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Mueller Industries Profits Slide On Copper Decline
Shares in Mueller Industries (NYSE:MLI) dropped by over 17% on Oct. 25, following the company's 2011 third quarter report of net income falling by nearly 50%. Net income in the third quarter was $10.5 million, or 27 cents per diluted share, compared with a net income of $18.9 million, or 50 cents per diluted share, in the year ago quarter. Sales during the quarter increased to $585 million, compared with $507.2 million, in the third quarter of 2010.
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Hurt by Copper Prices
Mueller Industries is a leading manufacturer of copper and aluminum fittings for the industrial and construction end markets. Mueller's products are essential components to the construction and maintenance of homes, and the commercial construction market, which includes office buildings, hospitals and the like. Needless to say, the industries that Mueller relies on are in a multi-year slump, with the company benefiting from rising copper prices. Yet the average price of copper in the third quarter of 2011 was $4.07, up from $3.30 in the year ago quarter, but down from $4.47 at the start of the 2011 third quarter. While strong copper prices are a tailwind, Mueller really needs a recovery in housing and construction, for earnings to ramp up. (For a tutorial on trading copper, take a peek at Commodities: Copper.)
An Attractive Bet on a Recovery
Despite Mueller's declining profits, the company may offer one of the more attractive ways to bet on a recovery. The company's diverse end markets have led to continued profits, during one of the worst operating environments. Construction related names like USG Corporation (NYSE:USG) and Gibraltar Industries (Nasdaq:ROCK) continue to struggle in the current depressed housing and construction market. Both USG and ROCK are expected to report earnings in the coming weeks; USG is expected to report greater losses, while Gibraltar is expected to earn 24 cents in the quarter. That profit, however, doesn't appear sustainable for ROCK, as fourth quarter expectations see a profit of one cent per share. To be sure, a housing recovery is needed just as much for these businesses to prosper.
Another interesting fact about Mueller, is that conglomerate Leucadia (NYSE:LUK), a highly respected and disciplined company, owns 27.5% of Mueller shares. Several weeks ago, Mueller appointed Leucadia's top chiefs, Ian Cumming and Joe Steinberg to the company's board.
The Bottom Line
With uncertainty surround housing and unemployment, expect short-term ups and downs from businesses like Mueller. Additional volatility in the price of copper will also be an underlying factor in the share price.
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Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Hurt by Copper Prices
Mueller Industries is a leading manufacturer of copper and aluminum fittings for the industrial and construction end markets. Mueller's products are essential components to the construction and maintenance of homes, and the commercial construction market, which includes office buildings, hospitals and the like. Needless to say, the industries that Mueller relies on are in a multi-year slump, with the company benefiting from rising copper prices. Yet the average price of copper in the third quarter of 2011 was $4.07, up from $3.30 in the year ago quarter, but down from $4.47 at the start of the 2011 third quarter. While strong copper prices are a tailwind, Mueller really needs a recovery in housing and construction, for earnings to ramp up. (For a tutorial on trading copper, take a peek at Commodities: Copper.)
Despite Mueller's declining profits, the company may offer one of the more attractive ways to bet on a recovery. The company's diverse end markets have led to continued profits, during one of the worst operating environments. Construction related names like USG Corporation (NYSE:USG) and Gibraltar Industries (Nasdaq:ROCK) continue to struggle in the current depressed housing and construction market. Both USG and ROCK are expected to report earnings in the coming weeks; USG is expected to report greater losses, while Gibraltar is expected to earn 24 cents in the quarter. That profit, however, doesn't appear sustainable for ROCK, as fourth quarter expectations see a profit of one cent per share. To be sure, a housing recovery is needed just as much for these businesses to prosper.
Another interesting fact about Mueller, is that conglomerate Leucadia (NYSE:LUK), a highly respected and disciplined company, owns 27.5% of Mueller shares. Several weeks ago, Mueller appointed Leucadia's top chiefs, Ian Cumming and Joe Steinberg to the company's board.
The Bottom Line
With uncertainty surround housing and unemployment, expect short-term ups and downs from businesses like Mueller. Additional volatility in the price of copper will also be an underlying factor in the share price.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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