Atkore Inc. — Q3 FY2023 Form 10-Q
Business context and period. Atkore manufactures electrical products and Safety & Infrastructure solutions. This unaudited report covers the three months ended June 30, 2023 (fiscal third quarter) and the nine months ended that date, compared with periods ended June 24, 2022. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $919.1 | $1,061.6 | $2,648.9 | $2,885.0 |
| Gross profit | $350.8 | $454.3 | $1,038.0 | $1,225.5 |
| Gross margin | 38.2% | 42.8% | 39.2% | 42.5% |
| Operating income | $232.6 | $349.7 | $704.1 | $937.0 |
| Net income | $201.3 | $254.3 | $549.0 | $692.6 |
| Diluted EPS | $5.13 | $5.74 | $13.62 | $15.10 |
| Operating cash flow | — | — | $563.7 | $371.8 |
| Capital expenditures | — | — | $122.5 | $82.0 |
Q3 sales fell 13.4% year over year and net income fell 20.9%. For the nine months, sales declined 8.2% and net income declined 20.7%. Selling prices were the principal headwind: management attributed the nine-month sales decline mainly to a $472.8 million decrease from average selling prices. Lower steel, copper, and resin costs partly offset price declines, but profitability and margins contracted.
- Segments, Q3: Electrical sales were $705.6 million, down 14.1%; Adjusted EBITDA was $266.6 million, down 24.2%, with margin down to 37.8% from 42.8%. Safety & Infrastructure sales were $213.6 million, down 11.7%; Adjusted EBITDA was $21.5 million, down 52.9%, with margin down to 10.1% from 18.9%.
- Segments, nine months: Electrical sales were $2,025.3 million, down 8.8%, and Adjusted EBITDA was $767.3 million, down 20.2%. Safety & Infrastructure sales were $623.9 million, down 6.4%, and Adjusted EBITDA was $88.1 million, down 13.7%.
Financial position and liquidity
- At June 30, 2023, cash and cash equivalents were $317.8 million, versus $388.8 million at September 30, 2022. Cash from operating activities for the nine months was $563.7 million.
- Long-term debt carrying value was $762.1 million; principal consisted of a $371.6 million term loan and $400 million of senior notes. No ABL borrowings were outstanding; approximately $322.4 million of the $325 million facility was available.
- Current assets were $1,483.3 million and current liabilities were $521.4 million. The company stated that cash on hand, operating cash flow, and ABL availability should fund operations and liquidity needs for at least the next 12 months.
- Financing activities used $431.6 million in the nine months, including $416.0 million for common-stock repurchases. The company had $384.1 million remaining under its $1.3 billion repurchase authorization at June 30.
Material developments, outlook, and risks
- Solar tax credits: Atkore concluded in Q3 that FY2023 solar manufacturing credits were not transferable and corrected their accounting. It recognized a $39.8 million year-to-date income-tax benefit, including $24.8 million related to the first two fiscal quarters. Customer-related credit value reduced nine-month revenue by $15.9 million. The Q3 effective tax rate was 8.6%, versus 25.7% a year earlier; the nine-month rates were 18.0% and 24.4%.
- Russia operations: The company is finalizing plans to exit and expects to sell the business at a loss. It recorded $7.6 million of impairment for the nine months, including $3.9 million in Q3 and $1.7 million of goodwill impairment.
- Acquisition and investment: Atkore acquired Elite Polymer Solutions in November 2022 for a purchase price of approximately $90.2 million; purchase-price allocation remained preliminary. Nine-month capital expenditures were $122.5 million, compared with $82.0 million a year earlier.
- Management outlook: The filing gives no quantified earnings or sales guidance. Management cited inflation, interest-rate increases, the Russia-Ukraine conflict, supply-chain effects, and adverse-weather exposure as uncertainties, and stated it expects liquidity to be adequate for at least 12 months.
- Other risks and contingencies: Risks include construction-market weakness, pricing and raw-material volatility, customer and supply-chain disruptions, and litigation/product claims. Management said existing proceedings were not expected to have a material adverse effect; no Special Products Claims were pending as of the filing. The company reported covenant compliance.
Important facts for investors to verify
- Whether selling-price normalization and lower price-cost spreads continue to pressure margins, especially in Electrical.
- The sustainability and accounting treatment of IRA solar tax-credit benefits, including amounts passed through economically to customers.
- Expected proceeds, timing, and any additional charges associated with the planned Russia exit.
- Cash conversion, working-capital requirements, capital spending, and the pace of share repurchases relative to liquidity and debt obligations.
- Integration and final purchase accounting for Elite Polymer Solutions, and the contribution of acquisitions to reported sales and earnings.