HIGHLAND HEIGHTS, Ky. — General Cable Corporation reported results for the third quarter ended September 30, 2016 (below). The company also made an executive appointment.
NEW CHIEF FINANCIAL OFFICER:
Matti Masanovich has been named Chief Financial Officer and Senior Vice President, reporting to Michael McDonnell, President and Chief Executive Officer, effective November 11, 2016.
“Matti is an accomplished leader with significant financial and operational expertise,” said McDonnell. “His global experience developing and executing business strategies to drive revenue growth, margin expansion and free cash flow will be vital as we execute on our strategic roadmap.”
Masanovich will be responsible for all aspects of the Finance, Investor Relations and IT functions, while also serving as a key business partner in achieving the company’s strategic growth initiatives.
Masanovich brings with him more than 20 years of finance, accounting and operations experience across large, international manufacturing companies. He was recently at Delphi Automotive PLC where he was Vice President, Finance of an $8B, 120,000 employee global business unit. Prior to that, Masanovich held executive roles across finance disciplines including audit, FP&A, shared services and accounting at companies going through significant transformation such as Dura Automotive, Emcon Technologies, Collins & Aikman, Federal-Mogul, and ProBuild Holdings.
Masanovich began his career with PricewaterhouseCoopers and earned his Chartered Accountant designation. He holds a Masters of Business Administration degree and an Honours Bachelor of Commerce degree from the University of Windsor.
THIRD QUARTER RESULTS:
Michael T. McDonnell, President and Chief Executive Officer, stated: “Overall, I am feeling very confident about the direction of the Company, the substantial opportunities in front of us to improve performance, and the pace and quality of our execution. By focusing on what we can control, we’re getting the right things done in the Company, improving our core businesses, driving our strategic roadmap, selling non-core businesses, driving cash flow, deleveraging the balance sheet, upgrading the management team, and developing our real performance culture.”
For the quarter, reported diluted loss per share was $0.29 and reported operating income was $5 million. The Company generated adjusted earnings per share for the quarter of $0.07 and adjusted operating income of $32 million.
McDonnell said, “Third quarter results were below our expectations largely due to a temporary lull in North American end market demand early in the quarter and continued pressure on construction and electrical infrastructure spending in Latin America. Third quarter results were also impacted by the further softening of demand for historically higher margin industrial and specialty products, particularly those tied to oil and gas markets. While disappointed by lower than expected third quarter results, unit volume grew late in the quarter and customer sentiment improved as we continue to navigate a choppy end market environment. For the fourth quarter, we expect year-over-year improvement as higher unit volume is anticipated to more than offset lower subsea turnkey project activity. Overall, I’m very pleased with the progress we are making on the elements within our control – most importantly, our ability to execute as we generated strong operating cash flow, reduced outstanding borrowings, and completed the sale of two businesses. In addition, the execution of our strategic roadmap to transform the Company into a more focused, efficient and innovative organization is advancing according to plan.”
- Reported operating income of $5 million and adjusted operating income of $32 million were down year over year $20 million and $15 million, respectively, primarily due to lower subsea turnkey project activity compared to last year, further weakening demand for industrial and specialty products tied to oil and gas end markets in North America and the continued pressure in Latin America
- Generated operating cash flow of $50 million driven by the continued tight management of working capital
- Maintained significant liquidity with $393 million of availability on the Company’s asset based credit facility and applied cash proceeds from divestitures to reduce outstanding borrowings
- Completed the sale of the Company’s Zambia business bringing the total cash proceeds generated from the divestiture program to $203 million while also completing the sale of the company’s Venezuela business
- Impact of metal prices was neutral as compared to guidance and the second quarter of 2016. The third quarter of 2015 was negatively impacted by metal price movements of $10 million.
North America – Unit volume was down 2% year over year as stronger demand for construction and electric utility distribution cables was more than offset by lower shipments of aerial transmission cables and further weakening of demand for industrial and specialty products tied to oil and gas end markets.
Europe – Unit volume was up 3% year over year driven by demand for electric utility products including land-based turnkey projects as well as energy cables.
