Q4 2020 Atkore International Group Inc Earnings Call
This time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you only need to press star one on your telephone.
On the reminder, this conference is being recorded.
I would now like to turn the conference over to your host John Bates, Vice President of Treasury and Investor Relations.
Thank you you may begin.
Thank you and good morning, everyone I'm joined today by Bill Walsh, President and CEO as well as David Johnson, Chief Financial Officer, We will take your questions. After comments by Bill one day, but I.
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 risk and uncertainties such on 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.
In addition, any reference in our discussion today to EBITDA means adjusted EBITDA with that I'll turn it over to bill.
Thanks, John and good morning, everyone on.
We used to report that our core delivered record on each in the fourth quarter and for the full fiscal year 2020, I believe our strong operational focus and culture of teamwork and safety helps us deliver upon our commitments as we navigate through these challenging times.
As we start on page three in the fourth quarter, we delivered double digit year over year improvement for our net income under our adjusted EBITDA and our adjusted EPS.
Each of these hit a new quarterly record this.
This growth in profitability is quite remarkable given revenues were down 5% during the quarter.
As I take a moment to pause from reflect upon the great results for this past quarter. It was a tremendous effort by the entire team and a testament to the break through <unk> that can be achieved by effectively utilize he the atkore business system.
Turning to the full year results on page four.
Core was able to increase full year net income and adjusted EBITDA in spite of the 8% decline in sales associated with the COVID-19 pandemic.
Separate from the financial results one of the items that I'm. Most proud of this year is our improvement in our overall safety record.
This was a challenging year in so many ways and our employees rose occasion to help support our customers and most importantly, each other as we collectively improved our global safety incident rate by more than 20%.
Turning to fiscal year 2021, a couple items to highlight and mentioned post the close of the fiscal year.
In October we acquired the assets, a queen city plastics to expand and grow our PVC business, we truly believe in the value of our core as a great place to work and as a great investment and we're excited to welcome the employees of Queen City on to our team and help US write the next chapter.
We're in a growth story.
Additionally, we deployed $15 million and share repurchases and we're excited to announce to the official launch of our innovative new M.C. glide aluminum cable products, which we believe will significantly help improve the experience from our customers on a job site.
Now, let me take a moment to summarize my key takeaways regarding the quarter and the full year and then David will go over the quarterly results in more detail.
First the team delivered record results in Q4.
Second we're in a strong financial position with $284 million on cash at the end of the year third as much as we focus on managing through this current conditions, we remain committed to building an even stronger at corporate the future and we estimate that we will grow our net sales adjusted EBITDA.
And adjusted EPS in fiscal year 2021.
With that I'll turn the call over to David who will walk us through the quarter in more detail.
Thank you Bill and good morning, everyone as.
As Bill mentioned, we're very pleased with the results in the fourth quarter moving to our consolidated results on slide five net sales declined 5%, primarily due to the unfavorable market conditions caused by the pandemic adjusted EBITDA increased to $98 million, which drove our adjusted EBITDA margin to approximately 21 per.
So on the quarter.
About 290 basis points versus prior year.
Our adjusted EPS increased by 17% up to one dollar an 18 cents, that's our strong profit growth and lower interest expense more than offset a slightly higher tax rate in the quarter turning to slide six.
Net sales declined $24 million due to lower volumes, partially offset by higher selling prices specifically in our PVC products through outstanding operational and commercial execution. Our team was able to fully overcome the impact on profitability from the decline in sales volume and.
And we grew adjusted EBITDA by $9 million.
Moving to the adjusted EBITDA Bridge. The previously mentioned volume declines were more than offset as we were able to drive $13 million and profit improvement from our approach to value selling.
This is primarily due to our PVC price, which support the strong residential market.
In addition, we had a solid benefit from year over year productivity improvements in the quarter, but that benefit does include certain onetime items, such as lower TNT and other expenses.
Moving to our segment results on slide seven.
The electrical Raceway segment led our profit and margin improvement with adjusted EBITDA of $30 million and adjusted EBITDA margin above 25%.
Net sales declined on was 3% as we experienced lower volumes. However, our focus product categories in the U.S. were up mid single digits.
Turning to the mechanical price from solutions segment net.
Net sales declined more than 11%, primarily due to lower volumes.
However, we were pleased with the overall profitability of the business adjusted EBITDA declined this quarter, but that was versus a very difficult comparable from 2019.
Moving to page eight let me take a moment to review on cash and liquidity.
We ended F Y 20 with $284 million in cash.
$161 million versus prior year and up $47 million sequentially.
In the quarter, we repaid $40 million of debt and ended with a net leverage ratio of 1.6 current.
