cash flow we are generating from our repositioned platform and working capital initiatives.”
Key capital structure and credit-related statistics for the quarter:
- Debt-to-total capital ratio improved to 51.6% from 58.2% at the end of 2015
- Weighted average cost of borrowed capital of 5.1% compares to 4.8% in the prior year quarter
- $570.2 million available under revolving lines of credit and secured accounts receivable and inventory facilities
“As we enter 2017, we expect the positive momentum we experienced in the fourth quarter of 2016 to continue. Following several years of challenging industrial end markets, we are optimistic that the underlying economic environment is slowly improving, reflected by recent increases in both commodity prices and global growth forecasts,” commented Bob Eck. “Based on our current sales trend, backlog, and robust pipeline across all three segments, we expect continued solid growth in NSS and a return to full year growth in both our EES and UPS segments. Overall we expect first quarter 2017 organic sales growth in the 1 – 3% range and full year 2017 organic sales growth in the 1 – 4% range.”
Financial Results from Continuing Operations
|Three Months Ended||Twelve Months Ended|
|(In millions, except per share amounts)||Dec 30,
|Diluted Earnings Per Share||$||1.09||$||0.17||nm||$||3.61||$||2.90||24||%|
|Diluted Weighted Shares||33.8||33.5||1||%||33.6||33.4||1||%|
|nm – not meaningful|
The full report can be viewed here.Tagged with Anixter, tED