Atkore Inc. — Fiscal 2024 First Quarter 10-Q
Reporting period: Three months ended December 29, 2023, compared with the three months ended December 30, 2022. Atkore manufactures electrical products and safety and infrastructure solutions, principally for construction and industrial markets. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $798.5 | $833.8 | (4.2%) |
| Gross profit / margin | $290.5 / 36.4% | $334.4 / 40.1% | Profit (13.1%) |
| Operating income / margin | $175.5 / 22.0% | $231.6 / 27.8% | Income (24.2%) |
| Net income / margin | $138.4 / 17.3% | $173.5 / 20.8% | Income (20.2%) |
| Diluted EPS | $3.61 | $4.20 | (14.0%) |
| Operating cash flow | $158.1 | $198.9 | Down $40.8 |
| Capital expenditures | $44.3 | $35.0 | Up $9.3 |
Calculated operating cash flow less capital expenditures was $113.8 million, versus $163.8 million in the prior-year quarter; the filing does not present this measure as free cash flow. Cash and cash equivalents were $380.9 million at quarter-end, down from $388.1 million at September 30, 2023.
Debt and liquidity: Long-term debt was $763.2 million, compared with $762.7 million at fiscal year-end. The $400 million senior notes bear interest at 4.25% and mature in 2031; the senior secured term loan matures in 2028. There were no ABL borrowings and approximately $322.4 million of availability under the $325 million facility. Management said cash, operating cash generation and ABL capacity should fund operations, expected capital spending and obligations for at least the next 12 months. Atkore reported compliance with debt covenants.
Material changes and segment results
- Sales declined as lower average selling prices more than offset higher volume. Management attributed the price decrease primarily to expected pricing normalization: lower prices reduced sales by about $130.4 million, while higher volume added about $106.2 million. Sales also reflected a $14.9 million reduction related to solar tax-credit value transferred to customers.
- Cost of sales rose 1.7% despite lower steel, copper and PVC resin input costs. Higher volume and freight costs contributed to the increase; solar tax credits provided a $19.1 million cost-of-sales benefit.
- SG&A increased 11.8% to $100.6 million, principally from $12.6 million of increased spending on business-improvement initiatives. Intangible amortization rose to $14.5 million, partly reflecting fiscal 2023 acquisitions. Net interest expense fell 17.9% to $7.8 million, primarily due to lower rates on the term loan. The effective tax rate decreased to 17.5% from 21.9%, largely due to excess tax benefits from stock compensation.
- Electrical: Sales were $593.7 million, down 7.1%; Adjusted EBITDA was $204.4 million, down 16.2%, and margin fell to 34.4% from 38.2%. Lower selling prices relative to input costs drove the profit decline.
- Safety & Infrastructure: Sales were $205.1 million, up 5.1%; Adjusted EBITDA was $19.5 million, down 41.6%, and margin fell to 9.5% from 17.1%. Higher volumes were offset in profitability by lower prices relative to input costs. Segment sales include intersegment activity; consolidated external sales were $204.8 million.
Investing cash outflow was $50.3 million, including $44.3 million in capital expenditures and $6.0 million of accrued purchase price paid for prior acquisitions. Financing cash outflow was $118.2 million, including $96.4 million of cash used for share repurchases.
Outlook, risks and notable items
- The filing provides no quantified earnings or sales guidance. Management’s stated outlook is that liquidity is sufficient for at least the next 12 months.
- Management cited uncertainty from interest rates, inflation, conflicts in Ukraine and the Middle East, potential supply-chain effects and adverse weather. Disclosed risks also include non-residential construction weakness, pricing and competition, raw-material and freight costs, customer credit and collections, production disruptions, and debt restrictions.
- Beginning in fiscal 2024, Atkore treated qualifying solar manufacturing tax credits as transferable and recorded the benefit as a reduction in cost of sales. For the quarter, it recorded a $19.1 million cost-of-sales benefit and a $14.9 million revenue reduction for tax-credit value to be passed to customers. The quarter-end solar tax-credit receivable was $64.6 million and related customer liability was $29.3 million.
- At quarter-end, open purchase orders for production materials totaled $281.4 million for the rest of fiscal 2024 and $13.9 million for fiscal 2025 and beyond. Management reported no material change in contractual obligations since the latest annual report.
- Atkore said no Special Products Claims were pending; Johnson Controls has defended and indemnified the company on resolved claims. The company does not expect existing proceedings and claims to have a material adverse effect, while cautioning that litigation outcomes are unpredictable.
- After quarter-end, through February 1, 2024, Atkore repurchased 148,400 shares for $22.8 million. The board declared a $0.32-per-share dividend payable March 15, 2024.
Important facts for investors to verify
- Whether sales pricing stabilizes and whether higher volumes can offset price normalization, particularly in Electrical.
- How sustainable segment margins are as input costs, selling prices, freight expenses and business-improvement spending change.
- The cash realization, customer-transfer obligations and accounting effects of solar tax credits, including the quarter-end receivable and liability.
- Capital spending, working-capital trends, share repurchases and dividends relative to operating cash generation and liquidity needs.
- Debt covenant capacity, ABL availability and developments in the disclosed legal, supply-chain, construction-market and other operating risks.