Lisa Micou Meers - Vice President-Investor Relations Robert J. Eck - President, Chief Executive Officer & Director Theodore A. Dosch - Chief Financial Officer & Executive VP-Finance.

Shawn M. Harrison - Longbow Research LLC Steven Fox - Cross Research LLC David J. Manthey - Robert W. Baird & Co., Inc. (Broker) Saliq Jamil Khan - Imperial Capital LLC Kwame Webb - Morningstar, Inc. (Research) Charles Edgerton Redding - BB&T Capital Markets.

Good day and welcome to the Anixter International Report 2016 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Lisa Meers for opening comments and remarks. Please begin when ready, Ms. Meers..

Thank you, Kayla. Good morning and thank you for joining us today for Anixter's first quarter 2016 earnings call. This morning Bob Eck, President and CEO and Ted Dosch, Executive Vice President and CFO will review and discuss our first quarter financial results. After their remarks, we'll open the lineup to take your questions.

Before we begin, I want to remind everyone that we'll be making forward-looking statements in this presentation, which are subject to a number of factors that could cause Anixter's actual results to differ materially from what is indicated here. We do not undertake to update these statements and refer you to our SEC filings for more information.

In conjunction with today's call, please find a supplemental slide presentation that further details the quarter available on our Investor Relations website, anixter.com/investor.

Today's earnings announcement includes both GAAP and non-GAAP financial results, the reconciliation of which is detailed in our earnings release and in the slides posted on our website. Now, I'll turn the call over to Bob..

Good morning and thank you for joining us for today's first quarter 2016 earnings call. This morning I will review our first quarter performance, share my perspective on our end-markets, update our progress with the integration of Power Solutions and provide our outlook for the second quarter and full year of 2016.

I will then turn the call to Ted to detail our first quarter financial performance and provide more detail on our outlook for both the second quarter and the year. As you saw from this morning's press release, we delivered adjusted earnings per diluted share of $0.92, up from $0.90 in the prior-year quarter on sales of $1.8 billion.

Excluding the $0.09 per share negative impact of copper and currency, our core adjusted earnings per diluted share would have been $1.01, a 12% increase. Adjusting total sales for the favorable impact of the Power Solutions acquisition and the unfavorable impacts of the stronger U.S.

dollar and lower average copper prices, year-over-year organic sales growth was flat. This growth rate is in line with our first quarter outlook of negative 3% to positive 1% and reflects the persistent slow growth macroeconomic environment. Let me now discuss sales in the quarter by segment starting with the Network & Security Solutions segment.

NSS quarterly sales of $949 million increased 2%, reflecting organic sales growth of 4%. We experienced solid broad-based growth in both the network and security markets, delivering strong organic growth in both our North America and emerging markets geographies. This is the 10th consecutive quarter of year-over-year growth in quarterly sales.

With respect to drivers of the business, we saw continued strength with global accounts including technology customers, retailers, financial institutions, and service providers. By geography, our North American business, which represents approximately 79% of NSS sales, increased by 4% on an organic basis with strength in both the U.S. and Canada.

Our emerging markets business, which represents approximately 13% of NSS sales, increased by 8% on an organic basis. Within those geographies, we experienced strength in our Asia-Pacific market, driven primarily by U.S. based multinational companies and our Latin America markets, driven by strength in Mexico.

Finally, our immediate geography, which is the smallest portion of the business, had a small decline primarily due to the challenging comparison, the stronger project activity in the prior year quarter. We continue to have success with multinationals in all markets and are increasing gaining non-U.S.

based multinational customers as a result of the unique global support capability we provide. In light of the current trends in this business, including strong day-to-day business with a growing project backlog, we're optimistic that the current momentum will continue in the second quarter of this year.

Based on conversation with suppliers and market survey data, our view is that we likely maintained or gained share in our network infrastructure business and all of our geographic regions. Looking at the security business, NSS sales of $384 million or approximately 41% of segment sales increased 1% from the prior year.

Adjusting for $7 million of unfavorable foreign exchange, NSS security sales increased 3% on an organic basis. While security growth is lower than we had anticipated at the beginning of the year, keep in mind that project activity can make quarter-to-quarter comparisons difficult.

We believe our sales performance was consistent with the market and during the quarter, we were awarded a new contract with a mobile security integrator.

Moving to Electrical & Electronic Solutions, our first quarter sales of $506 million increased by 15%, reflecting the combination of the low voltage portion of the Power Solutions business with our legacy Wire & Cable business.

As previously detailed, the strategic benefits of the Power Solutions acquisition through broadening the electrical products and solutions offering and expanding our opportunities with small and mid-sized customers. Looking at EES organic sales, currency and copper combined had a $30 million or 6% negative impact on EES sales.

Adjusting for copper and currency, as well as for $136 million of acquisition-related low-voltage sales, EES sales declined by 7% on an organic basis.

