GLENVIEW, Ill.--Anixter International Inc. (NYSE: AXE) today reported quarterly sales of $2.0 billion for the quarter ended July 1, 2016, a 32.1 percent increase compared to the year-ago quarter. Excluding the impact of the following items, organic sales decreased 0.6 percent year-over-year:
- $526.8 million favorable impact from the acquisition of Power Solutions
- $22.2 million unfavorable impact from the lower average price of copper
- $16.5 million unfavorable impact from the fluctuation in foreign currencies
The current quarter had 64 billing days, compared to 63 billing days in the year-ago quarter. Further excluding the favorable impact from one additional billing day, organic sales per day decreased 2.2 percent year-over-year.
All commentary in this release reflects results from continuing operations unless otherwise noted. Please refer to the tables at the end of this release for the reconciliations from our reported results prepared in accordance with U.S. GAAP to the adjusted amounts.
Net income of $20.8 million compares to $29.5 million in the prior year quarter. Current quarter results include a UK pension settlement, amortization of intangible assets, Latin America bad debt provision, restructuring charge and acquisition and integration costs. Excluding the above operating expense items, which had a $33.7 million pre-tax and $23.4 million after-tax impact, adjusted net income of $44.2 million compares to adjusted net income of $41.6 million in the prior year quarter, an increase of 6.3 percent. Diluted earnings per share of $0.62 compares to $0.88 and adjusted diluted earnings per share of $1.32 compares to $1.24, both versus prior year quarter.
|Earnings Impact of Adjustments to Operating Income|
|Three months ended|
|(In millions, except per share amounts)||July 1, 2016|
|UK pension settlement||$9.6|
|Amortization of intangible assets||9.5|
|Latin America bad debt provision||7.6|
|Acquisition and integration costs||1.4|
|Total pre-tax impact||$33.7|
|Total after-tax impact||$23.4|
|Adjusted Diluted EPS impact||$0.70|
Adjusted EBITDA of $101.8 million, or 5.2 percent of sales, compares to $92.7 million, or 6.3 percent of sales, in the prior year quarter, an increase of 9.8 percent.
On a year-over-year basis, currency fluctuations and lower average copper prices negatively impacted earnings by $4.3 million pre-tax and $2.5 million net of tax. Excluding the $0.07 negative impact of currency and copper, our adjusted earnings per diluted share would have been $1.39, a 12.1 percent increase from the prior year quarter.
"Reflecting the underlying strength in our North America network infrastructure business, we delivered our 11th consecutive quarter of growth in our Network and Security Solutions segment," commented Bob Eck, President and CEO. "We were pleased with the significant improvement in our EES segment, exiting the quarter with strong momentum as we integrate the low voltage portion of the Power Solutions acquisition into the segment. Finally, the combined effects of the weaker industrial economy and lower commodity prices on a year-over-year basis continue to be headwinds for both the industrial portion of our EES segment and our UPS segment. In light of a persistent slow global growth environment, we will continue to focus on margin improvement, ongoing expense discipline and working capital efficiencies."
Income Statement Detail
Gross margin of 20.1 percent compares to 20.4 percent sequentially, with the decline primarily caused by segment and product mix. The decrease versus prior year gross margin of 22.2 percent is due primarily to the Power Solutions acquisition.
Operating expense of $336.7 million, or 17.2 percent of sales, compares to prior year operating expense of $264.4 million, or 17.9 percent of sales, reflecting the impact of the Power Solutions acquisition. The $5.6 million of restructuring costs included in operating expense will deliver approximately $10 million of annualized savings. Excluding the $33.7 million of expense outlined above, adjusted operating expense of $303.0 million, or 15.5 percent of sales, compares to prior year adjusted operating expense of $245.1 million, or 16.6 percent of sales.
Operating income of $56.7 million, or 2.9 percent of sales compares to $64.5 million or 4.4 percent in the prior year quarter. Excluding current quarter operating expense items outlined above, adjusted operating income increased 8.0 percent to $90.4 million or 4.6 percent of sales compared to $83.8 million or 5.7 percent in the prior year quarter.
