General Cable Corporation (BGC)

BGC 
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General Cable (BGC)

Q4 2010 Earnings Call

February 09, 2011 8:30 am ET

Executives

Gregory Kenny - Chief Executive Officer, President and Director

Len Texter - Manager, IR

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

Analysts

Stuart Bush - RBC Capital Markets, LLC

Shawn Harrison

Anthony Kure - KeyBanc Capital Markets Inc.

Jeffrey Beach - Stifel, Nicolaus & Co., Inc.

Steven O'Brien - JP Morgan Chase & Co

Matthew McCall - BB&T Capital Markets

Michael Coleman - Sterne Agee & Leach Inc.

Richard Wesolowski - Sidoti & Company, LLC

Presentation

Operator

Good morning. My name is Simon, and I will be your conference facilitator today. I would like to welcome everyone to General Cable Corporation's Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] General Cable, you may begin your conference.

Len Texter

Good morning, everyone, and welcome to General Cable's Fourth Quarter 2010 Earnings Conference Call. I'm Len Texter, Manager, 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 from last night. For those of you who have not, it is available on First Call and on our website at generalcable.com.

I want to call your attention to our Safe Harbor provisions for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our current Form 10-K report and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

During this call, we may refer to adjusted operating income and adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization, plant rationalizations and other items. These non-GAAP company-defined measures are being provided because management believes they are useful in analyzing the operating performance and cash flow before the impact of various charges. A reconciliation of adjusted operating income and EBITDA to GAAP net income is available on the Investor Relations section of our website at generalcable.com.

The format of today's call will first be some discussion by Greg Kenny about our current business environment. Secondly, Brian Robinson will provide some financial details about the fourth quarter. And finally, Greg will provide some comments on the company's first quarter 2011 outlook and business trend, followed by some questions-and-answer period.

With that, I will turn the call over to Greg Kenny.

Gregory Kenny

Thanks, Len, and good morning. I'd like to start by saying that things do feel a bit better. I'm pleased to report a solid fourth quarter, as very strong transmission cable demand in the United States and Brazil, as well as a growing business in Mexico, offset normal seasonal volume declines in other product areas in North America and our Rest of the World segment.

In Europe, we experienced better-than-expected demand across majority of our businesses, including our low- and medium-voltage products in France and a supply of offshore specialty cables manufactured in Germany. As a result, the company's fourth quarter results represent the first time in nearly two years that we have reported volume improvement year-over-year in back-to-back quarters. Similarly, the fourth quarter marks the third sequential quarterly improvement in volume. I'm encouraged by the improving demand trends in our businesses.

For the fourth quarter of 2002, we reported revenues of $1.36 billion and adjusted earnings per share of $0.75, both of which were above our expectations. These results include the impact of improved global volume trends, such as those noted above, and the benefit of cost reduction efforts, including both specific actions taken over the past two years as well as a cumulative effect of our years of lean manufacturing and SG&A improvement.

The fourth quarter results also reflect the benefit of the achievement of project milestones in our submarine energy cable business in addition to work performed under repair and maintenance agreement during the quarter on an existing wind farm in the North Sea. Also, the rapid and relatively linear $0.78 per pound escalation of copper costs during the quarter was mitigated by the impact of relieving lower average cost inventory through cost of sales, thereby, allowing for a more consistent matching of sales and manufacturing expenses under the average cost accounting method.

In short, our fourth quarter operating results were better than our expectations due to a strong finish to the year in North America, as well as in Europe and the Mediterranean, principally NSW. In the fourth quarter, we reduced inventory levels, but fell a bit short of our expectation. We also benefited from various currencies strengthening around the world against the U.S. dollar and reported a lower effective tax rate than was expected.

However, the overall pricing environment has not materially improved. Overall demand remains near historically low levels while record high and volatile commodity prices continue. Despite gradually improving over the course of the year, capacity utilization rates remain at low levels, currently in the range of 65% to 75%, about where we were in the third quarter.

Brian will take you through the details of the financials in a bit, so I thought I would spend some time talking about how I see our current global business environment. In ROW, there remains a great deal of opportunity as infrastructure spending in many emerging markets strengthens and GDP rates in aggregate of more than 2x out of the developed world.

In Brazil, under new leadership, early indicators suggest monetary and fiscal policy will continue to support strong economic growth. The economic environment remains upbeat on the prospect of further significant infrastructure programs measured in the billions of dollars for additional power generation and distribution projects as the country continues to build out. In Venezuela, while spending on electrical infrastructure continues, we remain cautious as conditions remain challenging and unpredictable.

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