HIGHLAND HEIGHTS, Ky. — General Cable Corporation reported results for the second quarter ended July 1, 2016. For the quarter, reported diluted earnings per share from continuing operations was $0.68 and reported operating income from continuing operations was $58 million. The Company generated adjusted earnings per share from continuing operations for the quarter of $0.30 and adjusted operating income from continuing operations of $49 million.
Michael T. McDonnell, President and Chief Executive Officer, said, “Our solid financial performance in the quarter, generated in spite of a relatively weak and choppy demand environment, reflects the results of our focused execution and the significant operational improvements that we have made in the Company. Adjusted operating income from continuing operations was at the top of the guidance range, excluding the unfavorable metal price impact in the quarter relative to guidance assumptions. We also continued to simplify and focus our portfolio with the sale of three businesses and applied the proceeds toward reducing our outstanding borrowings.”
Second Quarter Summary
- Second quarter reported operating income from continuing operations was $58 million, up $43 million sequentially and $34 million year over year principally due to the gain on the sale of the Company’s North American automotive ignition wire business and restructuring savings
- Second quarter adjusted operating income from continuing operations was $49 million, up $7 million sequentially and $2 million above guidance mid-point, driven principally by continued performance improvement and restructuring savings
- Adjusted operating income from continuing operations was down $6 million year over year driven by the easing performance of the Company’s submarine turnkey project business and the impact of weaker demand for industrial and specialty (oil and gas) cables
- As compared to guidance, metal prices represent a negative impact of approximately $4 million for the second quarter of 2016. Metal prices for the second quarter of 2016 were neutral as compared to the first quarter of 2016 and second quarter of 2015. Metal cost impact is calculated as the difference between the price at which we buy metals and the price at which we sell the metals as a component of our product cost
- Completed the sale of the North American automotive ignition wire business generating proceeds of $71 million
- Completed the sale of the Company’s Egypt business bringing the total cash proceeds generated from the divestiture program to $193 million with more to come
- Subsequent to the second quarter, completed the sale of the Company’s Venezuela business generating cash proceeds of $6 million
- Company remains on track to meet restructuring savings target of $80 to $100 million; generated additional restructuring savings of $9 million in the second quarter
North America – excluding aerial transmission product shipments, unit volume was flat versus the first quarter of 2016 and up 4% year over year. For the second quarter, stronger demand for electric utility distribution and construction cables was partially offset by weaker demand for industrial and specialty products, particularly those tied to oil and gas applications.
Europe – unit volume was up 7% versus the first quarter of 2016 driven by demand for electric utility cables including land-based turnkey projects and energy products. Excluding the impact of restructuring activity, such as the exit from certain low value-add end markets, unit volume year over year was flat.
Latin America – excluding aerial transmission product shipments in Brazil, unit volume was up 8% versus the first quarter of 2016 as seasonal demand improved across the region. Year over year, unit volume excluding aerial transmission product shipments was down 1% as end market demand remains under pressure throughout the region due to the ongoing difficult economic conditions and reduced government spending.
Other income of $9 million for the second quarter consisted of mark-to-market gains of $4 million on derivative instruments accounted for as economic hedges and foreign currency transaction gains of $5 million, of which $3 million relates to foreign currency transaction gains in Africa.
At the end of the second quarter 2016, the first quarter of 2016 and the fourth quarter of 2015, total debt was$1,024 million, $1,147 million and $1,067 million, respectively, and cash was $63 million, $87 million and $79 million, respectively. At the end of the second quarter 2016 net debt of $961 million decreased $99 million from the first quarter of 2016 and $27 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 and collections from subsea turnkey projects.
Update on CFO Transition
The Company’s Board of Directors named Chris Kreidler to serve as Interim Chief Financial Officer, effective August 12, 2016. Mr. Kreidler will replace Brian Robinson, who, as communicated in March of 2016, is leaving the company to pursue other opportunities. The Company’s search, with the assistance of Heidrick & Struggles, for a permanent replacement CFO is advancing. Mr. Kreidler most recently served as Executive Vice President and CFO at Sysco Corporation and during his 28-year career, he also held numerous leadership roles across Yum! Brands and C&S Wholesale Grocers. Mr. Kreidler holds a bachelor’s degree and an MBA from Rice University. “We are pleased to welcome Chris to General Cable as Interim CFO,” McDonnell continued “Chris brings decades of experience in supporting companies with global operations, as well as a distinctive leadership capacity to manage teams and apply financial expertise to business management. We are confident that he will be a strong asset to the company as we conclude our active search for a permanent CFO.”
We have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with, and certain other transactions involving, our operations in Angola, Thailand, India, China and Egypt (the “Subject Countries”). Our review has focused upon payments and gifts made, offered, contemplated or promised by certain employees in one or more of the Subject Countries, directly and indirectly, and at various times, to employees of public utility companies and/or other officials of state owned entities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. During 2015, we substantially completed our internal review in the Subject Countries and, based on our findings, we increased our outstanding FCPA-related accrual to $28 million as of December 31, 2015. At this time, we are in early stages of discussions with the SEC and DOJ regarding the terms of a potential resolution of the ongoing investigations, and based on these discussions, we believe the amount of total probable disgorgement of profits, including pre-judgment interest, required to resolve the investigations is in the range of $33 million to $59 million. As a result, we have increased our existing accrual as of July 1, 2016 by $5 million to $33 million, which represents the low-end of the range. The amount accrued solely reflects profits and pre-judgment interest that may be disgorged and does not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing, and we continue to cooperate with the DOJ and the SEC with respect to these matters. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions.
Third Quarter 2016 Outlook
“In the third quarter, we are encouraged by the demand trends in our electric utility distribution and non-residential construction markets, which have been up mid-single digits year-over-year so far this year, but we still expect certain end market demand to be uneven, particularly in our industrial and specialty markets. We also expect the normal seasonal slowing in our European businesses and further easing of our subsea turnkey project business. We built our strategic roadmap precisely for this weak and uneven demand environment. I am pleased to say that all of our key roadmap initiatives in portfolio optimization, leading cost position, targeted growth and highly engaged culture are in progress and on track for substantial value creation,” McDonnell concluded.
Revenues in the third quarter are expected to be in the range of $900 to $950 million. Unit volume is anticipated to be flat to up low-single digits sequentially. Reported operating income from continuing operations is anticipated to be in the range of $32 to $47 million and adjusted operating income from continuing operations is anticipated to be in the range of $35 to $50 million for the third quarter. Reported diluted earnings per share are anticipated to be in the range of $0.06 to $0.26 per share and adjusted earnings per share are expected to be in the range of $0.10 to $0.30 per share for the third quarter. The movement of metal prices is not anticipated to have a material impact on the third quarter outlook which assumes copper (COMEX) and aluminum (LME) prices of $2.20 and $0.73, respectively. Foreign currency exchange rates are assumed constant in the third quarter outlook. The third quarter outlook for adjusted operating results does not include results from Asia Pacific and Africa.
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