Q1 2024 Atkore Inc Earnings Call
Participants
John Deitzer; VP of Treasury & IR; Atkore Inc.
William E. Waltz; President & CEO; Atkore Inc.
David P Johnson; VP, CFO & Chief Accounting Officer; Atkore Inc.
Andrew Kaplowitz; Analyst; Citigroup Inc.
Deane Dray; Analyst; RBC Capital
Christopher Moore; Analyst; CJS Securities, Inc.
Alexander Rygiel; Analyst; B. Riley Securities
Chris Dankert; Analyst; Loop Capital Markets LLC
Presentation
Operator
Good morning. My name is Roth, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's first 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, John Deitzer, Vice President of Treasury and Investor Relations. Thank you. You may begin.
John Deitzer
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 and 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.
William E. Waltz
Thanks, John, and good morning, everyone. Starting on Slide 3, Atkore is off to a strong start for FY24, and we are demonstrating the structural improvements and transformation that we made to our business over the past several years. I'm proud to share that volumes for the quarter were up 13%, driven by contributions across all key product areas.
We're focused on executing our capital deployment model as evidenced by the $96 million in shares repurchased in the first quarter and the continued activity in January. In addition, I'm very pleased to announce that we've officially declared our first quarterly dividend, a very exciting achievement for our company.
I also want to highlight the release of our fiscal year 2023 sustainability report, which was published last month. This report provides an update on the progress against our 2025 targets and covers additional important topics and initiatives. I'd like to take a moment to thank all of our employees for everything they do to support our key stakeholders. Overall in fiscal 2024, we're up overall and fixed.
I'll turn the call over to David to talk through the results from the first quarter and our outlook for the full year
David P Johnson
Thank you, Bill, and good morning, everyone.
Moving to our consolidated results on Slide 4. In the first quarter, net sales were $798 million and adjusted EBITDA was $214 million. We are pleased with our margin performance in the quarter with adjusted EBITDA margins of over 26%.
Our tax rate in the quarter was favorable due to the vesting of previously granted stock compensation. This outsized benefit was unique and contributed to our strong EPS performance. Moving forward, we expect the rate to be closer to roughly 25% for the remaining quarters in the year.
Turning to slide 5, in our consolidated bridges, I'm pleased by our strong volume performance in the quarter with organic volumes up over 13%. These gains were offset by the continued pricing and normalization, but this impact was within expectations and aligned to the pricing trends we have been discussing for the past several years.
Moving to slide 6, we're making good progress against the low double digit volume expectation for the full year with solid contributions across all key product areas. Our plastic pipe and conduit category was up high single digits, led by solid growth in our PVC products across our electrical related categories. Volumes were slightly higher than anticipated in Q1 and several large customers met their calendar year end rebate levels. Looking ahead, we expect Q2 to be softer than Q1 in terms of year over year volume percentage growth due to this timing of purchases at year end and the recent severe weather conditions that have unfavorably impacted our gain or performance.
Turning to Slide 7. Both segments had positive volume growth in the first quarter margins compressed in our Electrical segment and with the previously mentioned pricing normalization that remained very strong at 34%. We also faced some year over year margin compression on the S&IP side due to a tough comparison versus the prior year and the planned start-up costs in Indiana to support the volume ramp.
Turning to slide 8, we continue to execute our capital deployment model with cash generated from the business and our balance sheet is in tremendous position with no maturity repayments required until 2028.
Next on slide 9, I am pleased to highlight a significant milestone for our company with the upcoming payment of our first regular quarterly dividend. Earlier this week, Atkore's Board of Directors approved the first quarterly dividend payment of $0.32 per share. This achievement was made possible by our sustained performance over a multiyear period and our confidence in the future.
Now for our fiscal year 2024 outlook on Page 10. Our expectation of low double digit percentage volume growth for the year remains on track. Also with our strong EPS performance in Q1, we are increasing our full year estimate accordingly. As previously mentioned, our performance in January was impacted by several factors, including the adverse weather conditions in many parts of the US.