While the currency, commodity and broad industrial economy headwinds we faced in the fourth quarter stabilized to some extent as we moved through the first quarter, we continue to be significantly impacted on the year-over-year basis. By geography, North America sales of $405 million compared to $312 million in the prior-year quarter.

After adjusting for pro forma Power Solutions, low-voltage sales and currency and copper headwinds, organic sales in North America decreased by 5%. Our EES business continues to be impacted by the sharp slowdown in business with industrial customers caused by weakness in oil and other commodities.

While activity in our pipeline and backlog is growing, we continue to take a cautious view regarding the near-term growth on the industrial side of the business.

The OEM side of the EES business, which sells to manufacturing customers, has been more resilient through the recent downturn, although this business had a smallest decline in sales in the quarter.

Turning to EMEA, our EES sales of $58 million decreased by 13% on an organic basis, reflecting a decline with both industrial and OEM customers in Europe, as well as softer sales in the Middle East.

Lastly, EES emerging market sales of $44 million decreased by 20% on an organic basis, reflecting lower construction and industrial capital spending in Mexico and Peru related to lower commodity prices.

While we are realistic that the overall difficult global macro environment will persist in the near term, we are cautiously optimistic that some markets are stabilizing and some momentum's building.

Until this becomes more broad based, our focus remains on driving sales through initiatives including synergy opportunities with the low-voltage product set, automation, small and mid-size customers and complex global customers.

Finally, our recently created Utility Power Solutions segment achieved sales $361 million in the current quarter, which compares to Q1 2015 pro-forma sales of $363 million. Excluding the negative impact of copper and currency, organic sales growth rate was 1%.

Sales in the UPS segment were adversely impacted by the oil and gas industry causing utility customers deferring investment based on lower power consumption. As we look forward, we expect our growth to accelerate as the year progresses, which is supported by the growing backlog and strong pipeline.

Let me now provide an update on the Power Solutions integration. As we move into the third quarter of integrating the Power Solutions business, we are beginning to see benefits. Given the macroeconomic headwinds combined with the long sales cycle of this business, we expect to see growth rates and synergies continue to build as the year progresses.

For the year in total, we remain on track with our goal of delivering $17 million in cumulative EBITDA synergies in fiscal 2016 between Tri-Ed and Power Solutions, which is an incremental $10 million compared to 2015.

More broadly, we believe that we have executed well as it relates to these areas that are within our control and as I have discussed, we believe that we have maintained or gained share in most segments and geographies.

Finally, as Ted will discuss in more detail, we are on track to deliver an estimated $10 million – incremental $10 million in savings and operating expense in 2016 from the restructuring actions we announced in 2015. Turning to our outlook for the second quarter of 2016, we expect the current trends and strong momentum in our NSS segment to continue.

This business is set up to benefit from exposure to end markets where continued growth in data usage and demand for mobility remains a secular tailwind. Offsetting that, we continued to experience a difficult industrial and construction environment with continued headwinds from copper and currencies.

While the macro appears to have stabilized compared to recent quarters, we continue to plan for a difficult and slow growth, low inflation and challenging external environment.

We are optimistic that we can achieve our above-market growth goals with near-term growth led by our NSS segment based on its attractive end market exposure, as well as by the synergies we are pursuing from our recent acquisitions driving growth in our EES and UPS segments.

From a geographic perspective, we expect North America to be the strongest region with growth in U.S. offsetting weaker industrial trends in Canada. Our outlook for the full-year organic sales growth remains unchanged at negative 2% to positive 2%.

The cost actions we took in 2015, combined with additional opportunities we are pursuing, position us for improved profitability in the current environment. With that, let me turn the call over to Ted for a more detailed analysis of our results and actions on the cost side of the business..

Thanks, Bob and good morning everyone. Today's earnings release includes a schedule, which reconciles the GAAP financial results with the non-GAAP results. We believe these non-GAAP measures provide the best representation of our ongoing operational performance.

As we do each quarter, a presentation has been posted to our website with more detail to explain our results. All of the following comments this morning including year-over-year and sequential comparisons are based on continuing operations only and on an adjusted earnings basis.

Also, as you saw in the prior release, earlier this month, we provided GAAP and non-GAAP pro forma information for Q1 through Q4 2015 and full-year 2014 to reflect the reclassification of sales across segments.

The exclusion of amortization of intangibles in our non-GAAP reported results and that we will no longer be allocating corporate expenses to our business segments and I will discuss that in a little more detail in my remarks. As Bob highlighted, our Q1 2016 adjusted earnings per diluted share of $0.92 compares to the prior year adjusted EPS of $0.90.

Let me review the items that we have excluded from our non-GAAP adjusted EPS, which are detailed in the schedule on page 10 of our earnings release and in the appendix of the accompanying slides on our Investor Relations website. First, we have excluded $2.2 million of costs related to our acquisitions and subsequent integration.

And second, we have excluded $9.7 million of amortization of intangible assets related to purchase accounting. Like many other companies who have completed significant M&A over the past several years, we believe providing an earnings number excluding the intangible amortization provides a clearer picture of the performance of the business.

