Atkore Inc. — Q2 FY2023 Form 10-Q
Business context and period: Atkore manufactures electrical products and Safety & Infrastructure solutions. This unaudited filing covers the quarter ended March 31, 2023, and the first six months of fiscal 2023; comparisons are with the corresponding prior-year periods.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Net sales | $895.9 million | $982.6 million | $1,729.8 million | $1,823.4 million |
| Gross profit | $352.9 million | $416.4 million | $687.2 million | $771.2 million |
| Operating income | $239.9 million | $318.8 million | $471.5 million | $587.2 million |
| Net income | $174.2 million | $233.5 million | $347.7 million | $438.3 million |
| Diluted EPS | $4.31 | $5.08 | $8.52 | $9.39 |
| Operating cash flow | — | — | $403.4 million | $161.2 million |
Q2 gross, operating and net margins were approximately 39.4%, 26.8% and 19.4%, respectively, compared with 42.4%, 32.4% and 23.8% a year earlier. Six-month gross, operating and net margins were approximately 39.7%, 27.3% and 20.1%, versus 42.3%, 32.2% and 24.0%.
Cash, debt and liquidity: Cash and equivalents were $354.3 million at March 31, 2023, down from $388.8 million at September 30, 2022. Long-term debt, net of financing costs, was $761.6 million; no ABL borrowings were outstanding, and approximately $322.4 million was available under the facility. Cash less reported long-term debt was approximately $407.3 million. Six-month investing cash outflow was $156.1 million, including $72.7 million of capital expenditures and $83.4 million for acquisitions; financing outflow was $284.3 million, including $269.2 million of share repurchases.
Changes and operating drivers
- Q2 sales fell 8.8% year over year; six-month sales declined 5.1%. Management attributed the decreases mainly to pricing normalization: average selling prices reduced Q2 sales by $168.7 million and six-month sales by $277.0 million. Higher volumes and acquired businesses partly offset the price declines.
- Lower steel, copper and PVC-resin input costs reduced cost of sales, but gross profit fell as selling prices declined. Electrical Q2 Adjusted EBITDA decreased 22.4% to $256.9 million, with margin down to 37.7% from 43.6%, largely because selling prices fell relative to input costs.
- Safety & Infrastructure Q2 Adjusted EBITDA rose 14.8% to $33.2 million and margin improved to 15.4% from 12.9%, primarily on higher volume, despite lower sales. For the six months, its Adjusted EBITDA increased 18.2% to $66.6 million, while Electrical Adjusted EBITDA declined 18.0% to $500.7 million.
- Six-month operating cash flow improved year over year, principally from lower cash use in working capital and tax impacts, partly offset by lower operating income. The company acquired Elite Polymer Solutions for a purchase price of approximately $90.2 million; its purchase-price allocation remained preliminary.
Outlook, risks and unusual items
- No specific financial guidance or quantified forecast is provided in the supplied filing text. Management stated that cash from operations and available ABL capacity should be sufficient for operations, expected capital expenditures and liquidity needs for at least the next 12 months.
- Management cited economic uncertainty, interest-rate increases, inflation, the Russia-Ukraine conflict, supply-chain disruption and adverse weather as uncertainties. Disclosed risks include construction-market weakness, pricing and raw-material volatility, freight and energy costs, customer credit and collections, working-capital needs, acquisition integration, litigation, cyber/security events and debt restrictions.
- The company recorded a $3.7 million impairment related to its planned exit from Russian operations, including $1.8 million of goodwill impairment; it expected to sell the related business at a loss. Q2 interest expense increased 12.8%, primarily due to higher term-loan interest rates.
- The company repurchased $269.2 million of shares during the six months. After quarter-end, it repurchased 0.8 million additional shares for $102.5 million through May 9, 2023. Its repurchase authorization had $530.9 million remaining at March 31.
- Other items to note include solar tax-credit accounting (six-month revenue reduction of $4.3 million and cost-of-sales reduction of $6.0 million) and amendments transitioning the term loan and ABL facility reference rates from LIBOR to SOFR.
Key facts for investors to verify
- Whether selling-price declines continue to outpace input-cost reductions, particularly in Electrical, and how this affects margins.
- Whether the improved operating cash flow is sustainable after working-capital and tax effects.
- Progress and financial impact of the Russia exit, including the eventual sale proceeds or loss.
- Elite Polymer integration, final purchase-price allocation and returns on acquisition spending.
- Share repurchase pace relative to cash, debt, capital expenditures and the company’s stated liquidity needs.
- ABL maturity and refinancing arrangements, covenant compliance, and exposure to interest-rate changes.