Atkore Inc. — Form 10-Q Summary
Business and period. Atkore manufactures electrical products and safety and infrastructure solutions. This unaudited report covers the three and nine months ended June 25, 2021; comparisons are with the periods ended June 26, 2020. Amounts below are in millions except per-share data. Fiscal 2021 segment reporting was realigned: domestic cable management and prefabrication moved from Electrical to Safety & Infrastructure; prior periods were recast, with no effect on consolidated results.
Financial performance
| Metric | Three months ended June 25, 2021 | Prior-year quarter | Nine months ended June 25, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $853.7 | $384.9 | $2,004.3 | $1,288.0 |
| Gross profit | $339.3 | $95.8 | $768.3 | $344.3 |
| Gross margin | 39.7% | 24.9% | 38.3% | 26.7% |
| Operating income | $248.7 | $41.6 | $533.0 | $155.3 |
| Operating margin | 29.1% | 10.8% | 26.6% | 12.1% |
| Net income | $175.3 | $24.1 | $385.3 | $98.1 |
| Diluted EPS | $3.64 | $0.49 | $7.95 | $1.99 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $318.6 | $156.0 |
- Quarterly growth drivers: sales rose 121.8%, reflecting a 89.0% contribution from higher average selling prices, 23.6% from volume, 6.9% from acquisitions and 1.9% from foreign exchange (percentage contributions as reported). Higher prices, especially for PVC electrical conduit and fittings, were the main driver.
- Nine-month growth: sales rose 55.6%; the filing attributes the largest contribution to average selling prices (45.5%), alongside volume (4.9%), acquisitions (4.0%) and foreign exchange (1.1%). The listed contributions are rounded.
- Segment results, quarter: Electrical sales were $661.2 million and Adjusted EBITDA was $267.8 million, with a 40.5% margin, versus 20.4% a year earlier. Safety & Infrastructure sales were $193.5 million and Adjusted EBITDA was $22.4 million; its margin declined to 11.6% from 12.5%.
- Segment results, nine months: Electrical sales were $1,535.8 million and Adjusted EBITDA was $589.9 million (38.4% margin, up from 21.8%). Safety & Infrastructure sales were $471.0 million and Adjusted EBITDA was $52.8 million (11.2% margin, down from 13.7%).
- Cash generation and investment: nine-month investing cash outflow was $74.3 million, including $34.2 million of capital expenditures and $43.2 million for acquisitions, net of cash acquired. Operating cash flow less capital expenditures was approximately $284.4 million; this is a simple calculation, not a company-defined measure.
Balance sheet, liquidity and debt
- At June 25, 2021, cash and equivalents were $397.1 million, total debt carrying value was $784.5 million (including deferred financing costs), and net debt on that basis was approximately $387.3 million. Current assets were $1,230.9 million and current liabilities $397.9 million.
- The $325 million ABL facility had no borrowings; approximately $315.5 million was available, net of letters of credit. The company said cash, operating cash flow and ABL capacity were expected to fund operations, capital spending and liquidity needs for at least the next 12 months.
- In May 2021, Atkore issued $400 million of 4.25% senior notes due 2031 and entered a $400 million secured term loan due 2028. Proceeds refinanced the prior term loan. The refinancing resulted in a $4.2 million debt-extinguishment loss. The new term loan bears interest at LIBOR plus 2.00% or the alternate base rate plus 1.00%, subject to stated floors.
- Nine-month financing cash outflow was $135.4 million, including $110.1 million of common-stock repurchases. Debt repayments and new issuance principally reflected the refinancing.
Changes, outlook and notable items
- Cost of sales increased 77.9% in the quarter and 31.0% for nine months, driven in part by higher steel, copper and PVC resin costs. Management said PVC and other pricing was expected to move toward more normal historical levels over time, but timing was uncertain.
- Management cited improved pricing relative to input-cost changes, operational efficiencies and acquisitions as drivers of Electrical profitability. Safety & Infrastructure margins fell year over year as higher pricing and volume did not prevent margin pressure.
- Atkore acquired Queen City Plastics in October 2020 and FRE Composites Group in February 2021. The FRE purchase-price allocation remained preliminary, pending refinement of tax estimates.
- Nine-month other income included a $6.0 million business-interruption insurance recovery related to a prior-year facility flood. The nine-month effective tax rate was 24.8%, versus 22.9%; the quarter’s rate was 26.0%, versus 26.5%.
- The filing provides no specific earnings or sales guidance. Management noted continued COVID-19 uncertainty, possible construction delays, and that pricing, raw-material costs and demand remain difficult to predict.
- Product-liability reserves were $0.7 million; the company estimated reasonably possible aggregate losses of $1 million to $8 million for specified product-liability matters and said it did not expect those claims to have a material adverse effect. The filing describes other ordinary-course claims and contingencies as well.
Investor facts to verify
- Whether elevated conduit pricing and the unusually strong Electrical margins persist as management expects pricing to normalize over time.
- How commodity-cost changes, pricing actions, product mix and working-capital needs affect margins and cash conversion.
- The final purchase accounting and operating contribution from FRE Composites and Queen City Plastics.
- Debt terms, covenant headroom, interest-rate exposure and ongoing liquidity, including the availability of the ABL facility.
- Share-repurchase activity and remaining authorization: the filing reports $110.1 million of repurchases in nine-month cash flows and $25 million remaining under the stated $100 million program at June 25, 2021.
- Potential effects of COVID-19, construction-market conditions, legal claims, and the timing or amount of insurance and other contingent recoveries.