Now, let me review the key drivers in our adjusted earnings performance year-over-year. Unfortunately, we continue to be impacted by two negative drivers that impacted Anixter, our industry and broad sections of the general economy as it relates to our year-over-year comparisons.

First, copper prices were once again volatile in the quarter, dropping 21% on a year-over-year basis. The average copper price in the first quarter was $2.11 per pound. Second, the strength of the U.S.

dollar year-over-year continued to create challenges putting pressure on demand in addition to the unfavorable impact to the translation of foreign results. Adjusting for the combined copper and currency impact of $0.09 per share, core operating performance would have resulted in EPS of $1.01, a 12% increase from the prior-year adjusted EPS of $0.90.

In addition to these two items, weaker earnings in Canada and around the world resulted in a higher percentage of our consolidated pre-tax income coming from the U.S., impacting earnings by $0.03 per share. Now I will go into more detail on our results.

As Bob discussed, our quarterly sales of $1.8 billion increased 31% compared to a year ago, driven by the Power Solutions acquisition. We calculate our organic sales growth by adjusting for the impact of copper price changes, currency, and acquisitions and divestitures.

After adjusting for the $482.6 million favorable impact from the Power Solutions acquisition, $20.4 million negative impact from lower average copper prices and $31.7 million negative impact from currency, organic sales were flat versus prior year.

This is a 50 basis points improvement versus our fourth quarter organic growth rate and towards the high-end of our outlook range for the first quarter, which was negative 3% to positive 1%. Gross margin of 20.4% in the quarter compares to 20.5% in the year-ago pro forma quarter and is 20 basis points higher than our fourth quarter 2015 performance.

Operating expense of $310.5 million compares to $250 million in the prior-year quarter. Adjusted operating expense, which excludes the $2.2 million of acquisition and integration expense and $9.7 million of intangible amortization that I highlighted in my opening remarks, was $298.6 million or 16.4% of sales.

On a pro forma basis adjusted operating expense in Q1 2015 was $301.1 million. The $2.5 million net reduction in expense year-over-year was primarily driven by our restructuring savings, partially offset by higher benefit expenses.

Regarding our ongoing focus on our cost structure, recall that in the second quarter of 2015 we took a $5.3 million restructuring charge that will result in annualized savings of approximately $13 million, which we began to realize in the second half of 2015.

In light of the ongoing macroeconomic headwinds and this inflationary environment, in the fourth quarter of 2015, we took an additional $2.9 million restructuring charge, which will result in an additional $4 million of annualized savings.

The cumulative 2.5% structural reduction in positions within our fixed cost base combined with reductions directly related to lower volume levels has resulted in a total reduction in head count year-over-year of 3.7%, excluding the addition of the Power Solutions employees.

While we feel good about expense management overall, we continue to address our cost structure aggressively and search for additional opportunities to improve our competitive cost structure in light of expected increases in people costs, primarily driven by higher benefit costs.

As I mentioned in my opening remarks, in the current quarter, we will no longer be allocating corporate expenses such as finance, HR, IT and legal. This provides greater transparency into the operational performance of the business segments.

Adjusted EBITDA of $83.3 million or 4.6% of sales compares to $72.8 million or 5.3% of sales in the prior-year period.

Approximately half of the decline in adjusted EBITDA margin reflects the consolidation of the Power Solutions business into our results with the balance primarily a function of copper and other macro factors pressuring our EES margin.

By segment, NSS adjusted EBITDA of $63.8 million or 6.7% of sales compares to $60.7 million or 6.5% of sales in the prior-year quarter. This strong performance resulted in very strong operating profit leverage of 2.2 times.

EES adjusted EBITDA of $25.4 million or 5% of sales compares to $37.7 million or 8.6% of sales in the prior-year period and 7.1% on a pro forma basis.

The 210 basis points decline in margin versus the pro forma prior-year quarter was caused by the unfavorable impacts of lower copper prices and currency headwinds, combined with the overall weaker industrial environment, all resulting in significant negative operating expense leverage.

However, adjusted EBITDA margin improved 10 basis points sequentially compared to revised Q4 2015 margin of 4.9%. Utility Power Solutions' adjusted EBITDA was $20.1 million or 5.6% of sales, which compares to $21.6 million or 5.9% of sales in the prior-year period on a pro forma basis.

As we indicated in our fourth quarter of 2015 earnings release, sales and adjusted EBITDA in UPS segment continue to be negatively impacted by slower sales in Canada and weakness in oil and gas related markets. As we move down the income statement, interest expense of $20.1 million increased by $5.9 million year-over-year.

The increase in interest expense results from the issuance of incremental debt used to finance the Power Solutions acquisition, partially offset by the repayment of 5.95% senior notes that matured in March of 2015. Foreign exchange and other expense of $2.8 million compares to $4 million in the prior-year quarter.

In both periods, the foreign exchange portion of the expense was approximately $3 million.