Interest expense of $19.8 million compares to $12.7 million in the prior year quarter, reflecting the issuance of incremental debt to finance the Power Solutions acquisition. Foreign exchange and other expense of $0.8 million compares to $3.5 million in the prior year quarter.
Our second quarter effective tax rate was 42.4 percent. A large portion of the 360 basis point increase from the prior year effective tax rate of 38.8 percent was due to the change in the country mix of earnings since many of the current year operating expense charges of $33.7 million were incurred in countries with low income tax rates or have valuation allowances recorded against deferred tax assets. Our projected full year GAAP effective tax rate is 40.1 percent and our adjusted effective full year rate for non-GAAP operating results is 37.2 percent.
Network & Security Solutions ("NSS") sales of $1.0 billion increased by 3.3%. On an organic basis NSS sales increased 4.0 percent, adjusting for the $8.0 million unfavorable impact from foreign exchange, driven by solid trends in North America, EMEA and Asia Pacific.
Second quarter NSS security sales of $410.6 million, which represents approximately 40 percent of total segment sales, increased 3.7 percent from the prior year quarter. Adjusted for the $2.9 million negative currency impact, organic security sales growth was 4.5 percent.
NSS operating income of $64.9 million compares to $66.6 million in the prior year quarter and $58.8 million in the first quarter of 2016. NSS adjusted EBITDA of $75.7 million compares to $76.2 million in the prior year quarter and $63.8 million in the first quarter of 2016. The corresponding adjusted EBITDA margin of 7.2 percent compares to 7.5 percent in the prior year quarter and 6.7 percent in the first quarter of 2016.
Electrical & Electronic Solutions (“EES”) sales of $555.1 million compares to $449.5 million in the prior year period, an increase of 23.5 percent. EES organic sales decreased 1.9 percent, adjusting for the $6.7 million unfavorable impact from foreign exchange, $21.8 million impact from lower average copper prices and $145.1 million from the low voltage business of the Power Solutions acquisition.
EES operating income of $23.9 million compares to $33.6 million in the prior year quarter and $22.5 million in the first quarter of 2016. The majority of the decline in operating income versus prior year was caused by lower copper pricing and weakness in the industrial sector.
EES adjusted EBITDA of $32.3 million compares to $37.6 million in the prior year period and $25.4 million in the first quarter of 2016. The corresponding adjusted EBITDA margin of 5.8 percent compares to 8.3 percent in the prior year period and 5.0 percent in the first quarter of 2016. Approximately two-thirds of the decline in adjusted EBITDA margin versus prior year was caused by lower copper pricing and weakness in the industrial sector, with the balance due to the low voltage business of the Power Solutions acquisition.
Utility Power Solutions (“UPS”) sales of $355.9 million compares to $361.1 in the first quarter of 2016. As indicated in the prior two quarters, sales in this segment continue to be negatively impacted by lower sales in Canada due to weakness in oil and gas regions along with the timing of utility customers' major project spend.
UPS operating income of $12.0 million compares to $14.3 million in the first quarter of 2016. UPS adjusted EBITDA was $19.3 million, or 5.4 percent of sales, which compares to $20.1 million, or 5.6 percent of sales, in the first quarter of 2016.
Cash Flow and Leverage
Year-to-date we generated $149.4 million in cash flow from operations which compares to $39.3 million in the prior year period, driven primarily by working capital efficiencies. Year-to-date we have invested $16.4 million in capital expenditures which compares to $22.1 million in the prior year period. We expect to invest approximately $40 - 45 million in capital investments, lower than our original plans, to adjust for the current business environment. We now expect to generate $180 - $200 million in cash flow from operations for the full year.
"While our leading market positions and exposure to attractive end markets resulted in solid growth in our NSS segment, our EES and UPS segments face challenging headwinds. As a result, we continue to have a strong focus on improving our margin, cost structure and working capital efficiency," commented Ted Dosch, Executive Vice President - Finance and CFO. "Reflecting our relentless focus on working capital, we were pleased to achieve working capital as a percent of sales of 19.2 percent for the quarter compared to 21.4 percent at year end 2015. Turning to our capital structure, our capital allocation priorities include achieving our debt-to-capital target range of 45 - 50% by the second half of 2017, funded by the strong free cash flow we expect to generate from our repositioned platform."
