Atkore Inc. — Fiscal 2021 Q1 Form 10-Q
Reporting period: Three months ended December 25, 2020; comparisons are with the three months ended December 27, 2019. Atkore manufactures electrical products and safety and infrastructure solutions, primarily serving construction and industrial markets. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $511.1 | $447.4 | +14.2% |
| Gross profit / margin | $189.2 / 37.0% | $116.8 / 26.1% | +61.9% gross profit |
| Operating income / margin | $119.9 / 23.4% | $52.5 / 11.7% | +128.2% |
| Net income / margin | $85.1 / 16.6% | $34.8 / 7.8% | +144.5% |
| Diluted EPS | $1.75 | $0.71 | +$1.04 |
| Operating cash flow | $86.3 | $52.2 | +$34.1 |
| Capital expenditures | $8.2 | $9.8 | -$1.6 |
Sales growth reflected an 18.2% increase in average selling prices, partly offset by a 6.2% decline in volume. Higher prices, particularly for PVC electrical conduit and fittings, and operating efficiencies supported margin expansion. Cost of sales fell 2.6% despite higher steel, copper and resin input costs; management also cited $10.2 million of favorable inventory-reserve adjustments. SG&A rose 8.7% to $61.1 million, including increased productivity and growth investment, stock compensation and variable compensation.
Income tax expense was $27.0 million, with an effective tax rate of 24.1%, versus 17.4% a year earlier. The higher rate was primarily attributed to a smaller excess tax benefit from stock compensation. Net interest expense declined 22.3% to $8.3 million, mainly reflecting prior debt repayments.
Segments and material changes
- Electrical: Segment sales were $387.1 million, up 19.3%; Adjusted EBITDA was $133.3 million, up 95.6%, and margin rose to 34.4% from 21.0%. Higher selling prices and operational efficiencies were the main drivers; volume declined.
- Safety & Infrastructure: Segment sales were $124.8 million, up 1.0%; Adjusted EBITDA fell 23.9% to $14.3 million, and margin declined to 11.4% from 15.2%. Management cited a lag in passing through rising steel costs.
- The company renamed its segments and moved domestic cable management and prefabrication modular businesses from Electrical to Safety & Infrastructure. Prior-period segment information was recast; the change did not affect consolidated results.
- Atkore acquired Queen City Plastics, a PVC conduit and fittings manufacturer, on October 22, 2020, for approximately $7.2 million. The purchase-price allocation remained preliminary.
Cash, debt and liquidity
Cash and cash equivalents were $280.4 million at December 25, 2020, down $4.1 million from September 30, 2020. Operating activities provided $86.3 million; investing activities used $14.3 million, including the acquisition; financing activities used $79.0 million, including $40.0 million of term-loan repayment and $35.0 million of share repurchases.
Long-term debt had a carrying value of $764.4 million, against $803.7 million at September 30, following the voluntary $40.0 million principal prepayment. The term loan had no scheduled principal payments before maturity in fiscal 2024 after prior voluntary repayments. There were no ABL borrowings; approximately $313.3 million remained available. Management stated that cash, operating cash flow and ABL capacity were expected to meet operating, capital expenditure and liquidity needs for at least 12 months. Debt covenants were reported in compliance.
Outlook, risks and contingencies
- The filing provides no specific financial guidance. Management said COVID-19’s future impact was difficult to predict. At filing, Atkore reported no COVID-related facility closures, but noted construction delays and uncertainty; it considered itself an essential business and cited mostly localized supply chains.
- Key risks include non-residential construction weakness, raw-material price changes and timing of price pass-through, customer and working-capital demands, supply and freight disruption, competition, and COVID-19 effects.
- Product-liability reserves were $0.6 million. The estimated reasonably possible aggregate losses for specified product claims and other product-liability matters were $1 million to $8 million; management did not expect these matters to have a material adverse effect and noted an indemnification arrangement with Johnson Controls for remaining specified claims.
- Open purchase-order commitments were $267.3 million for the remainder of fiscal 2021 and $9.7 million for fiscal 2022 and beyond. The company also disclosed $9.5 million of letters of credit and $15.0 million of surety bonds.
Important facts for investors to verify
- Whether elevated selling prices and Electrical margins are sustainable as input costs and sales volumes change.
- Whether Safety & Infrastructure can recover margins amid steel-cost pass-through delays.
- How working-capital requirements, including receivables and inventory, affect cash generation; working capital was a material offset to quarterly operating cash flow growth.
- Debt reduction, cash deployment and share-repurchase priorities, including the extent of remaining liquidity after the quarter.
- Developments in COVID-19-related project delays, product-liability claims and the preliminary Queen City Plastics purchase-price allocation.