Atkore Inc. — Q2 FY2024 Form 10-Q
Reporting period: Fiscal second quarter ended March 29, 2024; comparisons are with the three and six months ended March 31, 2023. Atkore manufactures Electrical products and Safety & Infrastructure solutions.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $792.9 million | $895.9 million | $1,591.4 million | $1,729.8 million |
| Gross profit | $291.6 million | $352.9 million | $582.1 million | $687.2 million |
| Operating income | $178.8 million | $239.9 million | $354.3 million | $471.5 million |
| Net income | $138.0 million | $174.2 million | $276.3 million | $347.7 million |
| Diluted EPS | $3.67 | $4.31 | $7.28 | $8.52 |
| Gross margin | 36.8% | 39.4% | 36.6% | 39.7% |
Q2 sales fell 11.5% year over year, primarily from lower average selling prices (9.5 percentage points of the decline), solar-credit value passed to customers (1.2 points), and lower volume (0.8 points). For the six-month period, sales decreased 8.0%; lower prices and customer solar-credit value were partly offset by higher volume. Profitability declined as selling prices fell faster than input costs eased. Q2 SG&A was nearly flat; six-month SG&A rose 5.8%, largely due to business-improvement initiatives.
Segments and cash flow
- Electrical: Q2 sales of $590.8 million, down 13.2%; Adjusted EBITDA of $195.8 million, down 23.8%, and margin of 33.1% versus 37.7%. Six-month sales declined 10.2% and Adjusted EBITDA declined 20.1%.
- Safety & Infrastructure: Q2 sales of $202.4 million, down 5.9%; Adjusted EBITDA of $25.5 million, down 23.1%, and margin of 12.6% versus 15.4%. Six-month sales were down 0.7% and Adjusted EBITDA down 32.4%.
- Six-month operating cash flow was $245.3 million, versus $403.4 million. The company attributed the decrease mainly to lower operating income and $58.0 million more cash used in working capital.
- Six-month capital expenditures were $73.5 million. Investing activities used $79.0 million; financing activities used $187.5 million, including $156.0 million for share repurchases and $11.7 million in dividends.
Balance sheet, liquidity, and capital allocation
At March 29, 2024, cash was $368.1 million, total debt carrying value was $763.8 million, and equity was $1,571.9 million. Debt consisted mainly of a $371.8 million term loan due 2028 and $400.0 million of 4.25% senior notes due 2031. The $325.0 million ABL facility had no borrowings and approximately $322.4 million available. Management said cash, operating cash flow, and available ABL capacity should fund operations, expected capital expenditures, and liquidity needs for at least the next 12 months. The company reported compliance with debt covenants.
The company repurchased $156.0 million of stock during the six months; $153.1 million remained under its authorization at quarter-end. After quarter-end, through May 7, it repurchased 204,800 additional shares for $36.1 million. The board declared a $0.32-per-share quarterly dividend payable May 31, 2024.
Outlook, risks, and notable items
- The filing provides no specific revenue, earnings, or margin guidance. Management cited interest-rate increases, inflation, geopolitical conflicts, supply-chain disruption, and adverse weather as sources of market uncertainty.
- Risks identified include non-residential construction weakness, competitive pricing, raw-material and freight costs, customer credit and collection risk, working-capital needs, production or supply interruptions, and debt restrictions.
- Solar-energy tax credits affected reported results: for the six months, Atkore recorded a $37.9 million benefit in cost of sales and a $30.0 million reduction of revenue for value transferred or payable to customers. The filing says these activities were within Safety & Infrastructure.
- Purchase commitments for production materials totaled $188.6 million for the remainder of FY2024 and $11.1 million for FY2025 and beyond. The company reported no pending Special Products Claims; other ordinary-course disputes remain possible, but management did not expect existing matters to have a material adverse effect.
- Q2 other expense was $0.7 million, compared with $3.9 million a year earlier, which included Russia-related asset impairment. The company continues to expect a loss on sale of the Russia-related business.
- Disclosure controls were considered effective, and the filing reported no material changes to internal control over financial reporting or previously disclosed risk factors.
Investor facts to verify
- Whether pricing and margin pressure continues, particularly in Electrical, where price declines drove much of the sales and Adjusted EBITDA decrease.
- How much of future earnings and cash flow depends on solar tax-credit generation, transfer arrangements, and related customer liabilities.
- Whether working capital normalizes after the six-month cash use, including the $73.0 million increase in inventory from September 30, 2023.
- Capital allocation trade-offs among repurchases, dividends, capital expenditures, and debt reduction; confirm remaining buyback authorization and post-quarter repurchases.
- Execution of planned Russia exit and exposure to purchase commitments, supply-chain risks, and any developments in litigation or other contingencies.