Q1 2023 Atkore Inc Earnings Call
Please wait the conference will begin shortly.
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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 adjusted EBITDA is a non.
GAAP measure reconciliations of non-GAAP measures in our 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.
Thanks, John and good morning to everyone. Starting on slide three at core is off to a solid start for 2023 volumes for the quarter were up over 5% and adjusted EPS increased 1% year over year in the quarter, we continued to execute our playbook for capital.
<unk> and strategic growth as previously discussed we expanded our HPE product offering with the acquisition of elite polymer solutions in November H D. P represents a significant growth opportunity for us and I am pleased with our progress on the integration so far.
During the first quarter, we repurchased $150 million of shares and in the second quarter, we've already repurchased over $100 million.
Collectively this brings our year to date total for repurchases above $250 million.
With our solid start to the year, we are increasing our full year outlook for adjusted EBITDA and adjusted EPS.
It is my pleasure to also announce the release of our 2022 sustainability report, which was published this morning and posted on the E. S and G section of our website. This report covers a broad range of topics and I believe it demonstrates an articulate why at core is a great place to work and truly.
He is special company I would like to thank all of our employees for everything they do to support our customers and all of our stakeholders is the cause of their tireless efforts that <unk> is able to achieve the results and successes that we had with that I'll turn the call over to David to talk through the results from the quarter.
And our outlook for the full year.
Thank you Bill and good morning, everyone.
Moving to our consolidated results on slide four.
In the first quarter net sales were $834 million and adjusted EBITDA was $264 million.
As we have mentioned several times, we expect our business to normalize in 2023 as compared to the past several years of outperformance.
That being said we are nonetheless pleased with our margin performance in the quarter with adjusted EBITDA margins of 32%.
This is down year over year, but still a very strong and healthy level.
Even with the decline in net sales and adjusted EBIT were pleased to see that our adjusted EPS increase in the quarter up to $4.61.
Turning to slide five and our consolidated bridges.
Volumes were up over 5% in the quarter and our recent acquisitions contributed an additional 7% of growth.
These gains were offset by the decline in our average selling prices are every selling prices have declined as we continued to see normalization of pricing and a continued downward trend for several of our key input cost.
During the quarter, we saw very strong pockets of performance related to data centers and several large chip fabrication projects globally.
In addition, we are very pleased with the execution and integration performance from our recent acquisitions.
Moving to slide six those segments had positive volume growth.
Margins compressed in our electrical segment with the previously mentioned normalization of pricing. However, we saw very strong margin growth on the <unk> side.
Our F&I business had 22% growth in adjusted EBITDA.
Turning to our outlook for fiscal year 2023 on page seven we continued to expect volumes to be up mid single digits for FY2023.
We expect net sales to be down approximately 5% to 10% in 2023 as prices normalize and we see declines in several of our key input cost categories.
However, with the strong performance in the quarter and the resiliency of our <unk> business system model, we are increasing our outlook for adjusted EBITDA and adjusted EPS.
For FY2023 we expect adjusted EBITDA of $1 billion at the midpoint with a range of plus or minus $50 million.
This is an increase of $100 million versus our prior outlook.
In addition, we are increasing our expectations for adjusted EPS up to a range of $15.85 to.
$17.75.
As we mentioned last quarter. This outlook does not include any expected benefits from the tax credits associated with the inflation reduction Act as we expect the majority of these credits will flow through to our customers.
With the strength of our cash flow and our commitment to returning cash to stockholders. We are also increasing our expectations for share repurchases in the fiscal year with that I'll turn it back to bill.
Thanks, David we are very pleased with what we have accomplished this quarter and our outlook for this fiscal year, but we're even more excited about all the opportunities ahead.
Going to slide eight as we've said before we believe that sustainability is central to this strength safety and longevity of Accor. This morning, We released our third sustainability report and seen all the great work that our team has accomplished truly inspires me. This report details our niche case involving.
Our products customers and employees and I would encourage everyone to read it.
Inside the report and highlighted here is the progress we've made against our four external sustainability targets. As you may recall, we introduced these four targets last year and said very smart goals that we believe will help guide and focus our efforts to enable sustainable value creation.
We are making good strides toward our targets for each of these goals and we are confident in our ability to meet or even potentially exceed some of these items by 2025.
Turning to slide nine we sincerely appreciate the external recognition that we recently received from several leading independent organizations.
We believe these acknowledgements demonstrate that we have the company culture and employees, who are able to truly make accor, a great place to work and a compelling investment opportunity.
I am confident in the team strategy and processes, we've put in place to continue <unk> strong trajectory and I firmly believe that best is yet to come for our company.
