Atkore Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 24, 2021; comparisons are with the three months ended December 25, 2020. Atkore manufactures Electrical products and Safety & Infrastructure solutions, primarily for construction and industrial markets. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Net sales | $840.8 million | $511.1 million | +64.5% |
| Gross profit / margin | $354.8 million / 42.2% | $189.2 million / 37.0% | Margin +5.2 percentage points |
| Operating income / margin | $268.4 million / 31.9% | $119.9 million / 23.4% | +124.0% |
| Net income | $204.8 million | $85.1 million | +140.8% |
| Diluted EPS | $4.32 | $1.75 | Up $2.57 |
| Operating cash flow | $97.2 million | $86.3 million | + $10.9 million |
Sales growth primarily reflected higher average selling prices, which added about $368.0 million, while lower sales volume reduced sales by about $50.7 million. Acquisitions contributed about $10.7 million. Higher steel, copper and PVC resin input costs increased cost of sales by about $172.2 million. Atkore said Electrical pricing and margins benefited from selling prices rising faster than input costs.
Electrical segment sales were $641.7 million and Adjusted EBITDA was $279.5 million, with a 43.6% margin, compared with 34.4% a year earlier. Safety & Infrastructure sales were $200.5 million and Adjusted EBITDA was $27.4 million, with a 13.7% margin, compared with 11.4%. Segment Adjusted EBITDA is a non-GAAP measure.
Cash, debt and liquidity
- Cash and cash equivalents were $499.0 million at quarter-end, down from $576.3 million at September 30, 2021.
- Long-term debt was $758.9 million: a $371.2 million senior secured term loan and $400.0 million of senior notes, net of deferred financing costs. Cash less reported debt was approximately $260.0 million.
- No borrowings were outstanding under the $325.0 million ABL facility; approximately $315.5 million was available, after letters of credit.
- Operating cash flow was $97.2 million. Capital expenditures were $9.4 million. Investing activities used $45.0 million, including $36.1 million for acquisitions; financing activities used $129.0 million, including $104.5 million for share repurchases.
- Management stated that cash on hand, operating cash flow and available ABL capacity were expected to cover operating needs, planned capital expenditures and debt obligations for at least the next 12 months. The company reported compliance with debt covenants.
Material developments, outlook and risks
- Atkore acquired Four Star Industries, an HDPE conduit manufacturer, and Sasco Tubes & Roll Forming, a metal framing manufacturer, in December 2021. Their preliminary purchase price allocations included $13.2 million of goodwill in total and were not finalized at quarter-end.
- The board authorized a $400.0 million share repurchase program in November 2021. At quarter-end, $295.5 million remained; the company repurchased 958,000 shares during the quarter at an average $109.14 per share.
- No quantified financial guidance was provided. Management said pricing for PVC products and other parts of the business was expected to return to more normal historical levels over time, but the timing was uncertain.
- Management described continuing COVID-19 uncertainty, including possible construction delays, and stated that no facilities were closed at the filing date. Other highlighted exposures include raw-material price changes, demand and volume declines, supply and freight disruptions, working-capital needs, and competition.
- Inventory rose to $362.1 million from $286.0 million at fiscal year-end; the inventory increase was a significant use of operating cash. Open purchase orders for materials totaled $361.3 million for the remainder of FY2022 and $9.8 million for FY2023 and beyond.
- The company said it did not expect the remaining Special Products Claims involving legacy sprinkler pipe to have a material adverse effect; Johnson Controls is contractually obligated to defend and indemnify Atkore. Management also said other existing legal claims were not expected to be material, while noting litigation outcomes are unpredictable.
Key facts for investors to verify
- Whether the exceptional selling-price contribution and segment margins are sustainable as pricing normalizes and input costs or volumes change.
- How inventory and other working-capital requirements evolve, and whether operating cash flow continues to support acquisitions and substantial repurchases.
- Integration and final purchase accounting for Four Star and Sasco, including any changes to preliminary asset and goodwill values.
- Remaining repurchase authorization, actual subsequent purchases, and liquidity and covenant headroom after capital returns.
- Developments in COVID-19, supply and freight conditions, and the legacy product claims and related indemnification.