Key capital structure and credit-related statistics for the quarter:
- Debt-to-total capital ratio improved to 54.8% from 58.2% at the end of 2015
- Weighted average cost of borrowed capital of 4.7% was the same as the year-ago quarter
- $522.9 million available under revolving lines of credit and secured accounts receivable and inventory facilities
"As we enter the second half of the year, our NSS segment continues to experience positive momentum in all regions except CALA, driven by strength in projects with global customers," commented Bob Eck. "While our EES segment continues to experience weakness related to industrial and manufacturing end market exposure, sales trends are improving in all regions except CALA. Our UPS segment continues to experience soft trends related to its exposure to oil and gas end markets in the US and Canada, combined with the timing impact of major capital projects. Reflecting diverging trends across our business and across the broad economy, as well as the uncertainty created by Brexit, we remain cautious regarding prospects for a recovery in the second half of 2016. Combining our more positive outlook in NSS with an improving outlook in our EES and UPS segments, we now expect full year 2016 sales growth between 20 to 24 percent. The acquisition will increase sales by 24 percent, while currency and copper will each have a negative impact of 1 percent. The net result is an organic sales growth rate in the negative 2 percent to positive 2 percent range."
Financial Results from Continuing Operations
|Three Months Ended||Six Months Ended|
|Jul 1,||Jul 3,||Percent||Jul 1,||Jul 3,||Percent|
|(In millions, except per share amounts)||2016||2015||Change||2016||2015||Change|
|Diluted Earnings Per Share||$||0.62||$||0.88||(30||)%||$||1.32||$||1.68||(21||)%|
|Diluted Weighted Shares||33.5||33.4||—||%||33.4||33.4||—||%|
Second Quarter Earnings Call Details
We will host a conference call to discuss these results beginning at 9:30 a.m. Central Time today. The call will be available as a live audio webcast and can be accessed at the Investor Relations portion of our website at anixter.com/investor. Dial-in numbers for the call are as follows:
|U.S./Canada toll-free dial-in:||(888) 359-3627|
|International dial-in:||(719) 457-2727|
A replay of the call will be available at anixter.com/investor for 15 days following the call. Prior to the beginning of the call a supplemental presentation titled “Second Quarter 2016 Highlights and Operating Review” will be available on the Investor Relations section of our website.
Anixter International is a leading global distributor of Network & Security Solutions, Electrical & Electronic Solutions and Utility Power Solutions. We help build, connect, protect, and power valuable assets and critical infrastructures. From enterprise networks to industrial MRO supply to video surveillance applications to electric power distribution, we offer full-line solutions, and intelligence, that create reliable, resilient systems that sustain businesses and communities. Through our unmatched global distribution network along with our supply chain and technical expertise, we help lower the cost, risk and complexity of our customers’ supply chains.
Anixter adds value to the distribution process by providing our customers access to 1) innovative supply chain solutions, 2) over 450,000 products and $1.2 billion in inventory, 3) approximately 320 warehouses/branch locations with approximately 9.0 million square feet of space and 4) locations in over 300 cities in more than 50 countries. Founded in 1957 and headquartered near Chicago, Anixter trades on the New York Stock Exchange under the symbol AXE.
Safe Harbor Statement
The statements in this release other than historical facts are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of factors that could cause our actual results to differ materially from what is indicated here. These factors include but are not limited to general economic conditions, the level of customer demand particularly for capital projects in the markets we serve, changes in supplier relationships or in supplier sales strategies or financial viability, risks associated with the sale of nonconforming products and services, political, economic or currency risks related to foreign operations, inventory obsolescence, copper price fluctuations, customer viability, risks associated with accounts receivable, the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, information security risks, risks associated with substantial debt and restrictions contained in financial and operating covenants in our debt agreements, the impact and the uncertainty concerning the timing and terms of the withdrawal by the United Kingdom from the European Union, and risks associated with integration of acquired companies, including, but not limited to, the risk that the acquisitions may not provide us with the synergies or other benefits that were anticipated. These uncertainties may cause our actual results to be materially different than those expressed in any forward looking statements. We do not undertake to update any forward looking statements. Please see our Securities and Exchange Commission (“SEC”) filings for more information.