With that we'll turn it over to the operator to open the line for questions.
At this time I would like to remind everyone to order in order to ask a question. Please press Star then the number one.
Our first question comes from Andy Kaplowitz with Citigroup.
Morning, everyone.
Good morning, Andy.
Good morning, Bill you recorded good volume growth as you said you would based on data center chip fabrication demand. He is what you highlighted but can you talk about the resilience of those end markets I would say, we've seen a bit of a slowdown in tech sector, but you know we know nonresidential been very strong over the last year. So is that helping and what is the duration of customer back.
And how much confidence do they give you an extended volume visibility for headquarters.
Yes, great set of questions Andy.
Yeah, we're still optimistic.
Our spent on volume going forward in the call. It the mid single digits for the rest of the year.
When I'm out talking with our customers I just flew back from a convention here late last night.
Yes.
Months nine months a year of backlog.
With our distributor partners sell.
I continue to see as you mentioned, there's going be a delayed job here or there.
Either because of somebody getting equipment, an or someone.
Reconsidering things, yes, but there's enough volume there there's in depth at core capabilities to drive our fair share of growth beyond the market.
Estimated mid single digits.
Having now controlling changed Andy which is kind of nice yeah very helpful. Bill and then.
You recorded just over the high end of your guidance for the quarter I think $2 64 in EBITDA, but you raised your 'twenty guidance by $100 million.
Out adjusting volume as we just talked about so what is it about the price versus cost equation that has changed to allow you to adjust your guidance pretty early in the year pretty significantly are you retaining more price so far than that waterfall chart that you gave us last quarter and does that potentially change the trajectory of the $600 million ton price give back to you.
You gave us in that waterfall.
Yes, so great question, Andy I would say for this year, we are seeing more price that we're holding on to and are just commodity cost dropping faster different things like that and our value equation that we are able to racing you mentioned, our full year forecast for EBITDA.
The $100 million.
Yes. It does sit here project out farther I think we're not giving comments on 'twenty Board we're still.
Comfortable as we can be on the $18 plus for long term, but for this year, Andy Theres enough comfort in a year they raised the guidance by the $100 million.
India as you know the second half as you did a little bit stronger as construction season starts.
All four are so when you look at the first half after first quarter actuals and our search.
Quarter Guide, we felt comfortable in raising our full year guide.
Got it and then just one more question for me you mentioned a rebound in metal electrical kind of volumes are you, saying is that because demand is improving or was that more of a supply constraint initiatives now being relieved and then just asking the same question on PVC markets pricing Theres still looks like maybe you know its been dropping a little bit stabilizing, but how do you how do you define them.
Mandan PVC is is nonresident outweighing resi weakness.
Yes, I'll do them reverse order there I think there is enough opportunity that well let me backup.
Residential weakness that should not be a surprise for everybody, but that single family home multifamily on all of our talent brought in really strong.
And then there were some other markets all those electrification trends hardening of the Cal to grid and the varying lines at <unk> networks that for all of our products. Almost ended your first question, Yes, we're still cautiously optimistic for growth both part of the industry and crack whore going forward.
And then from there with steel conduit.
Yes, I think it was a good quarter, but I wouldn't overplay, Andy wind market for a short time period.
To meet daily two things maybe there Andy is the fact that we feel very strongly of Destocking and are still conduits over and so what we're seeing right now is a real demand in the market and then also you are starting to see steel cost rise in the future and expectations rise. So folks are getting ahead, maybe a little bit in getting there.
Their orders in in a more typical way than they were in the last three six months.
I appreciate all the color guys.
Yes, Thank you Andy.
Our next question comes from Deane Dray with RBC.
Thank you and good morning, everyone.
Hey, good morning.
Hey, I appreciate all that.
Color through Andy's questions, because that really does strike at the storyline here.
And certainly we like what we've seen for the first started the year and maybe we can just drill down a bit because on what normalization is and whether we have a clearer read and I know, it's still early in the year, but here's kind of the way I think investors have been looking at it.
Versus fiscal 'twenty two.
In your prior guide on EBITDA. It was looking at a 33% decline and you know there was this worry it would be falling off a cliff in January and obviously, that's not happening you've boosted it's now 825% decline.
Using the midpoint, but it's also $1 billion, which I think is interesting in terms of that midpoint, you and I talked about how that's an important milestone. So look it's still early in the year, where does that normalization trend line go.
Here in it for fiscal 'twenty, three on an EBITDA basis.
At.
The site.
If you wanted to follow up.
We're comfortable with the midpoint of the guide.
There will be some pressure continuing on some of our pricing, but I think there is enough other things that were going well.
