Atkore Inc. — Form 10-Q Summary
Business and period: Atkore manufactures electrical products and Safety & Infrastructure solutions. This report covers fiscal Q2 and the six months ended March 25, 2022; comparisons are to the periods ended March 26, 2021. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Fiscal Q2 2022 | Fiscal Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $982.6 | $639.5 | $1,823.4 | $1,150.6 |
| Gross profit | $416.4 | $239.8 | $771.2 | $429.0 |
| Gross margin | 42.4% | 37.5% | 42.3% | 37.3% |
| Operating income | $318.8 | $164.4 | $587.2 | $284.3 |
| Operating margin | 32.4% | 25.7% | 32.2% | 24.7% |
| Net income | $233.5 | $124.9 | $438.3 | $210.0 |
| Diluted EPS | $5.08 | $2.58 | $9.39 | $4.33 |
- Quarterly sales rose 53.6% and six-month sales rose 58.5%. Management attributed most of the increase to higher selling prices; six-month price increases contributed 61.5% while volume declined 5.1%. Acquisitions also contributed.
- Quarterly cost of sales increased 41.6%; six-month cost of sales increased 45.8%, primarily reflecting higher steel, copper and PVC resin costs. Selling prices rose faster than input costs in the periods, supporting margin expansion.
- Six-month operating cash flow was $161.2 versus $153.2. Higher earnings were partly offset by tax payments and working-capital investment, including a $127.8 increase in inventory cash use.
- Six-month investing cash use was $60.8, including $25.3 of capital expenditures and $36.1 for acquisitions. Financing cash use was $285.6, including $261.2 of share repurchases. Cash declined to $390.4 from $576.3 at fiscal year-end.
- At March 25, 2022, long-term debt, net of deferred financing costs, was $759.5; debt principal was $773.0. Cash was $390.4. No ABL borrowings were outstanding, and approximately $312.9 of ABL capacity was available. The company reported compliance with debt covenants.
- Segment performance improved: Electrical six-month sales were $1,401.6 and Adjusted EBITDA was $610.5, with a 43.6% margin; Safety & Infrastructure sales were $424.8 and Adjusted EBITDA was $56.3, with a 13.3% margin. Both segments’ EBITDA and margins increased year over year.
Material changes, outlook and risks
- Sales growth was principally price-led, particularly in plastic pipe and conduit. Management said PVC and other product pricing is expected to return toward more normal historical levels over time, but timing is uncertain.
- Safety & Infrastructure experienced lower volumes, particularly in mechanical pipe; company-wide six-month volume also declined. Input-cost changes, pricing, and demand therefore remain important margin sensitivities.
- There is no quantified earnings or revenue guidance in the supplied filing text. Management said cash on hand, operating cash flow and available ABL capacity should fund operations, expected capital expenditures and liquidity needs for at least the next 12 months.
- Risks highlighted include COVID-19 and broader supply-chain disruptions, the Russia-Ukraine conflict, commodity prices, freight and energy costs, non-residential construction demand, adverse weather, customer payment delays, and working-capital needs. Management noted uncertainty in forecasting these impacts.
- Atkore acquired Four Star Industries and Sasco Tubes & Roll Forming in December 2021; their purchase-price allocations were preliminary. A $6.0 business-interruption insurance recovery benefited the prior-year comparison and did not recur in 2022.
- The board expanded the share repurchase authorization to $800 million on April 26, 2022, after the quarter ended. The filing reported $138.9 million remaining under the original authorization at March 25.
- For specified antimicrobial sprinkler-pipe claims, Johnson Controls has a contractual indemnification obligation; management did not expect those proceedings to have a material adverse effect and considered reserves adequate. The filing also describes ordinary-course claims and contingencies, with outcomes potentially unpredictable.
Investor verification priorities
- Assess how much of the reported growth and margin expansion depends on elevated selling prices, and whether prices continue to outpace steel, copper and resin costs as pricing normalizes.
- Track volume trends, particularly in Safety & Infrastructure and mechanical pipe, alongside end-market construction demand.
- Monitor inventory and other working-capital movements, cash generation, and the effect of repurchases on liquidity.
- Verify debt principal, ABL availability, covenant compliance, and the pace and funding of the expanded repurchase program.
- Follow integration and final purchase accounting for Four Star and Sasco, and developments in supply-chain, geopolitical, weather and legal contingencies.