This is affecting our estimates for Q2 But overall, we are maintaining our outlook for full year net sales and adjusted EBITDA. Also, as we've discussed before, we've always built in an expectation that the back half of the year will be stronger than the first half for two main reasons.
First, as we are ramping up these new facilities, our volume from these sites will steadily increase throughout the year. And second, our overall business is always stronger in the spring and summer construction seasons versus the fall and winter. Therefore, we expect adjusted EBITDA to improve sequentially from Q2 to Q3 and then Q3 to Q4.
With that, I'll turn it back to Bill.
William E. Waltz
Thanks, David. We are very pleased with what we've accomplished this quarter and our outlook for this fiscal year, but we're even more excited about all the opportunities ahead.
Moving to slide 11, as we've said before, the electrical industry is a great place to be. It's difficult to find a building or infrastructure project that does not require Atkore's products. With over 90% of Atkore's product portfolio supporting electrical infrastructure, we are well positioned to benefit from the strong electrical trends projected across numerous end market categories.
On Slide 12, we've analyzed product volume data to determine estimated density across key end markets with anticipated growth in data centers manufacturing, lodging, health care, education and multi-family over the next five years in Atkore's ability to deliver a wide range of products that each of these facilities need. I am again reminded that Amcor in the electrical industry overall is a great place to be better yet.
Consensus agreements, experts and peers across the industry also have a positive outlook on 2024 and beyond. In addition, there were several other major public electrical contractors and electrical peers reporting record backlogs and project positive growth. A reinforces our confidence in the future for this industry with that, I will turn it back to the operator to open the line for questions.
Question and Answer Session
Operator
(Operator instructions)
Andrew Kaplowitz, Citigroup.
Andrew Kaplowitz
Good morning. Bill or David, I know you've guided to relatively strong volume growth for the year, but you did have a nice positive bump in electrical volumes in Q1. I know you mentioned some of the bigger customers pulling forward their volume, but maybe you can quantify how much, though was that pull-forward. Did you at all see a turn in your HDP markets? And could you quantify the weather impact in Q2, how much that could impact Q2 results?
William E. Waltz
Yes, I'll start and then turn it over to David always with what level of specificity here. But on first HDPE. very much on track for what we expected. But as David said in the past is more of a fiscal 25. And you can see that with I will call it other public corporations. But even large fiber optic companies have announced earnings recently is almost there slight could have interchanged with ours or what we've communicated there, Dominic, again, we can follow up with why we think that home here in a moment what we saw and this is common for every year, as we said in the industry, that's not just US rebate level of scope. You had X number volume dollars. We'll give you whatever, 2%, whatever the number rebate is back and we tried to stay firm to that.
So some of our customers literally just said, okay, we understand it. I'm assuming when we saw a spike in December, it was to get to their goals. So a little soft there. And then not a surprise, I think for anybody in January here that with the weather on a year or across the country, for example, I was talking to our customers who, for example, one large customer, I won't be overly specific here, but had over 50 of their locations down for at least two days or more on dealing with the weather. So with those two things, January was light and down. But again, if you add up those strong organic growth in Q1 with what were kind of forecasting per se, without precise number in Q2 on it's basically averages out and bridges exactly to what we have for the year. So again, to me, it's a good comfort thing that we're still on track and actually raise the EPS. So hopefully, somewhere in that level I answered your questions.
Andrew Kaplowitz
You did, though, but let me sort of step back. I think you talked about contractor backlogs. When you step back. Obviously, you know, the lead indicators are kind of all over the place still no, maybe stabilizing at lower levels. Are you seeing sort of any changes in primary markets?
You know, we already talked about HDP but clearly things like data centers and ramping up. You've been working on undergrounding. So like are things sort of better than they were a few months ago as rates have come down or slick, how do you sort of frame the market at this point?
William E. Waltz
I think either consistent, but definitely not worse, but that way. So give me, Andy, to your point there's so many metrics out there and which metrics are relevant or even over time, how metrics evolve on the importance? And one of the ones, at least I'll say I but Atkore's gravitating to that. We don't talk about in the earnings deck. I don't think but was on association of building contractors. There's still high eight plus months. I forgot the exact 8.6, 8.8, but I do recall two things, for example.