I E. The volume growth, new product development or new products that typically have higher margin.
Our value equation for our customers that are driving in some places we're getting margin even more as we go forward that we're comfortable raising our guide for the year, but and also very comfortable still on the FY 'twenty five guide now put some product lines continue to have some drop in margin.
Quarter over quarter, so forth, yes, but overall I would tell you almost where you started where you're comfortable enough three months and say you know what pricing is holding back your whole the beginning up 33% drop in 25% drop at that.
That $1 billion like you mentioned sounds good to me an escape.
Ill lead off of that and the $18 EPS and then we'll talk about how we continue to drive it forward from there.
Hopefully I answered, but it's hard to say Pat byproduct with that much crystal ball, yes, that's completely understandable and for David.
It came up a couple of times about the decline in input costs.
And it looks as though that is bigger than what the decline we've seen in pricing. So it just kind of take us through that dynamic the key input costs, how much they've gone down.
And how that factors into your pricing.
Sure. So if you look at it.
Slide five of our deck.
The bottom in the EBITDA Bridge, you will see that.
Cost changes year over year for Q1 were down $70 million now, obviously pricing was down more than that and that has a lot to do to normalization. We have been talking about that you have seen from where we were a year ago, especially in things like steel tremendous with lower now than they were a year ago.
Now sequentially Youre, starting to see steel like I had mentioned earlier I will come up a little bit and so there's different dynamics in F&I as to when price changes in some of our other product lines of how long we hold on the price versus the commodities coming down and what have you, but in general I would say that that $70 million.
Is it as a.
Pretty significant reduction year over year.
Good bye.
But.
Oh, sorry Dana.
As part of your question about I know there is especially on the buy side questions out there on the whole dynamic of cost versus our price just as a reminder, I know you understand this the top.
That the things that drive our ability to price our supply demand competition. So what are our competitors don't want compared to how much demands in the industry and then at Core's value prop, which I think is bar none the best in the industry with our ability to co load in one order one delivery one invoice.
Try makes our customer service those type of things so as.
Sometimes buy side looks at commodity cost, yes, that's a factor because may be one of our competitors is out there thinking well by cost went down I can lower my price and still make a margin and we have to react but that's just not a major.
Contributor to how we price in the market for any environment.
Might cost.
Yeah, Phil you and I had this exact discussion last quarter first question and you gave a what I thought a comprehensive tutorial on the dynamics and how you have to look well beyond just the input costs and so I've been referring people to that transcript and sending it then and thank you for the reminder, just last.
Question for me.
Talk about the pipeline of M&A.
And are you seeing any other competition coming in because obviously this is a really attractive niche and the surprise for some investors, who say how come you havent seen any one else trying to elbow their way out.
Yes, so great question Deane and for whoever.
Also thank you to those questions, but no we haven't.
But that's why there was no increase trend that we've seen as people buy other companies that we've passed by yes.
Again, I think at Core's unique most companies we buy are privately held family enterprises small enough on the radar that at large private equity firm.
The management structure to put in place with them are there.
Large electrical peers.
Have different niches than we do in this set of call. It Raceway products that I think we are uniquely in a position to acquire most of these companies as they come up to market. So he never say never or something that hasn't been solved or somebody else of course, but by no increased trend in the market is still active.
We're actively pursuing things, we've actually increased the size of our M&A team.
You are in the last month, just to continue to expand whether different products in the states look more aggressively into Canada look more aggressively into Europe . So we are.
Deploying our capital well between M&A.
Internal investments that obviously stock buybacks. So it's a good time to be with that core.
Great to hear thank you.
Thanks Judy.
Our next question comes from Chris Dankert with loop capital.
Hey, good morning, guys. Thanks for taking the question.
Good morning, I guess.
I guess first off in safety <unk> infrastructure in particular volume was up 19, obviously comp was a bit easier, but anything in particular you'd call out on the demand side kind of feeling that volume in F&I.
And so whenever we referenced a little bit about data centers and fab plans a lot of that when you start thinking about the metal framing our our wire basket products even.
A different part of their business security was pretty strong this quarter. So.
Broadly speaking they've had solid growth across all of their product lines this quarter.
Okay.
And then maybe to follow up obviously, there's a lot of.
Different.
Governmental actions going on right now you've got the IR array infrastructure jobs are adopt et cetera, I guess first off yes.
What impact is baked into that kind of mid single digit volume guide from those acts and I know, it's hard to break apart that way, but if you kind of give any sense for is that more of a 2020 for dynamic I assume the majority of it but any sense on is some of that showing up what's baked into the guide and then any comments on just kind of that environment.
