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Investor's Business Daily
Wire Manufacturer Keeps Making The Right Connections
Wednesday March 8, 7:00 pm ET
Lisa Schmeiser
Electrical wiring snakes throughout the U.S., from California to New England and Minnesota to Florida. Much of that wire originates from a company smack dab in the middle of the country: Encore Wire.
Encore (NasdaqNM:WIRE - News) manufactures electrical wire and cable for residential and commercial use. About 60% of its business goes to commercial construction, and the balance goes to the residential trade.
One of the key raw materials in electrical wire is copper. The metal's prices have climbed about 25% in the past year. This would suggest that Encore might get squeezed on materials costs.
Not so, says Westminster Securities analyst Williams Lyons.
"The interesting thing about Encore is that as the price of copper goes up, their margins improve," he said. "They have long-term supply contracts for copper so it would take a pretty severe shortage for them to have a problem sourcing copper."
As long as Encore's products maintain certain price points and margins, raw material costs aren't a factor.
Feeling The Pinch
The biggest problem Encore has had with copper in the past year has been related to transportation rather than price, says Chief Executive Daniel Jones.
"Most of our copper comes in by rail, and all of our product ships out by truck," he said. "Both industries got pinched (last year)."
One problem was the active 2005 hurricane season, which disrupted distribution in some parts of the country.
At the same time, the storms generated business -- mainly from wiring for construction work.
"For the next four to 10 years, there will be a lot of construction in the U.S. gulf area," Lyons. "(Encore will) be a major beneficiary of construction in the Gulf Coast region."
It's not just a matter of being in the right place at the right time. Encore has a reputation for fast turnarounds and customer service, Lyons says.
"One of the great advantages these guys have over their competitors is their ability to deliver their product on a very tight schedule," he said. "It's very important to a builder to stay on schedule. Encore is really focused on getting the product where it's supposed to be on time."
The company does this by restricting operations to just one location, and the manufacturing plant is on the same site as the warehouse.
"Encore built its reputation by having enough inventory in one place," said Chief Financial Officer Frank Bilban. "Our business model is to have one big factory in the middle of the country, with one big warehouse, serving all 48 states."
Encore can ship far-flung orders while at the same time keeping an eye on which products are running low.
This lets the company manage its production schedules more efficiently, which in turn perpetuates the cycle by helping Encore gauge which orders it can fill quickly.
Another key move for Encore has been its expansion into commercial electrical supplies after previously focusing on residential supplies. The company first moved into the commercial sector in 1994. It now makes up the majority of its business.
It helped that the sales force and client base were largely the same in commercial construction as they had been in residential construction, Bilban says. Another boost came from favorable word of mouth.
"Our calling card is virtually 100% order fill rates, coast to coast within five business days, out of one warehouse in Texas," Bilban said. "Because we had already established that service level with our customers, they were already clamoring for our commercial wire."
The customer base is now requesting a new product: armored cable. It's industrial wiring with an aluminum jacket.
"There's room for us to enter that market, no question," Johnson said.
Encore will be rolling out the product in the second half of 2006. Bilban says some 3,000 customers already are asking after the armored cable.
The company posted 2005 sales of $758 million, up 26% from the prior year. Earnings gained 51% to $2.13 a share.
Analysts polled by First Call expect profit to dip 6% to $2.01 a share this year, then rebound to $2.66 a share in 2007.
Investor's Business Daily
Wire Manufacturer Keeps Making The Right Connections
Wednesday March 8, 7:00 pm ET
Lisa Schmeiser
Electrical wiring snakes throughout the U.S., from California to New England and Minnesota to Florida. Much of that wire originates from a company smack dab in the middle of the country: Encore Wire.
Encore (NasdaqNM:WIRE - News) manufactures electrical wire and cable for residential and commercial use. About 60% of its business goes to commercial construction, and the balance goes to the residential trade.
One of the key raw materials in electrical wire is copper. The metal's prices have climbed about 25% in the past year. This would suggest that Encore might get squeezed on materials costs.
Not so, says Westminster Securities analyst Williams Lyons.
"The interesting thing about Encore is that as the price of copper goes up, their margins improve," he said. "They have long-term supply contracts for copper so it would take a pretty severe shortage for them to have a problem sourcing copper."
As long as Encore's products maintain certain price points and margins, raw material costs aren't a factor.
Feeling The Pinch
The biggest problem Encore has had with copper in the past year has been related to transportation rather than price, says Chief Executive Daniel Jones.
"Most of our copper comes in by rail, and all of our product ships out by truck," he said. "Both industries got pinched (last year)."
One problem was the active 2005 hurricane season, which disrupted distribution in some parts of the country.
At the same time, the storms generated business -- mainly from wiring for construction work.
"For the next four to 10 years, there will be a lot of construction in the U.S. gulf area," Lyons. "(Encore will) be a major beneficiary of construction in the Gulf Coast region."
It's not just a matter of being in the right place at the right time. Encore has a reputation for fast turnarounds and customer service, Lyons says.
"One of the great advantages these guys have over their competitors is their ability to deliver their product on a very tight schedule," he said. "It's very important to a builder to stay on schedule. Encore is really focused on getting the product where it's supposed to be on time."
The company does this by restricting operations to just one location, and the manufacturing plant is on the same site as the warehouse.
"Encore built its reputation by having enough inventory in one place," said Chief Financial Officer Frank Bilban. "Our business model is to have one big factory in the middle of the country, with one big warehouse, serving all 48 states."
Encore can ship far-flung orders while at the same time keeping an eye on which products are running low.
This lets the company manage its production schedules more efficiently, which in turn perpetuates the cycle by helping Encore gauge which orders it can fill quickly.
Another key move for Encore has been its expansion into commercial electrical supplies after previously focusing on residential supplies. The company first moved into the commercial sector in 1994. It now makes up the majority of its business.
It helped that the sales force and client base were largely the same in commercial construction as they had been in residential construction, Bilban says. Another boost came from favorable word of mouth.
"Our calling card is virtually 100% order fill rates, coast to coast within five business days, out of one warehouse in Texas," Bilban said. "Because we had already established that service level with our customers, they were already clamoring for our commercial wire."
The customer base is now requesting a new product: armored cable. It's industrial wiring with an aluminum jacket.
"There's room for us to enter that market, no question," Johnson said.
Encore will be rolling out the product in the second half of 2006. Bilban says some 3,000 customers already are asking after the armored cable.
The company posted 2005 sales of $758 million, up 26% from the prior year. Earnings gained 51% to $2.13 a share.
Analysts polled by First Call expect profit to dip 6% to $2.01 a share this year, then rebound to $2.66 a share in 2007.
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