General Cable: Zacks’ Bear of the Day Play

The global economic slowdown, combined with curbed government spending has negatively impacted many international companies. This issue has caused these companies to see total unit volumes decrease, which then has negatively impacted total revenues.  One such company experiencing these issues is General Cable Corp (BGCSnapshot Report), and they are the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is a leader in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products for the communications, energy and electrical markets. The company sells its products primarily to commercial, industrial, utility, telecommunications, original equipment manufacturers, military/government, retail, electrical, and communications distributor customers worldwide.

In their most recent earnings announcement, the company posted their second consecutive miss of both the Zacks Consensus Earnings and Revenue estimates.  Specifically, revenues declined -41% YoY, and metal pounds sold dropped -22% YoY.  Moreover, the metal pounds sold declined in all regions; North America, Europe, and Latin America.

One of the biggest issues was total unit volume, which saw declines in all three regional segments.  In North America, Q4 unit volume declined by -19% YoY, and -14% sequentially; lower end market demand across the portfolio was the main culprit in the unit volume downturn.  In Europe unit volume fell -13% in the fourth quarter, while falling -17% for 2015; lower demand for industrial and construction projects was to blame.  Finally, in Latin America, excluding Venezuela, unit volume dropped -19% YoY; difficult economic conditions and reduced government spending were to blame.

According to Michael McDonnell, President and CEO, “Despite an unfavorable metal price impact and significantly lower volumes across many of our businesses in the quarter, we delivered approximately $10 million of restructuring savings and another strong result in our subsea power business in Europe… While the operating environment remains challenging, we are excited to have a solid plan to substantially improve performance by focusing on actions within our control. We already began to execute several new restructuring initiatives during the fourth quarter from the roadmap.”

As you can see from the graph below, the price and future estimates have been declining for over 2+ years.

Declining Estimates

Over the past 30 days, earnings estimates for Q1 16, Q2 16, FY 16 and FY 17 have all seen significant downgrades; Q1 16 fell from $0.20 to $0.04, Q2 16 slipped from $0.39 to $0.24, FY 16 dropped from $1.24 to $0.75, and FY 17 plummeted from $1.55 to $0.99.Bottom Line

With unit volumes declining in all three regional zones, and revenues almost cut in half in their most recent quarter, General Cable has a tough road ahead.  Given the current world economy worries, it does not seem that governments or commercial enterprises will be increasing their spending on projects anytime soon.

Yet, if you are inclined to invest in the Wire & Cable segment, you would be best served by looking into Belden Inc. (BDCSnapshot Report) which currently carries a Zacks Rank #2 (Buy)

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