Earlier this month, Houston Wire & Cable Company (HWCC) reported second quarter earnings of 10 cents per share, below the Zacks Consensus Estimate of 17 cents and prior year earnings of 44 cents per share. The company’s cost reduction and productivity improvement efforts could not fully offset the impact of lower sales on the company’s earnings.

Quarterly sales fell 36.5% year over year to $61.9 million due to continued weakness in demand for the company’s products and a significant reduction in copper prices. The company estimates that sales from its five major growth initiatives — Emission Controls, Engineering & Construction, Industrials, LifeGuard and Utility Power Generation — have increased approximately 5%–10% in each case after adjusting for copper deflation, while sales in the Repair and Replacement sector declined in double digits.

Gross margin in the quarter declined 390 bps to 21.0% from 24.9% recorded in the prior-year period, due to lower sales volumes, declining copper prices, and increased competitive pricing pressures. The company continued to sell certain high copper content inventory at market prices, thereby dragging down the gross margin.

Despite a 12.2% reduction in operating expenses through productivity improvement and cost-cutting, operating margin declined to 5.0% in the reporting quarter from 13.5% last year.

Outlook for the second half remains uncertain. The company stated that while it continues to obtain large project commitments, activity levels in the smaller and less capital intensive projects remain low. Downturn in capital spending from a general slowdown in the economy and cyclicality in certain targeted markets is adversely impacting the demand for HWCC’s products and services.
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