We are securing our cash and liquidity position and we'll look forward to deploying cash to drive value creation opportunities for our customers and shareholders.
Now, let me turn it back to Bill.
Thanks, David turning to slide nine I wanted to highlight our outstanding track record of growth.
As David just mentioned, we generated very strong cash flow in fact over the past five years, we delivered double digit average compounded annual growth rates for adjusted EBITDA and free cash flow and in terms of return on capital. We ended 2020 at our highest level ever.
18% we.
We believe these results set us apart and clearly demonstrate our ability to execute.
In addition, the future backwards very bright and we are looking forward to building upon this outstanding track record of growth.
Turning to page 10, and our outlook for 2021, we.
We expect to grow our net sales adjusted EBITDA and adjusted EPS versus fiscal year 2020, we expect our net sales to be on approximately 2% to 6% and adjusted EBITDA to be in the range of $340 million to $360 million.
In addition, we expect to grow our adjusted EPS up to $3 to 95 cents to $4.25.
However, just as we saw a bit of rollercoaster activity in fiscal year 20, we expect this year to be on even in terms of year over year performance quarter by quarter for Q1, we expect a modest increase on our net sales and a very strong increase in adjusted EBITDA.
We are excited about the future and we are confident in our team and our business model. Therefore, we expect to invest approximately $50 million to $55 million on Capex as we increase investments on our digital and customer enhancement projects.
We believe that the best is yet to come from core and with that we'll turn it back over to the operator to open up the lines for questions.
Thank you as a reminder to ask a question you on each press star one on your telephone.
Your first question comes from the line of Deane Dray from RBC cap Middle markets. Your line is open thank.
Thank you good morning, everyone, Hey, good morning, Deane morning Day, Hey, nice way to finish your fiscal year here. Thank.
Thank you.
And we really like senior reinstate the EPS guidance, because that does speak to your confidence and visibility and just on that topic, maybe can you share with us from a year key assumptions.
On what would take you to the low end versus the high end of the range for the fiscal year as you see it today and very specifically comments on non Raz project activity funnel and so forth yeah, Deane I'll start on the markets and then from there some of the rest of the bridge loans.
No force I may pass over to David So.
We see a slight increase in markets going forward, obviously, nextshares harder to predict than most but if you look at different markets that are growing really strong residential that's going on well data centers that are going well warehousing go on well that we see it is enough of an offset to some.
On the markets, obviously like hotels, and so forth that are going slower and then again what people forget and I think we have it attached in the appendix. So this is there is a lot of renovation markets are growing strong and then put on top of that that we have been a true. We mean this the at core business system.
Where as I think David mentioned here in your prepared remarks, we have categories, even in the last quarter like focused product categories that are growing.
Well good single digit growth, even when challenging time, so between that increase in electrification on markets, where there is more on the electrical content per square foot, we think slow slow debt single digit growth is reasonable for this year and then for some of the rest of the bridge that Dean and then.
Basically we have a slightly favorable price versus cost we feel going into next year, and then we'll get a little bit of an uplift small uplift from M&A well have our typical productivity uplift, we see year over year that pretty much rounds out where we came up with the midpoint of our guidance.
That's helpful. How about you talked about into the next year.
Any comments on how October went and any color. So far in November yeah. So as we predicted for the full quarter. It slowly improve so every month over month from August September and so forth were better than the previous month in October basically flat give or take.
So on you know.
Its ties exactly with what we're expecting on kind of slow sequential improvement going forward.
The other thing sorry, Dean to remember is we mentioned that each quarter could be a low lumpy, but for half of next year, we will be comp being non kobe quarter. So we're going this one we're comping good quarters. There is some hope here when we get to our fiscal Q3 have done really well so.
That's that's great to hear and I'm glad you pointed that out any comment on inventory in the channel where distributors stand in terms of potential restocking yeah, it's a compliment to them they Brian I'm generalizing on whole industry. Its a thousand distributors, but they were on well manage businesses. So.
As a whole whatever they've targeted let's assume something like six weeks of inventory as well.
Went down day cut back as is growing it will continue to grow but kind of targeting that six week. So there are I'm, saying six weeks, but constant days on hand, so therefore as the market's slowly grow you could expect a slight increase in them stocking.
Again, one nice product thing with our products are large they're bulky. So one that no one's going to overstock, but you can't really destock that much either.
That's great and just one last nuance question for me on pricing on that.
The idea that race ways up on and you did call out PVC and that's mostly resi, but mechanical being down is it off is that just tough comps.
Yes, as a strength see that move in opposite directions.
Yeah. So it is tough comps at the low with our transparency I think if you went back a year ago. We would have said that we had such high EBITDA margin and not to maintain that MPS. We had a couple of really high margin product. So we've been saying that per year, and then on the flip side and the residential market we judge.