One in December, they actually increased a 10 of a month, so it their backlog's going up and then here in the last two days, the Association of building contractors said about they have even higher number of open jobs as they put jobs. Literally, we could have written a script for the biggest constraint to Atkore. And it's a good thing, isn't the market. So whether you read ABI. or something like that, it's literally the herd is around nine months of backlog right now with contractors, ABI or ABC, we'll talk to that.
And to the point of as other skilled trades, whether it's a maintenance manager, someplace else, may have slowing hiring. It's actually the Economist for association and boating contractors that how that's good for the industry so they can hire more people.
So Andy, at the end of the day. I'm pretty confident we can talk about Q2 versus Q3 when things ramp up in our own. So growth initiatives, but the backlogs are out there for us and everybody else.
David P Johnson
And if you look at the construction, employment continues to go up. Although the estimate from this week from the Contractors Association said that they estimate they need around 500,000 more new folks entering construction, and that's over and above the net normal. So that versus there is a lot of work out there. I mean, when we talk about the contractor backlog and being run, and that's about the size, it's going to be because people are going to take jobs two years from -- I think that is a really healthy rate is around, again, getting folks who can actually execute some of these projects.
Andrew Kaplowitz
And one more from me. I know you said that safety and infrastructure includes 7 million of startup costs, but did you wouldn't contemplate those costs we were thinking about when you guided us to Q1, how you're factoring in any incremental startup costs going forward? And was there anything else holding down Safety & Infrastructure margins?
William E. Waltz
Yes, I think, Andy, we're on track. So both the fact that like one simple way to do this is we hit our guide for Q1 actually exceeded the guide in the range slightly. Some of that now again is just there are some volume pull ahead. I don't want to go again, our transparency but it was a good quarter and we're on for the full year for EBITDA, and I'll make the plug in EPS. So it's in one of those.
And I know David, wants to jump in here too, realize with the large complex factor, I think one small shareholders forget it's like, oh, you're just making a torque to every size differences at Octagon as a circle, you can't do those things until you're actually up and running. You don't have the air permit. So literally any old machine retune for every new size, determining things like whether you're using bigger, take welding, there's just so many different complexities there that we knew was going to take all year to ramp up.
But as David said, in the prepared remarks. That's why also, as we look for our guide for the year, you'll see a ramp up as we continue to hit our volume numbers and so forth have a confidence in our business as much as you can be confident in our year and outlook for EBITDA confidence in our volume numbers as things pick up through the year.
Andrew Kaplowitz
Got it. Thanks, guys.
William E. Waltz
Yeah, thanks, Andy.
Operator
Deane Dray, RBC Capital.
Deane Dray
Thank you. Good morning, everyone.
William E. Waltz
Hey, good morning, Deane..
Deane Dray
It was great to see that volume come through this quarter, especially like Slide 6, it shows you that balance across the portfolio. Good to see that.
William E. Waltz
Dean, thank you for that any purely from the standpoint, it wasn't once in a while, we get focused on one product line versus it wasn't a one-trick pony. Every product line was up there on. And also, I think what that chart shows is, well, for example, PVC and HD is important. It's 31% of our sales. So there's a lot of other great products, some of which we're done really well on pricing with and so forth. So it's a good environment for Atkore.
Deane Dray
Great. And that takes me to the heart of the question here is take us through the pricing dynamics this quarter. And I know the recovery and the normalization is not going to be linear, but what were the specific dynamics this quarter, your input cost, competitive positioning where the demand was. And I know geographically, that's a factor as well. But just take us through those dynamics, if you could
William E. Waltz
Starting that again, David, we'd like that specificity to this with the charge. I think it's overall on track again, without getting the each product line. There's some are a little bit lower, but there is absolutely some gone Hay, General Manager and sales seeing Keep doing what you're doing here. And I can think of and again, if you go back to that page 6 reference without me calling out specific on these products. And at least two of those categories may have been maybe more others have led price increases.
So I think we're a price leader because we have that one order, one delivery, one invoice, and we have the ability to bring more value than many of our competitors to the industry. But we're not the only one out there thinking about how you give good returns for their shareholders, though, right on track overall.
