General Cable Corporation (BGC)

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General Cable (BGC)

Q2 2013 Earnings Call

August 01, 2013 8:30 am ET

Executives

Len Texter - Director of Investor Relations

Brian J. Robinson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Gregory B. Kenny - Chief Executive Officer, President and Director

Analysts

Chris Dankert - Longbow Research LLC

Matthew Schon McCall - BB&T Capital Markets, Research Division

Brent Thielman - D.A. Davidson & Co., Research Division

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Shawn M. Harrison - Longbow Research LLC

Presentation

Operator

Good morning. My name is Melissa, and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's Second Quarter 2013 Earnings Conference Call. This conference call is being recorded at the request of General Cable. Should you have any objections, you may disconnect at this time. [Operator Instructions] Thank you. General Cable, you may begin your conference.

Len Texter

Good morning, everyone, and welcome to General Cable's second quarter 2013 earnings conference call. I'm Len Texter, Vice President Investor Relations at General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer; Brian Robinson, our Chief Financial Officer; and Bob Siverd, our General Counsel.

Many of you have already seen a copy of our press release issued last night. For those of you who have not, it is available on First Call and on our website at generalcable.com. Today's call will be accompanied by a slide presentation also available on our website. If you have not downloaded a copy, we recommend that you do so, as we will refer to the presentation throughout our prepared remarks today.

The format of today's call will first be an overview by Brian Robinson of our second quarter results. Secondly, Greg Kenny will provide comments on the company's third quarter and 2013 full year outlook and business trends, followed by a question-and-answer period.

Before we get started, I wanted to call your attention to our Safe Harbor provision regarding forward-looking statements and company-defined non-GAAP financial measures as defined on Slide #2, as we may refer to adjusted operating income and adjusted EBITDA in today's call. To begin, please turn to Slide #5, where we have included a reconciliation of our previously communicated outlook.

With that, I'll now turn the call over to Brian Robinson. Brian?

Brian J. Robinson

Thank you, Len. Good morning. We're pleased to report our second quarter adjusted operating income and adjusted EPS were above our expectations. Our businesses in Europe delivered a stronger performance, and pricing held up better than anticipated in North America and ROW, despite a persistently lower metal price environment. On the volume side, excluding acquisitions and aerial transmission projects in North America and Brazil, global unit volume improved 7% sequentially as seasonal demand for utility cables and construction activity increased.

Despite a sharp improvement and seasonal demand, unit volume was below expectations in some businesses in North America and ROW, as were metal-intensive aerial product shipments in North America. In Europe and Mediterranean, demand improved sequentially 8% in the second quarter of 2013, which was consistent with our expectations.

Next, on Slide 6, we provided a reconciliation of our reported to adjusted operating income for the second quarter. The company recorded $8.2 million of expenses related to its submarine cable business, which includes the write-off of $5.9 million of cable lengths that were determined to be unsellable during the quarter and $2.3 million in project settlement costs.

The company also incurred restatement and forensic investigation costs of $2.9 million related to last year's inventory theft in Brazil and further severance-related charges in Europe of $1.2 million.

Lastly, the company closed a small manufacturing facility in its electronics business in North America in the early part of the year and moved the production to other facilities within the region. This facility closure is expected to result in annual savings in the range of $500,000 to $1 million.

Moving to Slide 7. Net sales increased 12% on a metal-adjusted basis, principally due to increased seasonal demand and a greater mix of copper-based product shipments. Adjusted operating income for the second quarter of 2013 was up 83% compared to the first quarter. Other expense reflects mark-to-market losses on economic hedges of $19.9 million, principally due to declining metal prices, which was partially offset by foreign currency transactional gains of $4.3 million. The foreign currency transaction gains in the second quarter are principally the result of authorization received in Venezuela to purchase copper at a VEB 4.3 to each U.S. dollar exchange rate. The company received this authorization prior to the currency devaluation on February 13, 2013. The company expects to report a gain of approximately $4.5 million in the third quarter of 2013 for copper purchases in Venezuela that were approved prior to the devaluation.

On the next 3 slides, we have outlined some of the key metrics for each of our reportable segments. First, in North America, on Slide 8, adjusted operating income in the base businesses improved sequentially 27% as pricing held up better than expected despite selling higher average cost inventory into a lower metal cost environment. Contributions from acquisitions were in the range of 7% operating margins, though volume for Alcan Cable North America declined sequentially, principally due to metal-intensive aerial transmission product shipments. Overall, unit volume in our base businesses was up 10% in the second quarter as compared to the first quarter.

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