HIGHLAND HEIGHTS, Ky. - Friday, November 4th 2016 [ME NewsWire]
(BUSINESS WIRE)-- General Cable Corporation (NYSE: BGC) reported today results for the third quarter ended September 30, 2016. For the quarter, reported diluted loss per share was $0.29 and reported operating income was $5 million. The Company generated adjusted earnings per share for the quarter of $0.07 and adjusted operating income of $32 million. See page 3 and 4 of this press release for the reconciliation of reported to adjusted results and related disclosures.
Michael T. McDonnell, President and Chief Executive Officer, said, “Third quarter results were below our expectations largely due to a temporary lull in North American end market demand early in the quarter and continued pressure on construction and electrical infrastructure spending in Latin America. Third quarter results were also impacted by the further softening of demand for historically higher margin industrial and specialty products, particularly those tied to oil and gas markets. While disappointed by lower than expected third quarter results, unit volume grew late in the quarter and customer sentiment improved as we continue to navigate a choppy end market environment. For the fourth quarter, we expect year-over-year improvement as higher unit volume is anticipated to more than offset lower subsea turnkey project activity. Overall, I’m very pleased with the progress we are making on the elements within our control – most importantly, our ability to execute as we generated strong operating cash flow, reduced outstanding borrowings, and completed the sale of two businesses. In addition, the execution of our strategic roadmap to transform the Company into a more focused, efficient and innovative organization is advancing according to plan.”
Third Quarter Summary
Reported operating income of $5 million and adjusted operating income of $32 million were down year over year $20 million and $15 million, respectively, primarily due to lower subsea turnkey project activity compared to last year, further weakening demand for industrial and specialty products tied to oil and gas end markets in North America and the continued pressure in Latin America
Generated operating cash flow of $50 million driven by the continued tight management of working capital
Maintained significant liquidity with $393 million of availability on the Company’s asset based credit facility and applied cash proceeds from divestitures to reduce outstanding borrowings
Completed the sale of the Company’s Zambia business bringing the total cash proceeds generated from the divestiture program to $203 million while also completing the sale of the company’s Venezuela business
Impact of metal prices was neutral as compared to guidance and the second quarter of 2016. The third quarter of 2015 was negatively impacted by metal price movements of $10 million.
North America – Unit volume was down 2% year over year as stronger demand for construction and electric utility distribution cables was more than offset by lower shipments of aerial transmission cables and further weakening of demand for industrial and specialty products tied to oil and gas end markets.
Europe – Unit volume was up 3% year over year driven by demand for electric utility products including land-based turnkey projects as well as energy cables.
Latin America – Unit volume was up 3% year over year driven by demand for aerial transmission products (excluding volume in Venezuela in Q3 2015).
Overall, through the first nine months of the year, demand in electric utility distribution and non-residential construction markets in North America was up mid-single digits year over year while demand for industrial and specialty products tied to oil and gas markets has continued to weaken throughout the year and was down year over year 5% and 50%, respectively. In Europe, setting aside the impact of restructuring activities, end market demand through the first nine months has been flat year over year. Unit volume in Latin America remains under pressure due to reduced spending on electric infrastructure and construction projects.
At the end of the third quarter 2016, the second quarter of 2016 and the fourth quarter of 2015, total debt was $993 million, $1,024 million and $1,079 million, respectively, and cash and cash equivalents was $120 million, $106 million and $112 million, respectively. At the end of the third quarter 2016 net debt was $873 million, which represents a decrease of $45 million from the second quarter of 2016 and $94 million from the end of 2015. The decrease in net debt is principally due to cash proceeds from divestitures and the efficient management of working capital including inventory levels.
Update on CFO Transition
We have today announced the appointment of Matti Masanovich as Chief Financial Officer and Senior Vice President, reporting to Michael McDonnell, President and Chief Executive Officer, effective November 11, 2016. Masanovich will be responsible for all aspects of the Finance, Investor Relations and IT functions, while serving as a key business partner in achieving the company’s strategic growth initiatives. Please refer to the separate press release issued today for further detail.