David P Johnson
And Deane when you look at the Slide 5 a few net on the EBITDA bridge, the price versus cost changes around $90 million. And we had guided, I believe, a midpoint of around 250 for the year. That was always going to be more front end loaded in the year over year. If you look at that because pricing went down all last year sequentially. So I would say to now go to Bill said, we're definitely on track for met our expectations for the year.
Deane Dray
Got it. And that's kind of takes me to the next question on the assumptions first half second half, and I get the seasonality piece. It's clearly that's the construction season that drives that second half, but just there's such a disparity here in first half EBITDA. And if I have the numbers right, I'm year over year down 22% and then second half, you're coming to almost even to last year or so. Is that the expected ramp between the two and how much of that. And I get the volume part because we're seeing that come through and we're believers in the end market demand. So is pricing the key component there.
David P Johnson
So a couple things. I would look at it more sequentially in the year of FY24 because when you compare it versus FY23 of last year. We still had some really strong quarters at the beginning of the year as pricing went down through the year. So said another way, our comps will get easier at the back half of the year.
So when you look at what we have in the second half of our fiscal year this year versus the first half you will see a number that you'll need like in the 240, 250 kind of EBITDA range versus the 210 or 215 or whatever average for Q1, maybe a little bit lower than for the first half.
That is definitely, again, increases in Cobar, normal seasonality where you see the construction season picking up and then pricing firming versus last year where pricing was still going down. So I think you add that all together, I would say the seasonality is fairly atypical, just a little bit more back-end loaded because of our growth initiatives hitting in the back half of the year.
Deane Dray
All right. That was really helpful, David, appreciate the precision, especially the reminder about the dynamics of the second half and those of last year and the comp. So that was really helpful. And just last one for me. You referenced the Indiana plant. Can you give us an update on the startup where does it stand in terms of productivity, efficiencies and so forth?
David P Johnson
Yes. So I first thing, but to your question a little bit how I answered with Andy, it's on track so now on track means that as David called out and we had the $7 million is not generating the profits that we expect long term, but that's to be expected to be just again, the complexity of every product skew a Alex starting up a lightbulb factory or a catch-up manufacturer that you just have one skew your run at it starts or it doesn't start here is each customer each product running unit, taking the machines down for a couple of days, bringing up a second shift, bringing up a third ship, but we're still.
I mean, we have a phenomenal leadership team there and it's progressing basically the way we expected is their profits short term as you get a plant up and running, yes, but it's again to me, the reaffirmation is we have the forecast for the rest of the year. We're still wanted everything's moving as expected at this time.
Deane Dray
All good to hear Thank you.
William E. Waltz
Yeah, thanks Deane.
Operator
Chris Moore, CJS Securities.
Christopher Moore
Hey, good morning, guys. Thanks for taking a couple of questions. Maybe just on PVC pricing for January, was there a much change?
William E. Waltz
No, not with the expected volume, Chris, like a lot of products, you can imagine, especially the products that go underground, which is PVC and HDB and so forth, their RV fiberglass conduit. Again, these are smaller lines by what's actually under bridges. So misspoke done, but it does tell you are definitely being impacted by the weather across the country, but pricing basically on track, and we've put it in one or two price increases it's harder when the demand isn't there to get them to realize. But we're still optimistic going forward on these attempting to push the prices in the industry up.
David P Johnson
And Chris, if you. As you recall, you know, our backlog is less than a couple of weeks. So we do kind of every week look at where volumes are and what have you and like Bill mentioned, we mentioned in our prepared remarks, January was light due to several factors. The first start of this week has been much stronger, so we'll see and we'll see where it versus our expectations here in Q2, how it lays out for us the quarter.
Christopher Moore
Got it. Appreciate that. And maybe just one more on Indiana. So obviously, you talked quite a bit about the driver from the inflation reduction that you guys are getting up and getting going. How would you characterize kind of demand for torque tubes overall and how would you view that kind of against the current domestic capacity to meet that demand? And is it enough beyond where you guys are at? What are you seeing overall?
