Atkore Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended June 24, 2022; comparisons are to periods ended June 25, 2021. Atkore manufactures electrical products and safety and infrastructure solutions. Dollar amounts below are in millions unless noted.
Financial results and position
| Metric | Q3 FY2022 | Q3 FY2021 | 9M FY2022 | 9M FY2021 |
|---|---|---|---|---|
| Net sales | $1,061.6 | $853.7 | $2,885.0 | $2,004.3 |
| Gross profit / margin | $454.3 / 42.8% | $339.3 / 39.7% | $1,225.5 / 42.5% | $768.3 / 38.3% |
| Operating income / margin | $349.7 / 32.9% | $248.7 / 29.1% | $937.0 / 32.5% | $533.0 / 26.6% |
| Net income | $254.3 | $175.3 | $692.6 | $385.3 |
| Diluted EPS | $5.74 | $3.64 | $15.10 | $7.95 |
| Operating cash flow | Not separately presented for the quarter | $371.8 | $318.6 |
Q3 segment Adjusted EBITDA: Electrical $351.5 million, up 31.2%, with a 42.8% margin versus 40.5%; Safety & Infrastructure $45.7 million, up 104.2%, with an 18.9% margin versus 11.6%. Nine-month segment Adjusted EBITDA was $962.0 million for Electrical (up 63.1%; 43.3% margin) and $102.0 million for Safety & Infrastructure (up 93.2%; 15.3% margin).
At June 24, 2022, cash was $186.7 million, down from $576.3 million at September 30, 2021. Current assets were $1,433.7 million and current liabilities $518.2 million. Long-term debt carrying value was $760.0 million; stated principal was $773.0 million ($371.0 million term loan and $400.0 million senior notes). No ABL borrowings were outstanding; approximately $312.9 million was available under the facility. The company reported $1,140.0 million in equity.
Changes versus prior period
- Q3 sales rose 24.4% and nine-month sales rose 43.9%. Management attributed most of the increase to higher average selling prices, particularly PVC pipe and conduit; lower volume partly offset the gains. Nine-month price contribution was $950.8 million, while volume reduced sales by $103.1 million.
- Q3 net income increased 45.1%; nine-month net income increased 79.8%. Higher gross profit and improved segment margins reflected selling prices rising faster than input costs. Q3 cost of sales also rose 18.1%, including higher steel, copper and PVC resin costs.
- Nine-month operating cash flow increased by $53.2 million, but working capital used more cash, including from inventory build. Investing outflow rose to $336.7 million, including $255.4 million for acquisitions and $82.0 million in capital expenditures. Financing outflow was $421.2 million, largely reflecting $396.9 million of share repurchases.
- Cash and cash equivalents declined by $389.6 million from fiscal year-end. Inventory rose to $444.7 million from $286.0 million; accounts receivable rose to $737.3 million from $524.9 million.
Outlook, risks and notable items
- No quantitative earnings or sales guidance is provided in the supplied filing text. Management expects pricing for PVC and other products to move toward more normal historical levels over time, but says the timing is uncertain.
- Management said cash from operations and available ABL capacity should fund operations, expected capital expenditures and liquidity needs for at least the next 12 months, including debt service.
- Management cited uncertainty from COVID-19, interest-rate increases, the Russia-Ukraine conflict, supply-chain disruption and hurricane season. Risks also include commodity-price changes, pricing pressure, nonresidential construction weakness, customer credit and working-capital needs.
- Fiscal 2022 acquisitions included United Poly Systems, acquired June 22 for $226.5 million, and Talon Products; the United Poly purchase-price allocation remained preliminary. The company also acquired Four Star and Sasco earlier in the fiscal year.
- The board increased the share repurchase authorization to $800 million. Through June 24, $396.8 million had been repurchased under the program, with $403.2 million remaining. After quarter-end, Atkore repurchased 1.2 million shares for $103.2 million through July 29.
- Purchase commitments for production materials totaled $238.1 million for the rest of FY2022 and $12.3 million for FY2023 and beyond. The filing says the company does not expect the disclosed legal matters, including claims involving legacy antimicrobial-coated sprinkler pipe, to have a material adverse effect; Johnson Controls is contractually obligated to indemnify the company for the specified claims.
- The company reported compliance with debt covenants and effective disclosure controls; it reported no material changes to previously disclosed risk factors or market-risk disclosures.
Important facts for investors to verify
- Whether elevated pricing and margins are sustainable as PVC pricing normalizes, and how input-cost changes and lower volumes affect profitability.
- Whether working-capital investment, particularly receivables and inventory, converts to cash as expected.
- The final purchase-price allocation and integration results for United Poly and other acquisitions.
- Cash deployment and leverage implications of continued buybacks, including the post-quarter repurchase.
- Current supply-chain, commodity, customer-credit, legal and other risk developments, and any changes to management’s stated liquidity outlook.