We continue to make progress toward a potential resolution of our previously disclosed and ongoing FCPA related investigations. Last quarter, based on discussions with the SEC and the DOJ at that time, we increased the range of potential resolution for disgorgement of profit and pre-judgment interest to between $33 million and $59 million. Based on recent discussions with the DOJ, we now are able to include in our estimated range of potential resolution an estimated range of a potential DOJ penalty and further potential disgorgement. As a result, the new estimated range of reasonably possible resolution, including disgorgement of profits, pre-judgment interest, and any potential DOJ penalty, is between $33 million and $120 million. We are continuing to have discussions with the SEC and DOJ regarding the terms of a potential resolution. At this time, we are not able to reasonably estimate the amount of any additional possible fines, civil penalties or other relief that may be sought with respect to the SEC’s FCPA investigation or the SEC’s previously-disclosed investigation into accounting issues.
The results of the Company’s Asia Pacific operations were previously presented as discontinued operations; however, in the third quarter of 2016, management determined that the sale of these businesses within one year was uncertain, and therefore determined that the held for sale criteria was no longer met for the businesses in China, New Zealand and Australia. As a result and because the businesses that have been sold to date including the Philippines, Thailand, India, Dominion Wire and Cables (Fiji) and Keystone Electrical Wire and Cable (China), in the aggregate, are not considered a strategic shift; the Asia Pacific operations will no longer be presented as discontinued operations in the financial statements for all periods presented. The Company remains fully committed to optimizing its portfolio and is focused on executing its divestiture program in order to simplify its portfolio.
The minority shareholders in the Company’s business in Colombia (Procables) elected to exercise a contractual right to sell their 40% interest to the Company. The price to be paid, pursuant to the contract, is $18 million and is anticipated to be paid in the fourth quarter of 2016.
Fourth Quarter 2016 Outlook
Revenues in the fourth quarter are expected to be in the range of $850 to $900 million. Unit volume is anticipated to be up mid-single digits year over year. Reported operating income is anticipated to be in the range of $17 to $32 million and adjusted operating income is anticipated to be in the range of $25 to $40 million for the fourth quarter. Reported diluted earnings per share are anticipated to be in the range of ($0.03) to $0.12 per share and adjusted earnings per share are expected to be in the range of $0.05 to $0.20 per share for the fourth quarter. The movement of metal prices is not anticipated to have a material impact on the fourth quarter outlook which assumes copper (COMEX) and aluminum (LME) prices of $2.20 and $0.75, respectively. Foreign currency exchange rates are assumed constant in the fourth quarter outlook. The fourth quarter outlook for adjusted operating results does not include results from Asia Pacific and Africa.
Non-GAAP Financial Measures
Adjusted operating income (defined as operating income before extraordinary, nonrecurring or unusual charges and other certain items), adjusted earnings per share (defined as diluted earnings per share before extraordinary, nonrecurring or unusual charges and other certain items) and net debt (defined as long-term debt plus current portion of long-term debt less cash and cash equivalents) are “non-GAAP financial measures” as defined under the rules of the Securities and Exchange Commission. Metal adjusted revenues, adjusted operating income and return on metal-adjusted sales on a segment basis, non-GAAP financial measures, are also provided herein. See “Segment Information.”
These Company-defined non-GAAP financial measures exclude from reported results those items that management believes are not indicative of our ongoing performance and are being provided herein because management believes they are useful in analyzing the operating performance of the business and are consistent with how management reviews our operating results and the underlying business trends. Use of these non-GAAP measures may be inconsistent with similar measures presented by other companies and should only be used in conjunction with the Company’s results reported according to GAAP. Adjusted results, for periods prior to the fourth quarter of 2015, reflect the removal of the impact of our Venezuelan operations on a standalone basis. Effective as of the end of the third quarter 2015, we deconsolidated our Venezuelan subsidiary and began accounting for our investment in our Venezuelan subsidiary using the cost method of accounting. Historical segment adjusted operating results are disclosed in the Third Quarter 2016 Investor Presentation available on the Company’s website.
A reconciliation of GAAP operating income (loss) and diluted earnings (loss) per share to adjusted operating income and earnings (loss) per share follows:
To view the full report and tables please click here.
General Cable Corporation
Vice President, Investor Relations