William E. Waltz
Yes, Chris, the best I can tell is estimates and so forth is there was more demand out there than capacity in the industries of the Board. And again, I think as we've given prepared remarks or questions over the years. And again, others including public customers could probably comment on this, but done with the inflation Reduction Act, it shouldn't move all the volume into the space, which is a great thing for the US and its economy, but that literally even if with that, the solar market did not grow, which we'll come back to in a second doubles the amount of software torque tubes.
And right now, I don't think that capacity exists by anybody out there. So again, as we add the capacity of fine tuning getting multiple shifts of. I have to believe some of our competitors are doing the same thing. And so for them, are you at doubling the size of the domestic torque to market plus whatever double digit plus growth of the solar market. I don't think anyone would disagree that it's a really healthy and exciting market for both Amcor and I think just the countries we've become for carbon free.
Christopher Moore
Got it. I appreciate that. Maybe just one last one here. Obviously, you guys have the majority of products through distributors, but you've talked about marketing efforts, efforts that go kind of way beyond this distribution channel, develop relationships with the big players in markets like Rainmaker's fab owners, et cetera, with the goal of becoming a partner. Just wondering if you can provide kind of any update there and thoughts on I know that's a longer-term process, but kind of how you doing it.
William E. Waltz
It's really say it's almost Chris, I'm teasing because we did not do this. But if you could give me a softball question here of to your point, it's a multi-year process but what I'm proud, I think we did a press release here in the last month or two was NECA, which is the National Electrical Contractors Association. So represents all the construction contractors and electrical space that are union or so equivalent nonunion organization named us as one of the premier partners. And to give you a feel there's around 13, give or take premier partners.
And that's everything from a freight carrier to electrical like energy generator company for their plants, EO tools. So in our space, across PVC products across steel, conduit products across metal framing produced go through. We are the only premier partner basically for all of our set of products there. There's some other with our product manufacturers in certain spaces, but it just shows the relationships that Amcor is building out there. That's a real compliment to our organization, our products, our value in the partnership we're doing. So it's exciting for us.
Christopher Moore
Got I appreciate that. I will leave it there.
William E. Waltz
Thanks, Chris.
Thank you.
Operator
Alex Rygiel, B. Riley Securities
Alexander Rygiel
Thank you. Good morning, gentlemen. Very nice quarter.
William E. Waltz
Thank you, Alex.
Alexander Rygiel
Couple of quick questions here. First, as we think about the second quarter guidance versus the first quarter, directionally, what does your guidance imply for price and volume.
And I guess what I'm getting at here is have we see the correction in raw materials sort of fully reflected in either the first quarter or the second quarter guide.
William E. Waltz
I would say, you know, in the second quarter guide, you can get from our comments that our volume year over year, we expect it to be lower than it was in Q1 as a growth year over year, but still a growth modest growth year over year. I wouldn't say pricing when you look at my these and there's been steel's been on its way up now beyond weighed down.
I think that that gets reflected fairly quickly in our in our numbers. You know, we are able to price on a daily basis, we might not see an increase or decrease at four weeks as we work through our inventory. So I would say it's pretty dynamic So there isn't really a situation where it lags in any meaningful way, except for the S&I segment, where that tends to be more quarterly based. And so a little bit behind when steel is on its way up a little bit headwind, sales was way down, but that again tends to normalize over a couple of quarters.
David P Johnson
And then, Alex, if I can bridge off your question a little bit again, David, it's better giving you the bridge, but I just for you or other shareholders out there, the way we think about our profit and pricing. First thing is just general industry volume. Obviously there's could straight time capacity like any product sold for more because you have multiple options and multiple customers that wanted.
So volume. Second thing where I think we are absolutely the industry leader is our capability, and we're really doubling down on this of the one order, one delivery, one invoice that just as a competitive sustainable advantage that I don't think anyone else can match period in the next decade. My own personal opinion, then it gets to where your question was to go okay. Steel off is still down, and I think David answered there. We do a phenomenal time real-time pricing that is not a large driver of our EBITDA, for example.
