General Cable Corporation (BGC)

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General Cable (BGC)

Q1 2011 Earnings Call

May 03, 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

John C. Stimac

Brent Thielman - D.A. Davidson & Co.

Shawn Harrison

Anthony Kure - KeyBanc Capital Markets Inc.

Brett Levy - Jefferies & Company

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

Steven O'Brien - JP Morgan Chase & Co

Richard Wesolowski - Sidoti & Company, LLC

Presentation

Operator

Good morning, my name is Michelle, and I will be your conference facilitator today. I would like to welcome everyone to the General Cable Corporation's First Quarter 2011 Earnings Conference Call. This conference call is being recorded at the request of General Cable. [Operator Instructions] Mr. Len Texter, Manager of Investor Relations, you may begin your conference.

Len Texter

Good morning, everyone, and welcome to General Cable's First Quarter 2011 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's available on first call and 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 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 for today's call will first be some discussion by Greg Kenny about the current business environment. Secondly, Brian Robinson will provide some financial details about the first quarter. And finally, Greg will provide some comments on the company's second quarter 2011 outlook and business trends, followed by a questions-and-answer period.

With that, I'll turn the call over to Greg Kenny. Greg?

Gregory Kenny

Good morning, and thank you so much. I'm pleased to report a very strong start to the year, continuing to build on several quarters of positive momentum. For the first quarter of 2011, we reported revenues of $1.45 billion, which was consistent with management's expectation, and adjusted earnings per share of $0.79, which was well above our expectation. These results reflect the benefit of stronger-than-expected operating results in North America and ROW.

In North America, the magnitude of the improvement in a number of our end markets during the first quarter was more significant than anticipated. In ROW, we reported stronger operating results despite business conditions being somewhat uneven as the pace of economic recoveries across the numerous geographies vary and project releases fluctuate from period to period. In Europe, conditions continued to be difficult in terms of demand and price. Overall, our results reflect a firming price environment in North America, as well as the flexibility of our operations and the excellent work of our business teams globally to identify and rapidly respond to volatile end market demand.

Our operating results also benefited sequentially from the absorption of overhead costs in the inventory as quantities were increase primarily in anticipation of seasonal demand trends. The uneven demand patterns in ROW, as well as the general market weakness in Europe and the Mediterranean, discussed above, also contributed to the increase in inventory quantities during the period. Partially offsetting these better operating results were higher selling, general and administrative expenses as salary freezes were ended and incremental investments were made in global selling and engineering resources, as well as product technology. We also have brought online a number of new facilities. As they ramp up, we incur costs. In addition, our results in the first quarter included a benefit of unrealized gains on mark-to-market adjustments of foreign currency and commodity financial instruments, as well as a lower than expected effective tax rate. Brian will take you through the details of the financials in the bit.

I thought I would spend some time talking now about how I see our current businesses globally. In North America, the first quarter was marked by strong demand for the company's electrical infrastructure and early cycle products, each improving sequentially as compared to the fourth quarter by 21% and 17%, respectively. Versus the prior year, the company's electrical infrastructure products were up 40%, and early cycle products were up 12%. Investment in fossil fuel extraction was an important driver of growth during the first quarter as demand for our specialty cables, including those cables used in oil and gas as well as mining applications, was particularly strong. Additionally, the successful commercialization of 17 FREE, a line of halogen-free jacket designs for some of our data communication fiber-optic electronic cables. An LEED qualified design was also a meaningful driver of growth in the first quarter. Excluding transmission products, demand for the company's electric utility products was up 5% sequentially as compared to the fourth quarter, driven by demand for our low- and medium-voltage products used in the distribution grid. Nevertheless, demand for utility products remains quite weak by historic standards. In short, our results in the first quarter in North America reflected the impact of improved demand, higher capacity utilization rates and better pricing in several important product areas tied to industrial production and IT spending. In ROW, our first quarter results reflect the impact of stronger demand sequentially as compared to the fourth quarter in Central America, the Andean, Southeast Asian and African regions. In addition, we strengthened our market position and product range in Mexico, Colombia, Peru, Australia and South Africa. Overall, there remains a great deal of opportunity in ROW as GDP rates from many emerging markets in aggregate continue to outpace those of the developing world particularly in countries such as Brazil, Chile and Zambia as investment in electrical infrastructure, construction and mining continues, as well as communications infrastructure.

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