Our effective first quarter tax rate from continuing operations was 37.9%, a 230 basis point increase versus our first quarter 2015 tax rate, due to the change in the country mix of earnings, primarily due to the Power Solutions acquisition combined with continued weakness in Canada and emerging markets.

We generated $65 million in cash from operations in the quarter, which compares to $18 million in the prior-year period and we expect to generate $140 million to $160 million in cash flow from operations for the full year. Our cash to cash conversion improved by three days in the quarter.

We invested $7 million in capital investments in the current quarter compared to $10.9 million in the prior year quarter. For the full year, we expect to invest $45 million to $50 million in capital expenditures.

At the end of the quarter, our debt-to-capital ratio was 56.1%, which compares to 58.2% at the end of 2015, reflecting the repayment of over $90 million of our additional borrowings to fund the Power Solutions acquisition.

With our debt outside of our target range of 45% to 50% debt-to-capital and a leverage ratio of approximately 3.7 times, the adjusted trailing pro forma 12-month EBITDA including the results of Power Solutions, our priority is to pay down our debt with cash flow generated from operations with the goal of returning to our target debt-to-capital range and a return to the leverage ratio below three times EBITDA by the second half of 2017.

Our weighted average cost to borrow capital of 4.7% compares to 4.6% in the year-ago quarter, reflecting the new mix of debt instruments in our structure.

Our liquidity position remained strong with total available liquidity under revolving lines of credit and secured accounts receivable and inventory facilities of $414 million at the end of the quarter. As we enter the second quarter of 2016, we are experiencing solid momentum in our NSS segment.

Our book-to-bill ratio, backlog and project pipeline together combined with the momentum in the business today give us reasonable confidence that current trends in this business will continue. In our EES segment, we face challenging market as our industrial customers continue to experience weakness as a result of the broader industrial slowdown.

While we expect growth in the OEM portion of the business, it is not likely to fully offset the impacts from slower trends in the industrial project portion of the business. Finally, we are beginning to realize sales synergies from the low-voltage portion of the business and we expect these to accelerate as the year progresses.

In our Utility segment, we face similar challenging markets driven by the general weakness in the Canadian market and oil and gas related markets in the U.S.

In light of the softer trends in the oil, gas and industrial end markets that impact both our EES and our UPS segments, we continue to sharpen our focus on synergy capture, as well as margin improvement cost management and the working capital initiatives we have in place.

Overall, with an expectation that current trends will continue in the second quarter, our outlook for second quarter 2016 organic sales growth is a negative 2% to a positive 2%, an improvement from the first quarter and our outlook for the full-year organic sales growth remains negative 2% to positive 2% range.

To help you think about the full-year 2016, I'd like to update our framework for modeling currency and copper based on current rates, as well as reaffirm our Power Solutions outlook. Based on the current value of the U.S. dollar against other currencies, we currently expect the 2016 sales headwind of $50 million to $60 million.

We estimate the stronger dollar will have a $0.05 to $0.10 negative impact on EPS for the year, with approximately 80% of that hitting in the first half of the year. As a result of the growth in our total business from the Power Solutions acquisition, the impact of copper on our sales has increased somewhat.

We now estimate that on a quarterly basis a $0.10 change in average copper prices will result in a $4 million change in revenues. This translates into approximately an $800,000 impact on our pre-tax income or about $1.50 per share.

In the current quarter, the average price of copper was $2.11 versus $2.67 in the year-ago quarter, negatively impacting sales by $20.4 million, just above our outlook range.

Based on current copper prices of approximately $2.25 per pound compared to second quarter 2015 average price of $2.77 per pound, we estimate a similar negative impact of $20 million to $25 million in the second quarter of 2016.

For the full year we currently estimate lower average copper prices to have a negative sales impact of $45 million to $55 million with the majority of the headwind in the first half of the year. The corresponding impacts on EPS would be an estimated $0.08 to $0.10 for Q2 and $0.15 to $0.20 for the full year.

Turning to Power Solutions, we continue to be excited about the long-term value creation opportunities with this business, despite the macro headwinds.

In the first quarter of 2016, Power Solutions added $494 million to sales, which was slightly below our estimated range due to currency, exposure to oil, gas, and Canada markets in the Utility business, and weaker demand in general in the low-voltage C&I business.

We continue to expect Power Solutions to add an incremental $1.45 billion to $1.5 billion to sales in the first three quarters of the year, and beginning in Q4, it'll be fully embedded in our run-rate sales. We continue to estimate approximately $6 million of EBITDA synergies and an incremental EPS accretion of $0.65 to $0.70 in 2016.

This range is consistent with our previous outlook after adjusting for the exclusion of the amortization of intangible assets. Synergies will be driven by product cross-selling opportunities, purchasing synergies along with operating expense efficiencies and our expectations that synergies will accelerate as we move through the year.

Total synergies in the quarter, including both Tri-Ed and Power Solutions were in line with our expectations and we are on track to achieve our 2016 goal of $17 million in cumulative EBITDA synergies compared to $7 million in 2015.