Non-GAAP Financial Measures
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) above, this release includes certain financial measures computed using non-GAAP components as defined by the SEC. Specifically, net sales comparisons to the prior corresponding period, both worldwide and in relevant segments, are discussed in this release both on a GAAP and non-GAAP basis. We believe that by providing non-GAAP organic growth, which adjusts for the impact of acquisitions (when applicable), foreign exchange fluctuations and copper prices, both management and investors are provided with meaningful supplemental sales information to understand and analyze our underlying trends and other aspects of our financial performance. We calculate the year-over-year organic sales growth and operating expenses impact relating to the Power Solutions acquisition by including its 2015 comparable period results prior to the acquisition with our results (on a "pro forma" basis) as we believe this represents the most accurate representation of organic growth, considering the nature of the company we acquired and the synergistic revenues that have been or will be achieved. Historically and from time to time, we may also exclude other items from reported financial results (e.g., impairment charges, inventory adjustments, restructuring charges, tax items, currency devaluations, pension settlements, etc.) in presenting adjusted net income so that both management and financial statement users can use these non-GAAP financial measures to better understand and evaluate our performance period over period and to analyze the underlying trends of our business. As a result of the recent acquisitions we have also excluded amortization of intangible assets associated with purchase accounting from acquisitions from the adjusted amounts discussed below as non-GAAP financial measures to provide comparable period over period comparisons.
EBITDA is defined as net income from continuing operations before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating expense and non-cash stock-based compensation, excluding the other items from reported financial results, as defined above. We believe that adjusted operating income, EBITDA and Adjusted EBITDA provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and business segment performance. Adjusted operating income provides an understanding of the results from the primary operations of our business by excluding the effects of certain items that do not reflect the ordinary earnings of our operations. We use adjusted operating income to evaluate our period-over-period operating performance because we believe this provides a more comparable measure of our continuing business excluding certain items that are not reflective of expected ongoing operations. This measure may be useful to an investor in evaluating the underlying performance of our business. EBITDA provides us with an understanding of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA further excludes the effects of foreign exchange and other non-cash stock-based compensation, and certain items that do not reflect the ordinary earnings of our operations and that are also excluded for purposes of calculating adjusted net income, adjusted earnings per share and adjusted operating income. EBITDA and Adjusted EBITDA are used by our management for various purposes including as measures of performance of our operating entities and as a basis for strategic planning and forecasting. Adjusted EBITDA may be useful to an investor in evaluating our operating performance because this measure is widely used to evaluate a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending on the accounting methods, book value of assets, capital structure and the method by which the assets were acquired, among other factors. They are not, however, intended as an alternative measure of operating results or cash flow from operations as determined in accordance with generally accepted accounting principles.
Non-GAAP financial measures provide insight into selected financial information and should be evaluated in the context in which they are presented. These non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as reported by us may not be comparable to similarly titled amounts reported by other companies. The non-GAAP financial measures should be considered in conjunction with the Condensed Consolidated Financial Statements, including the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this release. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
Additional information about Anixter is available at anixter.com.
