Atkore Inc. (NYSE:ATKR) Q2 2024 Earnings Call Transcript May 7, 2024
Atkore Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $3.7. ATKR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Pauly and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore’s Second Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin.
Matthew Kline: Thank you and good morning everyone. I’m joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings in today’s press release which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA and any reference to EPS or adjusted EPS means adjusted diluted earnings per share.
Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today’s presentation. With that, I’ll turn it over to Bill.
Bill Waltz: Thanks Matt, and good morning everyone. Starting on slide 3, we are pleased with our second quarter performance. While organic volume was down 1% year-over-year, volume is up 6% year-to-date, closing out a strong first half of the fiscal year. Our net sales were in line with our initial projections and adjusted EBITDA and adjusted diluted EPS both exceeded the top end of our outlook we presented back in February. We continued executing on our capital deployment strategy during the quarter, ending the first half of fiscal 2024 with $150 million in share repurchase and more than $70 million deployed for capital expenditures. I’m also proud to highlight the payment of our first quarterly dividend during the second quarter, as we near the end of our previously approved $1.3 billion share repurchase authorization.
I’m pleased to share that our board of directors has authorized a new $500 million buyback program which will be available upon the completion of our existing plan. Additionally, during the quarter, these ratings moved Atkore into the prestigious investment grade status. This designation reflects Atkore’s operating profile, financial flexibility and our commitment to a balanced capital deployment strategy. At the halfway point of our fiscal 2024, I’m pleased with the results we’ve been able to achieve. As we look forward to the second half of the year, we are amending the midpoint of our adjusted EBITDA outlook by $50 million to $875 million. While we remain enthusiastic about our long-term view of our HDPE and solar initiatives, we are reducing our near-term growth expectations.
Despite challenges in those two areas, we are within our expectations of the pricing normalization topic. Despite the near-term challenges to growth in the overall construction market, we remain confident in our diversified product portfolio as it is unmatched across the market and positions us well to capitalize on the secular tailwinds of the energy transition and expansion of digital infrastructure over the long term. With that, I’ll turn the call over to David to walk through the results from the second quarter.
David Johnson: Thank you, Bill, and good morning everyone. Moving to our consolidated results on slide 4, in the second quarter, net sales were $793 million and adjusted EBITDA was $212 million. We delivered a strong adjusted EBITDA margin of over 26%, which was in line with our performance in the first quarter. Our tax rate in the core was approximately 19%, which benefited from both stock compensation and the impact of the solar tax credits. Turning to slide 5 in our consolidated bridges, our volume in the core was down 1% compared to the prior year, while net sales were at the midpoint of our guide. Despite lower volume, EBITDA was up $5 million due to overall favorable mix. We continue to experience pricing normalization that was discussed in previous quarters.
Our second quarter results were in line with our expectations both sequentially and from a year-over-year perspective. Within our other portion of the EBITDA bridge, we saw overall improved plant productivity. Moving to slide 6, our year-to-date volume increased 6% compared to the prior year, with contributions across the portfolio. Turning to slide 7, both segments had strong EBITDA margin performance in the second quarter. Our electrical segment achieved 33% on essentially flat net sales sequentially to the first quarter, our S&I segment EBITDA margins rebounded from the first quarter to over 12%. This improvement is due in part to better operational performance at our Hobart, Indiana facility. Turning to slide Eight, we continue to execute our capital deployment model supported by robust cash flow generation.
Due to the strength of our balance sheet, we have flexibility to deploy capital multiple ways in order to deliver value for our shareholders. With that, I’ll turn it back to Bill to talk through some updates related to our FY ’24 outlook.
Bill Waltz: Thank you, David. Turning to slide 9, I want to provide an update on two of our category expansion initiatives. Our investment in HDPE is one of several growth initiatives that have long term positive impacts for Atkore. During the first quarter, we discussed that demand for HDPE telecom related products is challenged as the industry works through the excess inventory and awaits the rollout of government stimulus funding related to broadband investments. Despite these current headwinds, we are optimistic about the fundamentals and long-term positive prospects for this business. We continue to make progress on our production output of solar torque tubes from our Hobart, Indiana facility. Although our current and projected output levels are trailing our previous expectations, we continue to grow this product offering and remain confident that our capital investments position us well to participate in solar related secular tailwinds.
Turning to slide 10, our updated Fiscal Year 2024 outlook reflects the impacts from both HDPE and solar. Overall net sales are down slightly from our previous guide due to the continued HDPE market challenges and the delayed ramp up of our solar torque tube facility. Overall, adjusted EBITDA is down $50 million from our previous guide. We have reduced our expectations by HDPE in solar by $80 million, which is partially offset by strong performance in other electrical product lines and a reduction in overall corporate spending. Improvements in our interest expense, tax rate and reduced share count have resulted in an EPS midpoint of $16.50, which is the same as our original FY 2024 projection. We continue to expect the electrical portfolio to have a stronger back half of the year compared to the first half of the year due to seasonal impact from the spring and summer construction season and have included this assumption in the updated outlook.
If activity does not pick up as anticipated, the pricing environment could be challenged in the second half of 2024. As we discussed during our first quarter call, we expect adjusted EBITDA to improve sequentially from Q2 to Q3 and then from Q3 to Q4. Taking a step back while we have some items to address as we progress through the year, our solid performance in the first half of our fiscal year reinforces our confidence in our ability to build on the momentum in the second half of the year and beyond. On slide eleven, we’ve updated each of our key bridging assumptions when compared to Fiscal Year 2023 and our expected 2024 results. We expect a higher incremental margin on our volume as we have a very strong first half of the year Fiscal ’24.
We’ve updated the price cost assumption to a midpoint of $275 million unfavorable impact versus our original projection of $250 million. This shift is entirely due to HDPE. We have not adjusted our FY ’24 assumptions versus the overall expectation we presented in November 2022 that approximately $585 million of elevated earnings would continue to normalize over a multi-year period. Given the challenges to HDPE and solar and FY 2024 are primarily timing related, we remain confident in our ability to deliver $18 EPS in our fiscal 2025. I’m incredibly proud of the team, strategy and processes we have in place and believe we are well positioned to achieve our long term goals. With that, we’ll turn it to the operator to open the line for questions.
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Chris Moore from CJS Securities. Please go ahead.
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