Let me conclude by saying that we are excited and energized about transformation of our business and the resulting platform that we believe is well positioned for substantial and sustainable long-term growth.

We are now intensely focused on the successful integration of the acquired businesses and maximizing the synergistic value, which we expect to result in significant free cash flow generation that will support our balanced capital allocation strategy. With that, we will now open the call for questions..

Thank you. We'll take our first from Shawn Harrison with Longbow Research..

Hi. Good morning, everybody..

Good morning, Shawn..

Good morning, Shawn..

I wanted to I guess just be clear on a few things within the annual guidance because I think your tone on the call here is maybe a little bit more positive than the text write up in the press release.

But within NSS, are you seeing any tightening in terms of lead times and just highlighting the strength of that market maybe some anecdotal stuff there.

And then within the EES, it doesn't sound as if your view for year changed substantially, but the write up in the press release suggest that maybe you're looking for that to be a little bit more negative than it was 90 days ago..

Shawn, this is Bob. I think first on the lead times, we have seen some tightening in lead times in the NSS business in data cabling. A little bit in copper data cables and some issues, that I would say are unique to the fiber optic market with a specific supplier that have created some challenges with lead times there.

But we don't see those creating a drag. Those conditions existed in the first quarter. And so I don't see those as deteriorating as we go forward. So, I think our optimism about NSS, I think, is pretty well placed given what we're seeing, not just in pipeline but also in opportunities that have won but not yet booked.

And remember when we talk about bookings in backlog, we're talking about purchase order in hand that we're preparing to deliver against, so we maintain a pretty small backlog in the scheme of things.

On EES, I think we're being caution in our outlook and I think as you correctly note the tone in the write-up and our comments today sounds a little more positive than maintaining our minus 2% to plus 2% range for revenue growth for the year.

Frankly, we like some of the things we're seeing, but we want to be cautious because there's still, we think, enough volatility in the industrial environment that we don't want to get out ahead of ourselves and start counting on growth that may not materialize.

So we're – I think we're being appropriately cautious given that we've been in a pretty unsettled environment for a long period of time and we don't want to get out ahead of a growth expectation based on what could turn out to be some temporary positive factors..

Not to put words in your mouth, Bob, but if I were to think of that business as maybe down mid-single-digits for the year, is that outside the realm of kind of current expectations internally within that negative 2% to positive 2%?.

I think that's reasonable..

Okay.

And then two brief follow-ups, Ted; I guess just I want to be sure on the operating expense number what to properly use from last year around $305 million and then second on just free cash flow, it looks like it's the best quarter I can see in a number of years and so wondering why guidance was just held for the year instead of maybe being a bit more bullish? Did you pull forward some working capital improvements or something?.

Yeah, Shawn. A couple of things there. First off, it was a very good quarter for us from a cash flow standpoint. Working capital did improve. You'll remember or just to remind everyone, if you go back to Q1 of last year, it was a relatively poor cash flow quarter for us.

As we began to see kind of an accelerated slowdown in working – in EES in late 2014, it did take us a couple of quarters to kind of right size the inventory for that slower demand and so we started last year off with a bit of a slow quarter.

Here in Q1, after what I'll call, four somewhat soft quarters throughout all of last year, we are, I'll say, caught up with that and our inventory is more in line.

We made more improvements in our inventories here in the quarter and we've continued to have the positive benefit here now in our second quarter of owning Power Solutions of a business that from a business model standpoint does carry less working capital than – less working capital profile than the rest of our legacy business.

So, we did take up our outlook for the cash flow a little bit from the previous time to increase it to that range of $140 million to $160 million, and I would say, we're still being a little bit cautious on that just from the standpoint that if the organic growth does begin to improve at a greater rate in the back half, we will consume some cash to fund the working capital needed to support that organic growth.

So, we could consume a little more working capital – cash for working capital in the back half than what we might normally be at certainly the pace we're on right now.

On your other part, the first part of your question on the operating expense; I know we've thrown a lot of numbers at everyone as we put these pro forma results out there, not just for the acquisition but reminding everyone that we did have some movement of business between segments, the most significant of which, you know, was taking part of the Utility business out of our legacy Wire & Cable and moving it into UPS.

And so there was a significant amount of realignment associated with that, getting the corporate segment called out separately, which I think all of you should appreciate over time adding a little more transparency to the true operational performance of our three business segments and then looking at that corporate segment more as it typically is, which is primarily more of a fixed cost structure.

And so with all that, the $298.6 million of adjusted expense that we are showing here in this quarter compares to that $301.1 million in the prior year. So as I said in my notes, the $2.5 million reduction was achieved primarily by about a $4.5 million savings from restructuring.

Year-over-year, obviously, we didn't have either of these last two restructurings in place in Q1 of last year. What we did in Q2 results in about $3.25 million of savings per quarter, so we're fully realizing that now and then the Q4 restructuring we took, we're almost fully realizing that.

