Atkore Inc. — Q1 FY2023 Form 10-Q Summary
Reporting period: Three months ended December 30, 2022, compared with the three months ended December 24, 2021. Atkore manufactures electrical products and Safety & Infrastructure solutions. Figures below are in millions, except per-share data and percentages.
Financial performance and position
| Metric | Q1 FY2023 | Prior period | Change |
|---|---|---|---|
| Net sales | $833.8 | $840.8 | (0.8%) |
| Gross profit / margin | $334.4 / 40.1% | $354.8 / 42.2% | Profit down 5.8% |
| Operating income / margin | $231.6 / 27.8% | $268.4 / 31.9% | Down 13.7% |
| Net income / margin | $173.5 / 20.8% | $204.8 / 24.4% | Down 15.3% |
| Diluted EPS | $4.20 | $4.32 | Down 2.8% |
| Operating cash flow | $198.9 | $97.2 | Up $101.7 |
| Capital expenditures | $35.0 | $9.4 | Up $25.6 |
Cash and cash equivalents were $307.8 at December 30, 2022, versus $388.8 at September 30, 2022. Long-term debt was $761.1, net of deferred financing costs; debt principal was $773.0. The company had no ABL borrowings and reported $312.9 of availability. Management said cash, operating cash flow, and available ABL capacity should meet operating, capital expenditure, and debt-service needs for at least the next 12 months.
Material changes and operating drivers
- Sales declined slightly as lower average selling prices and foreign exchange effects outweighed higher volume and acquisition contributions. Management cited pricing normalization; average selling prices reduced sales by $108.3, while acquisitions contributed $61.3 and volume added $45.6.
- Cost of sales rose 2.8%, despite lower input costs for steel, copper, and PVC resin, as acquisition costs and higher volumes more than offset the savings. Gross margin compressed.
- Electrical sales were $638.7, down 0.5%; Adjusted EBITDA fell 12.8% to $243.8, and margin declined to 38.2% from 43.6%, largely due to lower selling prices relative to input costs.
- Safety & Infrastructure sales were $195.1, down 2.6%; Adjusted EBITDA rose 21.8% to $33.4, and margin improved to 17.1% from 13.7%, as selling prices declined more slowly than input costs.
- Interest expense increased 37.1% to $9.5, primarily because of higher rates on the term loan. SG&A rose 15.1% to $90.0, including higher business-improvement spending and acquisition costs. Intangible amortization increased to $12.8 from $8.2, reflecting acquired assets.
Cash deployment, acquisitions, outlook, and risks
- Operating cash flow increased mainly due to improved working capital and tax impacts. Investing used $117.2, including $82.2 for acquisitions and $35.0 of capital expenditures. Financing used $164.8, including $150.1 of share repurchases.
- Atkore acquired Elite Polymer Solutions on November 7, 2022, for approximately $90.0, funded with cash. Its preliminary allocation included $30.8 of goodwill and $55.3 of identifiable intangible assets; the allocation was not finalized at quarter-end.
- After quarter-end, the company repurchased 0.9 million shares for $102.6 through January 31, 2023. The repurchase authorization was increased to $1.3 billion; $650.0 remained at December 30, 2022. The filing notes that a 1% federal excise tax on repurchases began after December 31, 2022 and that the company was evaluating the law’s impact.
- No quantified revenue or earnings guidance is provided. Management described sufficient liquidity for at least the next 12 months, while warning that results may be affected by economic weakness, non-residential construction demand, raw-material prices, competition, freight and energy costs, supply-chain interruptions, adverse weather, customer payment or financial issues, and geopolitical and pandemic-related uncertainty.
- Open purchase orders for production materials totaled $262.5 for the remainder of FY2023 and $9.1 for FY2024 and beyond. For Special Products Claims and other product liabilities, the company cited a reasonably possible loss range of $1.0–$8.0 as of September 30, 2022; it said JCI is contractually obligated to defend and indemnify it for specified sprinkler-pipe claims and that reserves were adequate. Management did not expect existing proceedings to have a material adverse effect.
- Credit-facility covenants restrict certain debt, asset-sale, payment, and distribution activities; the company reported covenant compliance. The filing also identifies exposure to uncertain tax positions and potential realization limits on certain foreign tax assets.
Important facts for investors to verify
- Whether price normalization continues and how selling prices compare with input costs, particularly in the Electrical segment.
- Whether volume and acquisition contributions can offset pricing pressure and lower reported margins.
- Cash conversion and working-capital trends, including the sustainability of the quarter’s operating cash flow improvement.
- Capital allocation: pace of repurchases, post-quarter spending, remaining authorization, and the effect of the repurchase excise tax.
- Integration and final purchase accounting for Elite and other recent acquisitions, including resulting amortization and goodwill.
- Debt-service costs, ABL availability, covenant compliance, and the company’s ability to sustain liquidity amid economic or commodity-market changes.
- Developments in product-liability claims, purchase commitments, tax matters, and the IRA’s eventual financial impact.