|ANIXTER INTERNATIONAL INC.|
|Condensed Consolidated Statements of Operations (Unaudited)|
|Three Months Ended||Six Months Ended|
|(In millions, except per share amounts)||July 1, 2016||July 3, 2015||July 1, 2016||July 3, 2015|
|Cost of goods sold||1,562.3||1,151.5||3,007.7||2,227.3|
|Income from continuing operations before income taxes||36.1||48.3||73.5||89.4|
|Income tax expense from continuing operations||15.3||18.8||29.5||33.4|
|Net income from continuing operations||20.8||29.5||44.0||56.0|
|(Loss) income from discontinued operations before income taxes||(0.5||)||46.5||(1.2||)||57.7|
|Income tax (benefit) expense from discontinued operations||(0.2||)||4.6||(0.5||)||23.2|
|Net (loss) income from discontinued operations||(0.3||)||41.9||(0.7||)||34.5|
|Income (loss) per share:|
|Weighted-average common shares outstanding:|
|Net sales:||(As revised*)||(As revised*)|
|Network & Security Solutions||$||1,044.7||$||1,011.7||$||1,993.8||$||1,939.7|
|Electrical & Electronic Solutions||555.1||449.5||1,061.1||890.3|
|Utility Power Solutions||355.9||19.2||717.0||35.5|
|Network & Security Solutions||$||64.9||$||66.6||$||123.7||$||122.3|
|Electrical & Electronic Solutions||23.9||33.6||46.4||69.4|
|Utility Power Solutions||12.0||2.4||26.3||4.4|
|* Revised due to change in composition of our reportable segments.|
|ANIXTER INTERNATIONAL INC.|
|Condensed Consolidated Balance Sheets (Unaudited)|
|July 1, 2016||January 1, 2016|
|Cash and cash equivalents||$||133.2||$||151.3|
|Accounts receivable, net||1,350.5||1,326.4|
|Other current assets||50.9||67.5|
|Total current assets||2,721.1||2,727.8|
|Property and equipment, net||140.6||131.8|
|Intangible assets, net||437.0||453.8|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Total current liabilities||1,219.0||1,156.2|
|5.50% Senior notes due 2023||346.0||345.8|
|5.125% Senior notes due 2021||395.3||394.9|
|5.625% Senior notes due 2019||347.2||346.8|
|Canadian term loan||162.1||172.9|
|Revolving lines of credit||270.0||390.1|
|Unamortized debt issuance costs||(8.4||)||(10.2||)|
|Total stockholders' equity||1,249.8||1,179.4|
|Total liabilities and stockholders' equity||$||4,138.6||$||4,142.0|
|ANIXTER INTERNATIONAL INC.|
|Condensed Consolidated Statements of Cash Flows (Unaudited)|
|Six Months Ended|
|July 1, 2016||July 3, 2015|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Gain on sale of business, net of tax expense of $10.0 in 2015||—||(49.3||)|
|Amortization of intangible assets||19.2||10.7|
|Deferred income taxes||1.4||—|
|Accretion of debt discount||1.1||0.8|
|Amortization of deferred financing costs||1.0||0.7|
|Pension plan contributions||(10.5||)||(12.1||)|
|Pension plan expenses||15.2||5.9|
|Excess income tax benefit from employee stock plans||(0.2||)||(0.5||)|
|Changes in current assets and liabilities, net||62.4||(30.5||)|
|Net cash provided by operating activities||149.4||39.3|
|Capital expenditures, net||(16.4||)||(22.1||)|
|Proceeds from sale of business||—||358.0|
|Net cash (used in) provided by investing activities||(21.1||)||338.1|
|Proceeds from borrowings||376.7||508.8|
|Repayments of borrowings||(496.7||)||(573.8||)|
|Repayments of Canadian term loan||(23.1||)||—|
|Retirement of Notes due 2015||—||(200.0||)|
|Repayments of term loan||—||(2.5||)|
|Excess income tax benefit from employee stock plans||0.2||0.5|
|Net cash used in financing activities||(143.5||)||(268.0||)|
|(Decrease) increase in cash and cash equivalents||(15.2||)||109.4|
|Effect of exchange rate changes on cash balances||(2.9||)||4.8|
|Cash and cash equivalents at beginning of period||151.3||92.0|
|Cash and cash equivalents at end of period||$||133.2||$||206.2|
|ANIXTER INTERNATIONAL INC.|
|Financial Measures That Supplement GAAP (Unaudited)|
|Second Quarter 2016 Sales Growth Trends|
|Network & Security Solutions|
|Electrical & Electronic Solutions|
|Utility Power Solutions|