That will be about $4 million of savings on an annualized basis. So you take those two and that's how you get to a little over $4 million in restructuring savings in the quarter.

And so that partially offset by, as I mentioned, some benefit increases year-over-year, but I think because of the pro forma nature of the performance comparing to Q1 of last year is the best comparative.

We're starting the year incentive accruals and so forth with both the – at a 100% that type of thing, and you don't have some of the maybe unusual items that flow through the fourth quarter of the year when you look at that sequential operating expense comparison..

Thanks, Ted. Helpful..

We'll take our next question from Steven Fox, Cross Research..

Thanks. Good morning.

So, first of all, just on the issue you had with the one fiber optic supplier, did that impact what you were able to get out the door during the quarter? Were you able to replace those sales with another supplier? Can you just elaborate on that a little bit?.

Yes, Steve. I think without going too deep into it, it would have definitely impacted some of the sales that we were able to get out the door. There are probably a handful of cases where we were able to replace the product with product from another supplier..

Okay. And then just broadly, Bob, looking at that whole NSS segment, the business, like you said, is up 4% organically this quarter without much help from the security business, which it sounds like you look for better trends in the second half of the year or maybe even the second quarter.

So when we think about the whole business and I know you sort of touched on this, but I was wondering why – how much of an acceleration would you think you'd have and how much is due to security and why?.

Well, I think the numbers from the first quarter were pretty clear that we got more acceleration from the data comm business than we got from the security business and as you say, we expect that to improve as we go through the year. I think in the data comm business, we really broadly had two things going on.

We talked for a number of years now that the way customers fill data centers changed in the recession and what changed was a step building out a full DC typically, the whitespace is built and then the cells are built within the data center and customers add cells if they need capacity.

So I think what we've been seeing in the first quarter is a little more of that activity, additional cells being built in existing data centers, along with some new data center construction. But I think it's that cell-related activity, and in fact, we picked up more commercial construction kind of business that was data comm oriented as well..

Okay. That's helpful. And then just on sort of more the industrial markets that you're serving.

Is your viewpoint now that you feel like you've hit bottom and it's just not going to improve much or is there still a risk that because of what's going on in the oil and gas markets and currencies that things could get marginally worse? Just if you could put that into bigger perspective, especially given that you're – given what you just said about networking and you're sticking to sort of your full year organic growth sales guidance.

Thanks..

Yeah. I think it's hard to say if we've hit bottom. I think are we looking for a significant leg down in performance, no. So I guess I'd be more inclined to say we feel like we're more at a bottom at this point. But I do want to be a little cautious because I think there's a fair amount of unpredictability around industrial CapEx.

But, frankly, the oil and gas and mining markets have been hit pretty hard. I don't know that those could experience a significant leg down from where they're at, at the moment..

That's helpful. Thank you very much..

We'll take our next question from David Manthey with Robert W. Baird..

Hi. Good morning, guys. First off, when we say that sales elevated as the quarter progressed (40:09) the slide deck, were you referring to trends sequentially in terms of sales....

Hey, Dave. Dave, if I can interrupt, please. We really can't hear you. It sounds very muffled..

Dave, we can't hear you very well. It's very muffled, so we didn't get your question..

Okay.

Can you hear me now?.

Much better..

Okay. All right. Thank you. So first question is when you talk about sales growth accelerating as the quarter progressed, I'm wondering are you referring to dollars by months or sort of just January versus February versus March.

Are you talking about year-over-year in each month, and are you talking about organic or overall sales growth?.

Dave, what we're making reference to is average daily sales and those average daily sales in absolute dollars increased each month through the quarter and the pro forma change in average daily sales improved year-over-year each month in the quarter.

Unlike some of the distributors, we don't give monthly sales out, but we saw a significant decline, mid-single-digit type decline in January year-over-year on a pro forma basis that was cut in half in February and was practically flat in the third month, while the absolute dollar value of average daily sales increased each month through the quarter..

Okay. Great. That's helpful.

And then, second, Bob, when you mentioned that you said $10 million of incremental restructuring benefits and I'm just confused, is this the same $10 million you were talking about last quarter or is it incremental to that $10 million?.

No, no. Sorry, Dave. That's just reaffirming what we said on the Q4 call. So to just summarize the two restructurings we're going to save a combined $17 million and we realized about $6.5 million last year in Q3 and Q4. So that's where you get the incremental $10 million, which obviously, would be more front-end loaded over the course of this year..

Okay. And then so to – on an overall basis to bridge 2015 to 2016, I guess the story would be $10 million of these restructuring benefits maybe to some extent offset by OpEx creep that you referred to in the current quarter, so maybe the core is kind of flattish in terms of the operating income.

You'll pick up Power Solutions for a full year, which might be, I don't know, $40 million or $50 million and then you're picking up $17 million you said in year-over-year incremental synergies for Tri-Ed and Power Solutions.

Is there any part of that, that I'm stating wrong or is there anything else that I'm missing in that equation?.