Alexander Rygiel
And then secondly, can you give us an update on the expansion in distribution centers?
William E. Waltz
Yeah. So great question there. Not that every other question has been good on. We're right on track with the following things. We have several of them up and running well. And now we're working on one in the Dallas area and one on the Atlanta area. We have the facilities go purchase lease we're putting in Rocky starting moving products up. It's really also something, as David talked earlier to other questions that we talk about this fiscal year and go.
Hey, Deane Dray question like bridge me. The average to tend to the two 50, the second half of the year. I think the ROCs are more of a thing that's going to help us in fiscal year 26 just to go until we fully get them up and fully get the value prop, we're getting it now. But the leverage of that as we go forward is what again gives us confidence in the $18 plus EPS that we've put out there a couple of years ago now.
Alexander Rygiel
Very helpful.
Thank you very much.
William E. Waltz
Yeah, thanks, Alex Combs.
Operator
Chris Dankert, Loop Capital.
Chris Dankert
Very Morning, guys. Thanks for taking the question and thanks. I guess first, I guess first off, you mentioned there was probably some a little bit of rebate buying to hit those breakpoints at the end of the year. Here. Do you feel like distribution inventories are still in a good place as we kind of move into the second quarter here? So maybe any kind of comment on how you see the inventory landscape at the distribution level.
William E. Waltz
I think we're back and it's God bless here to normal pre-COVID or in other words, there is inventory out there, but the appropriate amount for this were at this time of year. And then we had Ike. It's hard to predict to David's earlier point to deal with one or two weeks of backlog. We talk in March or April, but has some time customers will even put more in because they know that the spring season and summer season will be stronger and therefore will start to stock up more.
But at this stage, it's right on track. I would say they're low, but they're definitely not high. And there's no reason to be, in other words, back to earlier questions. You know, commodity prices are pretty stable. We could talk about steel going down a little bit. PVC maybe gone up a little bit of those type of things and even our pricing while we always aspire to increase our pricing. So there's no dramatic swings or supplier shortages. So business is back to normal.
Chris Dankert
Got it. Great. Glad to hear that. And then maybe just to zoom out to 30,000 feet for a second. Obviously, competitive dynamics don't swing too much quarter to quarter, but certainly we're getting a lot of questions on just are there any changes in the competitive landscape? I mean pricing would suggest there's nothing dramatic going on at the moment, but maybe just a quick comment on how you see the competitive landscape and what's going on or what might be changing a little bit incrementally here?
William E. Waltz
I've not seen a significant. There's always some minor players trying to enter and noise level things as somebody importing a product because of things. But literally, there's as much opportunity without me against specific for one things that US government may do or it's all flashes this morning of Trump was elected. He would stop imports and all the different things that at the end of the day, it's the earlier questions, others, the demand out there almost nine months, a contractor backlog ourself held things of growing with the solar industry growing with HDP. and so forth, that those are really the drivers of the business Yes.
David P Johnson
And Chris, just remember, I mean, I think we've talked about this many times, you still have to have agents. You have to have distribution. You have to have a brand that people know, I mean so there are a lot of reasons why don't like we do well and that the competitive landscape is fairly stable year over year.
Chris Dankert
Makes sense. Thanks. So much, guys, and congrats on a nice start to the year here.
William E. Waltz
Thank you, Chris.
Operator
This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.
William E. Waltz
Thank you. Let me take a moment to summarize my key three takeaways from today's discussion. First Q1 was a solid start to the year with organic volumes up 13%.
Second, the declaration of our first quarterly dividend is another recognition of our structural improvements and transformation over the past several years. Third with a great team product portfolio and strategy supported by strong secular tailwinds. We believe the best is yet to come at our core.
Before we conclude today's call, I would like to mention of planned rotation of key talent that demonstrates the Atkore Business System at work. John Dicer will be transitioning into the role of VP of electrical finance and Matt Klein who is currently our VP of electrical Finance, as well as the General Manager of our fiberglass conduit business unit will be moving into the Treasury and IR role. We wish them both continued success and their new positions.
With that, thank you for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today.
Operator
This concludes today's conference call.
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