Latin America – Unit volume was up 3% year over year driven by demand for aerial transmission products (excluding volume in Venezuela in Q3 2015).
Overall, through the first nine months of the year, demand in electric utility distribution and non-residential construction markets in North America was up mid-single digits year over year while demand for industrial and specialty products tied to oil and gas markets has continued to weaken throughout the year and was down year over year 5% and 50%, respectively. In Europe, setting aside the impact of restructuring activities, end market demand through the first nine months has been flat year over year. Unit volume in Latin America remains under pressure due to reduced spending on electric infrastructure and construction projects.
At the end of the third quarter 2016, the second quarter of 2016 and the fourth quarter of 2015, total debt was $993 million, $1,024 million and $1,079 million, respectively, and cash and cash equivalents was $120 million, $106 million and $112 million, respectively. At the end of the third quarter 2016 net debt was $873 million, which represents a decrease of $45 million from the second quarter of 2016 and $94 million from the end of 2015. The decrease in net debt is principally due to cash proceeds from divestitures and the efficient management of working capital including inventory levels.
Update on CFO Transition
We have announced the appointment of Matti Masanovich as Chief Financial Officer and Senior Vice President, reporting to Michael McDonnell, President and Chief Executive Officer, effective November 11, 2016. Masanovich will be responsible for all aspects of the Finance, Investor Relations and IT functions, while serving as a key business partner in achieving the company’s strategic growth initiatives. Please refer to the separate press release issued today for further detail.
We continue to make progress toward a potential resolution of our previously disclosed and ongoing FCPA related investigations. Last quarter, based on discussions with the SEC and the DOJ at that time, we increased the range of potential resolution for disgorgement of profit and pre-judgment interest to between $33 million and $59 million. Based on recent discussions with the DOJ, we now are able to include in our estimated range of potential resolution an estimated range of a potential DOJ penalty and further potential disgorgement. As a result, the new estimated range of reasonably possible resolution, including disgorgement of profits, pre-judgment interest, and any potential DOJ penalty, is between $33 million and $120 million. We are continuing to have discussions with the SEC and DOJ regarding the terms of a potential resolution. At this time, we are not able to reasonably estimate the amount of any additional possible fines, civil penalties or other relief that may be sought with respect to the SEC’s FCPA investigation or the SEC’s previously-disclosed investigation into accounting issues.
The results of the Company’s Asia Pacific operations were previously presented as discontinued operations; however, in the third quarter of 2016, management determined that the sale of these businesses within one year was uncertain, and therefore determined that the held for sale criteria was no longer met for the businesses in China, New Zealand and Australia. As a result and because the businesses that have been sold to date including the Philippines, Thailand, India, Dominion Wire and Cables (Fiji) and Keystone Electrical Wire and Cable (China), in the aggregate, are not considered a strategic shift; the Asia Pacific operations will no longer be presented as discontinued operations in the financial statements for all periods presented. The Company remains fully committed to optimizing its portfolio and is focused on executing its divestiture program in order to simplify its portfolio.
The minority shareholders in the Company’s business in Colombia (Procables) elected to exercise a contractual right to sell their 40% interest to the Company. The price to be paid, pursuant to the contract, is $18 million and is anticipated to be paid in the fourth quarter of 2016.
Fourth Quarter 2016 Outlook
Revenues in the fourth quarter are expected to be in the range of $850 to $900 million. Unit volume is anticipated to be up mid-single digits year over year. Reported operating income is anticipated to be in the range of $17 to $32 million and adjusted operating income is anticipated to be in the range of $25 to $40 million for the fourth quarter. Reported diluted earnings per share are anticipated to be in the range of ($0.03) to $0.12 per share and adjusted earnings per share are expected to be in the range of $0.05 to $0.20 per share for the fourth quarter. The movement of metal prices is not anticipated to have a material impact on the fourth quarter outlook which assumes copper (COMEX) and aluminum (LME) prices of $2.20 and $0.75, respectively. Foreign currency exchange rates are assumed constant in the fourth quarter outlook. The fourth quarter outlook for adjusted operating results does not include results from Asia Pacific and Africa.
Full results can be viewed here.
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