Hit it out the park and I can get into more details there yeah. Deane. If you remember at the end of last year and emptiness, they're running into 17 true and 16% EBITDA percentage type of we said typically should give on 13 14, so that's pretty much where that was that's real helpful. Thank you congrats thanks Dan.
Good day.
Your next question comes from the line of Deepa Raghavan from Wells Fargo. Your line is open.
Hi, good morning on.
Good morning.
Hey, so if we look at your fiscal Q on guide across either Dean or.
Assumptions on fairly strong growth assumptions, but the same potential is not carried into investor day.
Guiding to flattish on the dealer.
I mean, and slight growth and EPS for rest of the year or even bit easy Q3 times can you walk us through how you're thinking through the cadence of rest of the year.
So yes, you are correct. So in Q1, we expect to be very strong again residential is going to be stronger PVC business is really strong and we do have a slight improvement in the last three quarters of the year on.
It's just basically because of the uncertainty you know where we looked at the high end, where it would be six to nine months out on what have you. The end part of the year. We know that Q3 will be burdened Q3 last year because of Covance. This Q4 that we just put up now versus what we could see in Q4 next year, we just have some insight.
Certain day, so at least now far a guide we're seeing strong Q1, because we see it right now and slots for the following three quarters, but it will be different quarter by quarter.
Okay. So you will you'll probably guidance.
You know as as you see fit.
I think it's prudent at this time when so much on certainly that kind of look at that six months kinda out and so we've made an estimation of what we think the back half of the year as it will wait to see what materializes.
Got it.
How are you thinking through that I did notice the chart on the back the 14 on slide 17. That's that's helpful. How are you thinking about new construction, which is in on Nonresi construction, 30% of your revenue.
Horses, 20%, which is your non res ventilation make up playing out mix growth.
On the.
That youre, assuming driven entirely by a ventilation are you also have any new construction recovery baked into your guide I think very low single digit, but we do expect also growth and the new construction again deep you and many others keep really good track of what diverged in AI, saying so.
Fourth, but just like Dodge coming out and calling information very similar to what we see in talking to our distributors. So there are some and we purposely put in these categories. The kind of our weighted average from top to bottom, but there are some strong markets out there from.
Again, the data centers in the warehouses and so forth. So lot of bills that were passed in this last election for K through 12 schools with renovations so ill.
David mentioned, we're being cautious to Dean's point, we're one of the few companies already putting out EPS guidance its guidance this guidance, but we expect to hit and.
Maybe there is some additional upside as we go forward, but for now low single digit.
Growth there and then the rest of the markets, obviously pretty strong.
Yes, sorry, low single digit in overall non brands are just vendors yes.
Not not need on overall numbers and then the lowest so those would be the new construction.
Okay.
Like like an emptiness, we would expect growth in solar so theres other pieces of business that we would expect growth. Thanks.
That's fair.
Moving on to your decision to reduce debt even further I mean.
Even before you did that 1.9 times net debt to EBITDA is not particularly on the high so.
So curious why you felt the need to reduce debt voluntarily versus say deploying more towards share buybacks.
Well you know I think one of the things it's going to look at our net debt ratio, which we have worked down.
I think what missing a little bit as we still do have $800 million of gross debt. So we do feel like it's prudent to get that gross debt number down slightly, especially when well be looking to refinance that debt then.
While it's doing three years, probably somewhere between now and then so we feel it's a good use of cash to reduce some of that overall gross debt.
Got it I'll pass it on thanks very much thanks Steven.
Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.
Hey, good morning, guys football's low.
Very well, thanks Sandeep financing.
Great. So I just wanted to go into maybe Dean's question, a little more detail about the margin I think last quarter, you told us something like 30% Decrementals for Q4, I know MPS had that kind of performance and you talked about the value based pricing in raceway.
Maybe how sustainable is it and you know it was obviously a lot better than you saw on so could you talk about I think I saw you had modest positive price versus cost from 21, but Q4 was was more than modest as you kind of talked about so so what are you doing differently and how sustainable is.
Going forward, yes, it's great question lots of questions within that a lot of information, but the basic thing that really drove the results were residential was up more than I'm going say for cash for the industry and specifically, our competitors and ourselves and that PV and we sell.
On a lot of PBC product into subdivisions think of all the electrical lines running underground to a subdivision or a house.
With that.
We have the largest set of electrical current.
See conduit facilities spread out across the country. So its demand started to exceed supply we were able to commit to customer supply customers provide our atkore business system, a better value proposition than quite frankly, I think the competition and therefore, we were able to get more price.
Then what our costs increase value Sally.
Thank you see some of that here in the first quarter and then from there, we'll see where it goes as we go forward but.
