Atkore Inc. (Atkore International Group Inc.) — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing is an annual report, not a standalone fourth-quarter filing; it also presents unaudited quarterly results. Unless otherwise stated, amounts below are in U.S. dollars.
Business context
Atkore manufactures Electrical Raceway products and Mechanical Products & Solutions (MP&S) for construction, renovation and industrial markets. It operates 37 manufacturing facilities; 89% of FY2020 sales were to U.S. customers. The year’s results reflect COVID-19-related project delays and lower volumes, partly offset by lower input costs, cost reductions and acquisitions completed in FY2019.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $1,765.4 million | $1,916.5 million | Down 7.9% |
| Gross profit / margin | $491.3 million / 27.8% | $497.2 million / 25.9% | Profit down 1.2%; margin up |
| Operating income / margin | $239.6 million / 13.6% | $223.7 million / 11.7% | Up 7.1% |
| Net income | $152.3 million | $139.1 million | Up 9.5% |
| Diluted EPS | $3.10 | $2.83 | Up |
| Operating cash flow | $248.8 million | $209.7 million | Up 18.6% |
| Capital expenditures | $33.8 million | $34.9 million | Down |
| Cash and equivalents, year-end | $284.5 million | $123.4 million | Up $161.1 million |
Segment results: Electrical Raceway sales were $1,331.3 million, down 7.8%, while Adjusted EBITDA increased 2.4% to $299.5 million and margin rose to 22.5% from 20.3%. MP&S sales were $436.7 million, down 7.9%; Adjusted EBITDA fell 12.7% to $61.2 million and margin declined to 14.0% from 14.8%. Combined segment Adjusted EBITDA was $360.6 million versus $362.6 million.
Liquidity and debt: At year-end, principal outstanding under the First Lien Term Loan was $811.5 million; the balance-sheet debt carrying value, net of financing costs, was $803.7 million. Cash less principal debt was approximately $527.1 million. The ABL facility had no borrowings, $265.9 million of availability and $9.5 million of letters of credit. Management said cash, operating cash flow and available ABL capacity should fund operations, expected capital spending and debt service for at least the next 12 months. The term loan matures in December 2023; the amended ABL facility matures in August 2023. No term-loan principal was scheduled before maturity following voluntary prepayments.
Material changes versus FY2019
- Sales fell primarily because volume declined by $140.3 million, predominantly from COVID-19 impacts; lower average selling prices reduced sales by a further $37.7 million. FY2019 acquisitions contributed $28.5 million of FY2020 sales.
- Cost of sales declined 10.2%, including benefits from lower steel input costs and favorable inventory adjustments. SG&A fell 8.8%, reflecting lower variable compensation, travel, insurance and commissions, as well as a $3.8 million gain on sale of property and equipment.
- Interest expense declined 20.6% to $40.1 million due to lower rates and debt repayments. The effective tax rate was approximately 24.6%, broadly similar to FY2019.
- Operating cash flow improved with lower working-capital spending, improved collections and operating income. Investing cash outflow decreased substantially because FY2019 included acquisition spending.
Outlook, risks and unusual items
- COVID-19: Management reported volume declines across several product categories and construction delays, but said facilities remained open and Atkore was deemed an essential business. The duration and financial impact remained uncertain; the filing gives no specific earnings or sales guidance.
- Costs and demand: Results are exposed to non-residential construction cycles, commodity-price changes (especially steel, copper and PVC resin), freight and energy costs, competition, weather and customer credit risk. The top ten customers represented about 37% of sales; one customer represented 11% of year-end receivables.
- Debt and liquidity risks: Debt is largely variable-rate; a one-percentage-point rate change was estimated to alter annual term-loan interest expense by about $8.2 million. Credit agreements restrict distributions and other actions. LIBOR transition and refinancing conditions are additional uncertainties.
- Environmental, legal and pension exposures: The company disclosed continuing compliance and remediation work at certain facilities, including the Harvey, Illinois stormwater plan and groundwater monitoring in Wayne, Michigan. It reported a $40.0 million pension underfunding and estimated $1.0–$8.0 million of reasonably possible losses for product-liability matters; management did not expect the disclosed proceedings to have a material adverse effect.
- Unusual items: A manufacturing-facility flood generated a $6.0 million property loss and a $5.0 million insurance recovery, for a $1.0 million net expense. Net restructuring charges were $3.3 million, primarily related to workforce actions amid COVID-19. A LIFO inventory liquidation increased operating income by approximately $1.8 million. No goodwill impairment was recorded, although goodwill for the EMEA reporting unit was a critical audit matter because its valuation had comparatively limited headroom.
- Other developments: After year-end, Atkore acquired Queen City Plastics for an estimated $7.3 million and repurchased 637,200 shares for $15.0 million. The company does not expect to pay common-stock dividends for the foreseeable future.
Most important facts for investors to verify
- Whether construction activity and sales volumes recover, particularly in product lines that declined during FY2020, and whether COVID-19 delays persist.
- Whether lower material costs and operating efficiencies can sustain margins as commodity prices and selling prices change.
- Debt repayment, variable-rate interest exposure, covenant capacity and refinancing plans ahead of the 2023 term-loan and ABL maturities.
- Cash conversion and working-capital trends, including collection of the elevated Sonepar receivable balance.
- The assumptions and valuation headroom supporting goodwill, especially for EMEA, and developments in environmental and product-liability matters.