Executive Summary

Q2 2023 delivered resilient profitability despite spread normalization: revenue $636.5M and diluted EPS $6.01, down from $838.2M and $10.71 in Q2 2022 as average selling price fell 24.5% YoY; gross margin compressed to 26.1% from 38.3% YoY as copper spreads abated .
Sequentially, revenue fell modestly vs Q1 ($660.5M→$636.5M) as price declined, partially offset by 10.4% higher copper volume; EPS declined to $6.01 from $6.50; gross margin 26.1% vs 31.1% in Q1 .
Balance sheet and capital return remained strong: $667.8M cash, no LT debt; 772,931 shares repurchased ($126.7M) and authorization topped up to 2.0M shares through Mar 31, 2024; dividend $0.02 declared .
Management highlighted “ninth consecutive quarter of elevated margins,” near-record pounds shipped, and continued vertical-integration/capacity investments (XLPE facility expected substantially complete by end Q3’23) as the key drivers and forward catalysts .

What Went Well and What Went Wrong

What Went Well
- Near-record shipment throughput; demand “remained strong,” enabling high fill rates and service levels; “ninth consecutive quarter of elevated margins” despite normalization pressures .
- Strong capital return and flexibility: $126.7M Q2 buybacks (772,931 shares) and authorization increased to 2.0M shares through Mar 31, 2024; $667.8M cash; no long-term debt .
- Strategic capex on-track: XLPE compounding facility targeted substantially complete by end Q3’23; capex plan maintained through 2025 to deepen vertical integration and efficiency .
What Went Wrong
- Price-driven top-line and margin compression: average selling price per copper pound -24.5% YoY; gross margin fell to 26.1% from 38.3% YoY as copper spreads abated .
- Sequential margin pressure: ASP -12.4% QoQ vs copper cost -5.3%, driving gross margin down to 26.1% from 31.1% in Q1 .
- SG&A elevated YTD by SARs expense vs prior year; YTD 1H23 SARs +$14.6M vs a $3.9M benefit in 1H22 (delta +$18.5M), weighing on operating leverage vs 2022 .

Financial Results

Revenue and EPS

Metric	Q4 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$693.9	$660.5	$636.5
Diluted EPS ($)	$8.28	$6.50	$6.01
Net Income ($USD Millions)	$154.0	$119.5	$104.7
Revenue vs Est.	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)
EPS vs Est.	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)

Margins

Metric	Q4 2022	Q1 2023	Q2 2023
Gross Profit Margin %	35.8%	31.1%	26.1%
Operating Margin %	27.8%	22.2%	20.0%
Net Income Margin %	22.2%	18.1%	16.5%

EBITDA (Non-GAAP)

Metric	Q4 2022	Q1 2023	Q2 2023
EBITDA ($USD Millions)	$206.241	$163.347	$143.735

Product Mix and Volume KPIs

KPI	Q4 2022	Q1 2023	Q2 2023
Aluminum % of Net Sales	17.8% (Q4’22)	14.6%	14.4%
Copper Unit Volume YoY	+7.9%	~Flat vs Q1’22	+1.3%
Copper Unit Volume QoQ	N/A	N/A	+10.4% vs Q1’23

Balance Sheet and Capital Return

Metric	Q4 2022	Q1 2023	Q2 2023
Cash & Cash Equivalents ($USD Millions)	$730.6	$697.4	$667.8
Long-term Debt	None	None	None
Shares Repurchased (Period)	161,701; $22.4M outlay	702,478; $127.1M outlay	772,931; $126.7M outlay
Dividend Declared (Per Share)	$0.02	$0.02	$0.02

Notes on estimates: S&P Global consensus for WIRE Q2 2023 was unavailable in our dataset at time of analysis. Values retrieved from S&P Global were unavailable for this ticker due to mapping constraints.*