But I don't want to diminish the rest of the businesses.
Back to other charts, we've produced over the last three years, we've continued to get more price than our cost space because of our ability to do numerous things with value proposition to our customers.
Helpful and then.
Bill maybe how are you thinking about your businesses in terms of what the New administration might do obviously there is still uncertainty in Washington, you know in the Senate, but biden talked about making buildings more efficient significant renewable focus, which we know you have so any early thoughts on how you could Dennis.
Said free.
On the new administration on what it might do yeah, great question on pig again.
Before I answer I'm going to remind we have the accor business of some there's so much opportunity in front of us that we're driving ahead, no matter, what but where Biden administration could help US is if there is more increase in.
Infrastructure and more support for solar solar is an industry that is already projected to grow 10 plus percent compounded growth for the next 10 years and obviously if there is more focus on that it helps our mechanical business even more.
Great and then just one more follow up from me Bill.
Built for Bill or David maybe if you put all the sort of income good markets that add core is exposed to now versus the challenged markets. You know you've talked about warehousing datacenters, obviously residential non residential renovation.
Would you be able to quantify how much is sort of percentage of the business the weaker markets now.
Obviously low in the previous question talked about the 30% that's non resi, new construction, but any sort of more color around sort of good versus bad would be helpful.
I think.
When we look at it indeed, we look at that as a weighted average of all those but I think we've talked before too about the density. So when we take into consideration the density of our product lines by types of buildings and we do that math. It comes out to low single digits. This this year. So you could assume that those ones.
That are low or I would say given the fact that they're also happen to be some low lower density. So we probably have a little bit of a favorable mix in there, but when you add all that together, it's low single digits.
Alright, guys. Thanks, a lot.
Thank you.
Your next question comes from the line of John Walsh from Credit Suisse. Your line is open.
Hi, good morning, and solid performance. Thanks, John Thanks, John.
Maybe just.
Clarification or a cleanup question first I apologize if I missed it but did you actually say what your product Tivity number in your 2021 bridge is no we didn't John but we did say what I did comment on that is relatively speaking in line with what.
We've done.
Yes, so I guess the follow on question to that.
It is I think you've historically talked about leveraging 20 to 25 per cent on your volume and then adding price.
Productivity on top of that to the tune of 16 million.
So you just run through that basic math, if that's correct. It looks like you know you are not giving yourself that full productivity benefit is there something offsetting that I think you talked about investments or.
Yes, yes, you basically answered the question for me because basically investments we're going to continue to invest in our digital platforms. This year, we do expect some new products. We just introduced a really exciting new product recently and we have some other new products behind those so we do have investments.
But by and large are for growth a little bit in this year, but probably more for the future.
Okay, Great and I, just wanted to make sure I understood. The the mechanics behind that and then on.
One other point to remember too there probably will be some higher medical on some of those things in the Pinedale this year versus five.
On slide 20 as people go and have more elective procedures non pedestal.
Got you okay. Thanks, that's helpful.
And then obviously on a lot of time spent on the different end markets and your your sales mix is once again, we all appreciate the disclosure there, but if I just go back to some previous conversations on that new construction piece it does seem to kind of relative.
We track the Dodge starts on a lag and it it does seem like what you're implying would kind of break from that and you talked about the density of the product on some of the parts that are growing I mean is that the real answer to the question on why you think that traditional real.
Relationship kind of breaks.
I think there's two things one.
Again, the mix from the density of the things that are growing probably weighted a little bit favorably.
I also think that.
I mean this is my personal opinion, the time lag up how long it takes to make a building is probably a little longer though that it's been in the past, so and because of lower productivity or what have you. So I do think that there is some pent up.
Demand out there for finishing these projects that are out there.
Great. Thank you I'll pass it on.
Thanks, John.
There are no further questions at this time Mr. Waltz, I turn the call back over to you.
Thank you before we conclude let me summarize my key takeaways from today's discussion first the solid results. We delivered in the fourth quarter are result of our strong operational focus and everyone. Our team's commitment to the at core business system I can't emphasize that enough you put the right team together.
There you focus with the business system, you get solid results and we are taking the necessary actions to keep our employees safe and to grow our business. Despite these challenging times next we're in a very strong financial position and over the next six to nine months, we are over the past.
Just a nine months, we've answered many of the questions that each of you have had over the past few years.
Since here today, we believe that our strong balance sheet, our demonstrated ability to execute through a downturn in our projection should grow make atkore, a truly compelling investment opportunity and in closing we're not done we're focused on building to better together with our employees we serve our customers.
It's better than anyone would that will help our shareholders and our communities in order to create an even stronger business for the future. So with that thank you for your support net interest and we look forward to talking to you with our next call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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