No, I think you've laid out the pieces, you were talking a little bit about expense and then I think you were also referencing earnings like when you mentioned synergies, so I would remind you – remind everyone back to what we said last quarter, which would still be accurate today, which is that roughly the accretion from the three quarters of Power Solutions from an earnings standpoint, including the synergies, is largely offset by the negative impact of copper and currency for the full year..

Right. Okay. That's great. Thank you very much..

And then just for clarity on that the synergy part of that, as Bob commented that we are on track to deliver a cumulative $17 million of earnings synergies that would be on top of the approximately $7 million we delivered last year. So that coincidentally also is an incremental $10 million.

But the bulk of that incremental portion there is included is that Power Solutions accretion number, so that we don't double count them in what we're – look, as you're building your bridge from 2015 to 2016..

Got it. Okay. Thanks, Ted..

We will take our next question from Saliq Khan with Imperial Capital..

Hi, Bob. Hi, Ted..

Good morning..

Good morning..

Hey, guys.

Two quick questions for you; the first one being is, aside from the $10 million the incremental savings that you're getting from the segment restructuring, how does this move impact the tracking of key data points to help you improve both customer understanding, but also the upsell opportunities?.

I think – so the $10 million of expense savings had to do with the restructuring actions we took last year, not so much the alignment of the segments or the separation of the corporate segment out.

The point of defining the segments the way they are, first, the Utility segment is composed of some legacy Anixter Utility business and the acquired Utility business and then – which fit together because as we've said in the past, we aligned the segments based on how customers buy.

So, customer buying behavior and typical products that customers buy and the idea that you can have a sales force that can be specialists around the products, the technology and the supply chain services that suit that customer segment more effectively. So that's why the alignments are done the way they are.

I don't think we lose any visibility in having done this realignment. We have, I would say, extraordinarily detailed tracking capability by product type, by individual SKU, by customer type. So I don't – for us it doesn't lower any ability to manage the business and look at metrics for performance and specific initiatives we have in the business..

Okay.

And the other question I had for you was, you talked about this a couple of times during the call today, but as you take a look at the difficult industrial and construction market and how that impacts the EES business, how are you planning on shifting your overall sales focus and pricing strategies to offset some of the headwinds that you might see?.

Yes. So I ignore pricing as part of it because our intention is not to become the low-price leader in the market, it's never been how we went to market. So, the way we're attacking the market is to take the broader product offering we now have available to us, which gives us a much broader addressable market to serve.

So the idea that we would take things like mini voltage transformers, switchgear, lighting along with our legacy Wire & Cable products and by the way drive basically electrical engineer experts across that broad product set, have them in front of customers so that we'll continue to drive specification into customers across the broad product set and take share in parts of the market that we have not participated in.

So we talked a lot about the small and mid-size project space that we were not an effective participate in the past because the product line was too narrow and the customers tend to buy the broad product line in that space.

So by having this new broader product line that becomes new addressable market for us that we have very low share in, and frankly the market is so large and so fragmented that, that creates an opportunity for us to pursue growth in spite of the fact that the total market may not be growing or may be flat or down year-over-year..

Great. Thank you..

We'll take our next question from Kwame Webb with Morningstar..

Good morning, everyone..

Good morning..

Good morning..

So if I think about traditional transaction, normally there's a client review and then there's sort of like an employee review, so number one, in terms of this Power Solutions deal if I think about customers that you've acquired, have you guys kind of already done the review of we like this organization, we want to stay with them or we don't like them or we need to re-negotiate terms with them? So one, just trying to get the status of that review.

And then also kind of an update on where you guys are with the sales force integration and deciding who you want to retain and maybe pass on at this point?.

Yes. So, Kwame, first on the customer side, we did enough diligence on the beginning and before we acquired the business to feel very good about the customer base we were acquiring.

Now, like our other businesses and the businesses we've forever and that I've been involved in for the last, seems like forever, 26 years or 28 years or whatever the heck it's been, anyway, there's always variation in customer profitability.

And there's always variation in the levels of support different customers require and there tends to be some variation in pricing. We're very comfortable with the customer base. We're very comfortable that the pricing models and the service levels are appropriate.

We certainly think because of the synergy opportunities we have the opportunity to sell more products into existing customers and the acquired business and so that's where we gain some of these sales synergies. We've talked about a lot of them.

It's Wire & Cable into the utilities, it's security products into the utilities, which have pretty significant regulatory requirements in that respect. So, very comfortable with the customer base; we're not looking to fire any customers right now. When we look at the employee base, we've always said that this was not about reducing cost.

This was about an additive approach. So, I think the right thing to say is that our – all the employees in the acquired business is perfect? No. Are all the employees in the legacy Anixter business perfect? No.

And so we'll continue on an ongoing basis just like anyone would in managing business, identifying how to coach and mentor and develop our people and make them more effective..

And if I can, I wanted to just squeeze in two more questions. On UPS you mentioned that sales on an organic basis were up 1%. The former owner of Power Solutions, they used to very frequently talk about percentage – percentage of wallet and growing the percentage of wallet at the customer base.

