HWC 4Q and Full-Year 2019 Sales Down from 2018

HOUSTON — Houston Wire & Cable Company announced operating results for the fourth quarter and year ended December 31, 2019.

Full Year 2019

• Net income of $2.6 million, or $0.15 per diluted share; charges for the Attleboro, MA closure negatively impacted earnings by $0.15 per share
• Sales of $338.3 million, down 5.2%
• Gross margin of 23.6%, decrease of 30 basis points
• Operating expense of $73.0 million, including $3.3 million of closure costs, versus $71.3 million for 2018
• Anticipated $1.0 million annual savings from closure and relocation of Attleboro facility

Fourth Quarter 2019

• Net loss of $0.7 million, or a loss of $0.04 per diluted share, negatively impacted $0.05 per share by the Attleboro, MA closure
• Sales of $82.3 million, down 6.4%
• Operating expense was down 0.3%, reflecting $1.0 million of Attleboro closure costs

Twelve Month Summary

James Pokluda, President and Chief Executive Officer commented, “2019 was a year of significant operational change for HWCC as we completed multiple strategic projects that strengthened our value proposition. In response to new tariffs, we reset international supply lines; LEAN processes and methodologies drove continuous improvement and expense reductions; we closed our largest fastener distribution center and relocated the inventory to two new facilities that are highly efficient and better located to service customer demand; and we completed a multi-year information technology upgrade that increased our digital capabilities and enhanced enterprise strategy. With these and several additional projects and non-recurring expenses now behind us, we enter 2020 well positioned to serve our diverse customer base.”

Sales for the year ended December 31, 2019 were $338.3 million, down 5.2% from $356.9 million in 2018. We estimate that the supply disruptions caused by the on-going trade negotiations with China negatively impacted sales 1% and that lower metals prices in 2019 represented an additional 2% decrease. Adjusting for the impact of metals and the trade war, we estimate sales for our project business decreased 2%, while MRO sales decreased 3%, as compared to 2018.

Gross margin at 23.6% was down 30 basis points from 2018. “We continue to focus on pricing discipline and maintaining optimum inventory mix profiles to service customer demand, and are pleased that we have been able to substantially maintain our margins despite a decline in commodity prices,” said Mr. Pokluda.

Operating expenses at $73.0 million increased 2.4% from the prior year of $71.3 million. This increase was due to expenses of $3.3 million for the closure and relocation of the Attleboro warehouse facility. Excluding these one-time expenses, operating expenses were down $1.6 million or 2.2%. Going forward, it is anticipated that the net annual operating expense savings resulting from these warehouse activities will be approximately $1 million.

Interest expense of $3.1 million increased 5.2% from $2.9 million in 2018. The increase reflected $0.2 million lower average debt of $76.6 million offset by a 10 basis point increase in average interest rates to 3.8%.

The results of operations generated net income of $2.6 million, compared to $8.6 million in 2018. $2.3 million of the decline was due to the Attleboro closure and relocation expenses. Mr. Pokluda commented “While our financial results were not where we would like them, 2019 was a year of significant change for our organization, and I am pleased with the extraordinary team efforts that were necessary to complete multiple projects, maintain pricing discipline, execute cost control and strengthened our position in the market.”

Fourth Quarter Summary

Mr. Pokluda further commented, “Fourth quarter results were disappointing, as positive sales trends experienced early in the quarter reduced significantly in the second half of the quarter due primarily to reduced project activity in oil and gas and fastener end markets.”

Sales for the fourth quarter 2019 were $82.3 million, down 6.4% from $87.9 million in 2018. We estimate the fastener supply disruptions caused by the on-going trade negotiations with China and lower metals prices represented a 2% sales decrease. We estimate sales for our project business decreased 16%, while MRO sales decreased 2%, as compared to 2018.

Gross margin at 22.7% decreased 120 basis points from the fourth quarter of 2018 and was down 10 basis points sequentially, as reduced demand in the latter half of the quarter significantly increased pricing pressure. Operating expenses of $18.6 million were up 4.7% over 2018 but down 1.2% without the Attleboro closure and relocation costs, and flat sequentially.

Quarterly interest expense of $0.8 million was up 2% from the prior year period. Average debt levels for the quarter of $80.8 million increased $10 million over 2018, while the effective interest rate decreased from 4.1% to 3.5% in 2019. The debt increase resulted from an increase in inventory caused by inconsistency in our international supply lines and optimizing vendor contractual agreements.

The results of operations produced net loss of $0.7 million for the quarter, as compared to net income of $1.6 million in 2018. Excluding the closure and relocation expenses, operations produced net income of $0.1 million or $0.01 per share.