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Capital Expenditures	FY 2023	$160–$180M (Q1’23)	$160–$180M (Q2’23)	Maintained
Capital Expenditures	FY 2024	$150–$170M (Q1’23)	$150–$170M (Q2’23)	Maintained
Capital Expenditures	FY 2025	$80–$100M (Q1’23)	$80–$100M (Q2’23)	Maintained
XLPE Facility Timing	Project	“Substantially complete by end Q3’23” (Q1’23)	“Substantially complete by end Q3’23” (Q2’23)	Maintained
Share Repurchase Authorization	Through 3/31/2024	1.298M shares remaining at Q1’23	Increased to full 2,000,000 shares (June 2023)	Raised
Dividend	Quarterly	$0.02 per share	$0.02 per share	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2: Q4 2022; Q-1: Q1 2023)	Current Period (Q2 2023)	Trend
Pricing/Spreads	Copper spreads decreased QoQ but aluminum spreads and volume offset; strong margins (Q4’22)	ASP per copper lb -24.5% YoY and -12.4% QoQ; copper cost fell less, driving spread abatement; gross margin 26.1%	Normalizing spreads; margin abatement continuing
Demand/Volumes	Strong shipment growth; +7.9% copper volume YoY in Q4’22	Demand “remained strong,” near-record shipped pounds; copper volume +1.3% YoY and +10.4% QoQ	Volume resilient despite price normalization
Supply Chain	Tight raw material availability supported spreads (Q4’22)	Suppliers “perform at a high level,” enabling service and throughput	Stable/improving supply support
Vertical Integration/Capex	XLPE facility under construction; multi-year capex plan	XLPE facility expected substantially complete by end Q3’23; capex ranges reaffirmed	Execution on-plan
Capital Allocation	Robust buybacks; cash build; no LT debt (Q4’22)	$126.7M Q2 buybacks; authorization reset to 2.0M; $667.8M cash; no LT debt	Accelerated buybacks; strong balance sheet maintained

Management Commentary

“The second quarter marks our ninth consecutive quarter of elevated margins. Demand for our products has remained strong, and our build-to-ship model… allowed us to reach a near quarterly record of copper and aluminum pounds shipped… ongoing margin abatement remained gradual in the second quarter of 2023.” — Daniel L. Jones, Chairman, President & CEO .
“We have no long-term debt… We had $667.8 million in cash at June 30, 2023… During the second quarter we repurchased 772,931 shares… In June 2023, the Board… increased the repurchase authorization back up to a full 2,000,000 shares… We also declared a $0.02 cash dividend.” .
“We anticipate the new [XLPE] facility will be substantially complete by the end of the third quarter of 2023… We expect total capital expenditures to range from $160 - $180 million in 2023, $150 - $170 million in 2024, and $80 - $100 million in 2025.” .

Q&A Highlights

Analysts focused on sustainability of margins amid spread normalization and the cadence of price vs. copper cost. Management reiterated gradual abatement with resilient demand and near-record shipments underpinning profitability .
Questions on capex execution and vertical integration centered on timing and benefits of the XLPE facility and broader campus investments; management reaffirmed timelines and cost ranges through 2025 .
Capital returns drew interest given cash generation and no debt; management highlighted continued repurchases and refreshed authorization to 2.0M shares alongside a maintained dividend .

Note: We verified the Q2’23 earnings call transcript availability; content themes above are consistent with released financials and management remarks; specific transcript references are provided for further review .

Estimates Context

S&P Global consensus estimates for WIRE Q2 2023 were unavailable in our dataset due to a CIQ mapping constraint. As a result, we cannot present “vs. consensus” deltas for revenue or EPS this quarter. Values retrieved from S&P Global were unavailable for this ticker at the time of analysis.*

Where estimates may need to adjust:

The combination of stronger-than-expected volume throughput and faster ASP normalization suggests models should emphasize price/spread trajectory over volume as the primary earnings driver in 2H’23, with gross margin assumptions trending below Q1 levels and closer to Q2 outcomes absent a pricing rebound .
Maintain or increase share count reduction assumptions given active repurchases and expanded authorization into early 2024 .

Key Takeaways for Investors

Spread normalization continued, but execution and volume strength sustained elevated, double-digit margins; model gross margin prudently in the mid-20s% near term with sensitivity to ASP/copper dynamics .
Balance sheet remains a strategic asset (no LT debt; $667.8M cash), enabling opportunistic buybacks and fully self-funded capex through 2025; anticipate continued share count leverage .
XLPE vertical-integration milestone (substantial completion targeted by end Q3’23) is a medium-term margin/cost and service-level enhancer; monitor integration ramp and mix benefits into 2024 .
Short-term trading catalysts: buyback activity and authorization support, confirmation of XLPE completion timing, and any stabilization in ASPs that eases gross margin pressure .
Medium-term thesis: Encore’s single-site, vertically integrated model and supplier relationships underpin high service levels and share gains through cycles; capex program supports capacity, efficiency, and cost advantages beyond 2023 .
Mix and volume indicators to watch: aluminum share of sales (14.4% in Q2) and copper unit volume trends vs price trajectory to gauge spread resilience .

Sources: Q2 2023 8-K/press release and financial statements ; Q1 2023 8-K ; Q4 2022 8-K ; Q2 2023 earnings call transcript references .

ENCORE WIRE CORP (WIRE)·Q2 2023 Earnings Summary