General Cable: Zacks’ Bear of the Day Play

Headquartered in Highland Heights, Kentucky, General Cable (BGCSnapshot Report) develops, designs, manufactures, markets and distributes copper, aluminum and fiber optic wire and cable products for energy, industrial, specialty and communications markets around the world.

During 2013, 43% of sales were in North America, 22% in Europe, 19% in Latin America, 10% in Asia and the remaining 6% in Africa.

Disappointing Results and Guidance

On October 29, the company reported its third quarter results.  Adjusted operating income for the quarter was $55 million or $0.30 per share, short of the Zacks Consensus Estimate of $0.39 per share. While the company’s businesses in North America improved slightly, many other end markets remained under pressure.

For FY 2014, they now expect adjusted operating income to be in the range of $175 million to $190 million. The decrease from the earlier guidance reflected “the impact of an increasingly uncertain macro environment, uneven electrical infrastructure and construction investment throughout Latin America and ongoing challenges in Spain and Thailand”.

Downwards Revisions

Due to disappointing results and downgraded guidance, quarterly and annual estimates have been revised sharply downwards in the past few days by analysts.

Zacks consensus estimate for the current and the next year are now $0.87 per share and $1.48 per share respectively, down from $0.97 per share and $1.65 per share, 7 days ago. In fact the company has been witnessing negative earnings momentum for quite some time, as can be seen from the chart below:

It has been a Zacks Rank #5 (Strong Sell) stock since September 25.

Restructuring Plans

The company now plans to focus on its core strategic markets and assets across Americas and Europe and divest non-core assets including mainly production centers in Asia Pacific and Africa. However they will continue to sell higher value added products globally from their ongoing core businesses.

The company is also planning to hire a new CEO and expand its board of directors.

The Bottom Line

The near-term outlook for the company remains cloudy due to volatile metal prices, uneven macroeconomic conditions in some of its markets and the divestiture/transition currently in progress.

While in the longer-term the company may benefit from its leading positions across its key end markets, it would be safer for investors to avoid the stock for the time being.

Wire and Cable Products industry is currently ranked 228 out of 265 Zacks industries. There is no Zacks Rank #1 or #2 stock in this industry. The industry rank further indicates chances of underperformance in the short-to-mid term.

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