General Cable Corporation (BGC)

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General Cable (BGC)

Q3 2012 Earnings Call

October 30, 2012 8:30 am ET

Executives

Len Texter

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

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

Analysts

Shawn M. Harrison - Longbow Research LLC

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

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

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

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

Presentation

Operator

Good morning. My name is Jonathan, and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's Third Quarter 2012 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 Third Quarter 2012 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.

Today's call will be accompanied by a 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 third quarter. Secondly, Greg Kenny will provide comments on the company's fourth quarter 2012 outlook and an early view on 2013, 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 our call today.

To begin, please turn to Slide #5 where we have included a reconciliation of our previously communicated outlook provided on July 31. As you can see on Slide 5, we have excluded the impact of the Alcan Cable North America acquisition for ease of comparison.

With that, I will turn the call over to Brian Robinson. Brian?

Brian J. Robinson

Thank you, Len, good morning. We are pleased to report adjusted operating income exceeded our guidance range for the third quarter, and adjusted EPS was within our range of expectations. In ROW, we reported better-than-expected operating results due to strong pre-election spending on housing and electrical infrastructure in Venezuela, ongoing reconstruction efforts in Thailand and construction activity in the Philippines. Our businesses in North America and Europe generally performed as expected, despite the increasingly more challenging macro environment and the slowing industrial market in the U.S.

As you can see on Slide 5, other than the effective tax rate, metal pounds sold, net sales and inventory quantity movements were generally consistent with our expectations for the third quarter. The company recorded $6.1 million or $0.12 per share of additional tax expense in the third quarter, as the company's full year estimated effective tax rate was increased due to the expected full year earnings mix. As a result, the company recorded in the third quarter a catch-up adjustment for the first half of 2012 of $2.6 million or $0.05 per share of additional tax expense.

In addition, the 45.9% effective tax rate in the third quarter also includes other incremental discrete tax items of approximately $3.5 million or $0.07 per share. As a result, the full year effective tax rate is expected to be around 36%, up from our previously communicated range of 30% to 33%.

Turning to the individual segments. First in ROW, demand improvement was driven by construction activity and electrical infrastructure investment in Latin America, particularly in Venezuela, where spending ahead of the presidential election was robust. Additionally, ongoing reconstruction efforts in Thailand and healthy construction activity in the Philippines continued to drive demand for our products.

Also, order rates for rod mill OEM customers and electrical distributors normalized as metal prices settled and began to rise over the latter part of the third quarter. As a result, third quarter adjusted operating income increased to $36.8 million ahead of management's expectations.

In North America, volume was consistent with expectations across most business units in North America as seasonal demand patterns in the company's utility businesses, following a strong second quarter coupled with an industrial slowdown, broadly reduced demand for wire and cable products during the third quarter of 2012.

Demand for electrical infrastructure products, including industrial and specialty cables, particularly those used in natural resource extraction and transit applications, remained relatively stable year-over-year. Third quarter operating income of $26.8 million reflects the seasonally lower results in many of our businesses in North America following the strong performance of the company's telephone and electric utility business in the second quarter.

In Europe and Mediterranean, increased submarine and land-based turnkey project activity was more than offset by the very weak domestic demand environment in Spain, coupled with seasonal demand patterns including the August summer holiday period throughout much of Europe. In addition, the second quarter of 2012 reflected relatively strong demand for medium voltage cables in France and aluminum-based electric utility products in the Mediterranean. The company's backlog was around $650 million for submarine and land-based turnkey cable projects at the end of the third quarter, as the company continues to capture new projects in both submarine and land.

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