Atkore Inc. — FY2022 Form 10-K Summary
Business context and reporting period. Atkore manufactures electrical products and Safety & Infrastructure products, primarily serving construction, renovation and industrial markets. This annual filing covers the fiscal year ended September 30, 2022; it does not provide standalone fourth-quarter results in the supplied text.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $3,913.9 million | $2,928.0 million | +33.7% |
| Gross profit | $1,640.0 million | $1,125.6 million | +45.7% |
| Operating income | $1,233.8 million | $799.0 million | +54.4% |
| Net income | $913.4 million | $587.9 million | +55.4% |
| Diluted EPS | $20.30 | $12.19 | +66.5% |
| Operating cash flow | $786.8 million | $572.9 million | +37.3% |
- Gross margin was approximately 41.9%, up from 38.4%; operating margin was approximately 31.5%, up from 27.3%; net margin was approximately 23.3%, up from 20.1%.
- Net sales growth was driven principally by higher average selling prices (+34.0 percentage points); volume declined 3.2%. Management attributed much of the pricing increase to plastic pipe and conduit, and said prices had begun to decline from historic highs.
- Cost of sales rose 26.2%, including $405.5 million of higher steel, copper and PVC resin input costs. Selling, general and administrative expense increased 26.3% to $370.0 million.
- Electrical segment sales grew 34.9% to $3,013.8 million and Adjusted EBITDA rose 45.7% to $1,273.4 million; its Adjusted EBITDA margin was 42.3%, versus 39.1%. Safety & Infrastructure sales grew 29.0% to $900.6 million and Adjusted EBITDA rose 69.1% to $138.4 million; its margin was 15.4%, versus 11.7%.
- Cash and cash equivalents were $388.8 million, down from $576.3 million. Current assets were $1,452.8 million and current liabilities $501.9 million. Cash used in investing was $442.8 million, primarily reflecting acquisitions and capital expenditures; financing used $524.2 million, including $500.2 million of share repurchases.
- Debt principal was approximately $773.0 million: $371.4 million under the senior secured term loan and $400.0 million of 4.25% senior notes. The ABL facility had no borrowings and approximately $312.9 million available. The balance sheet reports long-term debt of $760.5 million net of deferred financing costs. Cash was below gross debt; the term loan and ABL borrowings have floating-rate exposure.
Material changes and notable items
- Sales increased nearly $986 million year over year, despite lower volumes, reflecting a substantial rise in selling prices and $96.4 million of acquired-business sales.
- Fiscal 2022 acquisitions included United Poly Systems, Cascade Poly Pipe & Conduit, Northwest Polymers, Talon Products, Four Star Industries and Sasco Tubes, for total consideration of approximately $332.9 million. The acquisitions were funded with cash on hand. A subsequent acquisition of Elite Polymer Solutions for $91.6 million closed November 7, 2022.
- Capital expenditures were $135.8 million, up from $64.5 million. Investments included new mills at the Hobart, Indiana facility and Dallas-area land and buildings.
- The company repurchased $500.2 million of shares in FY2022. After year-end, it reported repurchasing an additional 1.7 million shares for $150.1 million. In November 2022, the board increased the total authorization to $1.3 billion.
- FY2021 included a $15.5 million business-interruption insurance recovery related to a facility flood; there was no comparable recovery in FY2022.
Outlook, risks and contingencies
- Management stated it expected cash from operations and available ABL capacity to fund operations, expected capital spending and liquidity needs for at least the next 12 months. The filing provides no quantified earnings or sales guidance.
- Management highlighted economic uncertainty, inflation, rising interest rates, the Russia-Ukraine conflict and supply-chain disruptions. The business is particularly exposed to non-residential construction demand, raw-material pricing, freight and energy costs, and the ability to pass cost changes through to customers.
- Other key risks include customer concentration (the ten largest customers represented about 38% of sales), labor availability and costs, weather, cybersecurity, environmental compliance, imports and trade policy, and product-liability claims. No single customer represented more than 10% of FY2022 sales.
- Special Products Claims involving legacy antimicrobial-coated sprinkler pipe remain subject to indemnification by Johnson Controls, Inc. The company estimated reasonably possible losses for those claims and other product liabilities at $1 million to $8 million and said it did not expect a material adverse effect; it considers reserves adequate.
- The Harvey, Illinois facility achieved compliance with the applicable stormwater zinc limit during the permit’s one-year startup period. Remaining remediation obligations at identified sites were not expected by management to be material, though future obligations could arise.
- The Inflation Reduction Act includes a 1% excise tax on stock repurchases after December 31, 2022 and a potential 15% corporate alternative minimum tax beginning October 1, 2023. At filing, the company was evaluating the impact.
- Auditors issued unqualified opinions on the financial statements and internal controls. The audit identified valuation of United Poly’s acquired customer relationships as a critical audit matter; purchase-price allocations for some FY2022 acquisitions were not yet finalized.
Important facts for investors to verify
- Whether pricing and margins remain resilient as PVC and other product prices decline, and whether volume trends recover.
- Cash conversion and working-capital needs, particularly the increase in inventory to $454.5 million from $286.0 million.
- Acquisition integration, final purchase-price allocations, and performance relative to the assumptions used to value acquired customer relationships and goodwill.
- Debt servicing costs as floating rates rise, and the company’s planned transition from LIBOR to SOFR in FY2023.
- The pace and funding of share repurchases, including the post-year-end activity and expanded authorization, alongside investment and debt requirements.
- Developments in product-liability claims, environmental remediation, and the financial effects of the Inflation Reduction Act.