If I think about that 1%, how much of that would be increased percentage of wallet versus new sales? And as we think longer-term about where you need to take this business, how much does that share of wallet number need to grow?.

Yes. We're not going to call out that as an initiative and specifically try to tie numbers to it. I'll tell you that the flattish utility environment is in part due to reduced energy requirements in oil and gas geographies. It's also frankly due to a mild winter.

One of the things in the Utility business is that you do get storm-related activity, when you have a mild winter in North America like we've just been through; you have relatively little storm activity. So, I think that all contributes to a fairly – a more flattish business..

And then justly lastly, thanks again for the CFO guidance. Where should inventory days be for this business longer term? I know Power Solutions is very much direct shipped to the customer.

So just kind of figuring out where does that settle out over time?.

I'm sorry.

Where does what settle out?.

Where should your inventory days settle out over time?.

We would expect over the course of this year to continue to improve our inventory days probably by two to three days over the course of this year, and part of that will be by, as Bob referred to some stabilization and hopefully some – a little bit stronger demand across the industrial side of that business.

We still have because of pullback in projects we still have higher inventory to support projects than we would in kind of a normal business cycle. So, I'd expect to see a couple more day improvement over the course of the year..

Great. Thank you..

We'll take our next question from Charles Redding, BB&T Capital Markets..

Good morning, Bob, Ted..

Good morning..

Just wondering how we could think broadly about the global expansion potential for Tri-Ed.

I mean, are there one or two markets you feel like you're predisposed to in terms of expansion here and would the international profile of offerings look materially different from current North American mix?.

Great question, Charles. We do see global expansion opportunity for the Tri-Ed model. We would not carry the Tri-Ed brand outside the U.S. because it doesn't have any traction. So there's no reason to carry that brand forward.

But we have already opened in Mexico City an Anixter business that looks like the Tri-Ed model, which also gave us an opportunity to put a service center in Mexico City close to where our customers are that's fed by our hub in Querétaro. So yes, it's clearly an expansion opportunity. We're under way in Mexico.

We're looking at opportunities in EMEA that we think suit us well and I prefer not to go into too much detail on those for competitive reasons, but it's clearly on the radar screen, we're already under way and we think there's more room to accomplish that..

Okay. And then in terms of renewables, I know one of the notable cable manufacturers has guided to double-digit growth here, particularly double-digit growth in solar.

How would you characterize the current environment for electrical infrastructure right now for renewables and where is your largest exposure outside of North America, particularly for solar?.

First, I'm guessing you're alluding to one of the electrical cable suppliers, and in particularly in the U.S., a lot of that solar plant market is served direct, particularly for the more transmission-oriented cables, the higher-voltage cables.

So, our exposure to alternative energy would be a little bit different than some of the manufacturers will be. Having said that, we think alternative energy is going to be an increasing part of the power generation market across certainly North America and Europe.

We're seeing it in the Middle East as well and so in any case that would grow, solar as a part of that mix we would expect to grow. There are opportunities for us to participate in. We participate in a number of those projects more with instrumentation and control cable than power cable..

Got it. All right. Appreciate the time..

Thanks. We have time for one last question..

We'll take our final question from Ted Wheeler, Wheeler Capital. (56:36).

Good morning, guys. Thanks for squeezing me in.

How are you doing?.

Hey Ted. Good morning..

Thank you, Ted..

Hey, I have two just somewhat housekeeping questions. You mentioned the copper sensitivity with Power Solutions acquisition changed a little bit.

Does that involve any change in operational or accounting policy from what Home Depot Supply did?.

Actually I cannot comment on any accounting policy there, but it does not include any change in how we account for inventory or how we estimate that copper impact. It's purely a function of we now have a piece of business that has some copper exposure and that you can tell by us only taking our $3 million estimate up to $4 million.

There is a much smaller exposure to copper in that acquired business percentage-wise than what we saw in our legacy Wire & Cable business..

Okay. Great. Thanks. I got one other question.

Any change in sort of the seasonal pattern of Anixter that's meaningful post the Power Solutions acquisition, I think you had certain seasonality that we were familiar with from prior, and I just want...?.

Yeah, I think answer maybe Ted (58:07) in two parts. Again, in the acquired business you got the one-third that was low-voltage construction industrial. I'd say the seasonality there would be more consistent with our legacy Wire & Cable business. On the UPS business, yes, there is some seasonality there for the reason that Bob just commented on.

But there can be winter-type storms and there can be summer storms that will tend to impact and make the business a little bit lumpy. But in the two middle quarters, in general, there tends to be more project spend with the utilities than in the first and last quarter..

So it's kind of like your prior sensitivities too in a way..

Not – I would say not significantly different..

Right. Great. Thank you. Great quarter..

Thanks. So with that we'll wrap up the call today. Thanks for joining us and thanks for your questions this morning..

That concludes today's conference. We thank you for your participation. You may now disconnect..