Yes, I think got Chris I'll, just paraphrase back what you said I think it will be more impactful in 2024.
Yes.
These things like that but ensure adoption act with credits and so forth just wondering again in January .
But there's probably a little bit.
There, but nothing major but we are definitely knowing that these things are coming along positioning ourselves and Thats again, why I say at course of company to invest and grow with as we go forward.
The fiber investments and all of that I know the municipalities I think the deadlines pretty soon and when they can sign up for the money and see what their need is so we're still a little ways before that actually gets actions so that bill's point, a little bit, but not the majority of our volume growth this year.
Yes.
Nothing else certainly gives you confidence that that 2025 target.
Target number on an $80. So I'll, thanks, guys I'll pass it along.
Paul Thanks, Chris Thanks, Chris.
Our next question comes from Chris Moore with CJS Securities.
Hey, good morning, guys. Yeah. Most of it is covered but good morning, I was hoping maybe you could just give some updated thoughts on the H D. P market opportunity you talked about a little bit, but obviously lots of acquisitions, there and and you know lots going on on that front, maybe just some any.
Updated thoughts you have there yes.
Really excited for that market in every facet of our us almost.
Their cars to just ask a question.
I think the best is yet to come here with funding for and getting things ready for fiber optic and so forth.
Without mentioning any specific customers.
We have a great general manager that was just talking to some of the largest electrical distributors in the nation yesterday and while they're optimistic for 'twenty. Three there are even more optimistic for 2024, and we are well positioned and we have a high gas team very much reminds me as a complement to our core.
Sure.
The <unk> division of a decade ago, where you take five six of the best run companies and you bring together those management teams they get to compare now best practices manufacturing out we have a national.
Brad how we can therefore work with national customers that a lot of other people can't just because there are regional and this is why almost back to the $3 billion San analyst questions. We have high comfort at this stage with our 2025 $18 plus EPS. So.
Economies garner in the right direction secular trends going in the right direction and <unk> is well positioned so long winded answer to say we're excited for HCP.
Got it very helpful last one for me just kind of cash flow related so cash flow from I think just under 200 million for the quarter.
Inventory was down a little bit, but an $11 5 million.
What are your kind of your thoughts in terms of inventory levels for the balance of the year.
Good question, Chris I mean, I think for days standpoint, we're where we wanted to be but you will see a little bit here as we talked about in the back half of the year, we expect a lot more solar volume I'm coming up with our new facility. So we will have a little bit of an inventory build there. So when you look at it on.
As <unk>.
Level, it's going to be fairly level between now and the end of the year, but that does mean, a little bit of a dollar increase for the next I'd say quarter or two.
Got it it's helpful. I will leave it there I appreciate it guys.
Thanks, Chris.
Our last question comes from Alex Rygiel with B Riley.
Okay.
Thank you very much to follow up on that last question can you comment on sort of the trend in solar demand in the near term as well.
Well as telecom conduit demand in the near term appreciating the very positive long term outlook.
Yes, so great question, Alex and good morning.
Both short term and long term really optimistic it almost ties back to some of the other questions with what are we seeing.
Some of the background that David talked about in our prepared remarks is solar credits are out there. They just started with inflation reduction act. So I think it is something that the people that make the solar arrays that people that buy them for the solar farms are aware of and that is a great stimulus had a well I'll kick off.
On here on January one, but we're both alcohol well positioned I think we've talked in previous conference calls where we actually.
Some intelligence quite frankly, some dumb luck, but we started up a whole facility dedicated to making the solar torque tubes, and thats coming online for us here at the beginning of Q3, so another quarter out but that will both help with organic growth helped with our EPS and the demand is absolutely.
Out there.
Just people wanting to be green and these tax credits are probably shipped a lot of business that used to be made offshore.
Manufacturing scale.
Good for the economy good for the U S. Good for Green and good Frac or yes, so Alex one way to think about it is that the solar industry itself could stay flat year over year.
Volume for domestic torque tubes is still going to be up substantially because it just doesn't make any financial sense to import torque tubes anymore compared to buying someone domestically.
That's very helpful. And then is it time for you to update your 2025 target or comment.
Confidence towards achieving it.
Okay.
I'll, just say I don't know what to say Andy I'll. Thanks. Thank you part of the thought process on the optimism when we get to the 10 multiple on that then we'll talk about where we go as we continue to drive forward I will say.
Great management teams.
Really across the board you look at what David spoke about with that said I, just an amazing quarter Bedford David myself in the match of the executive staff, we're having an all day meeting on Thursday, and it's all about 2025% in 2028, that's the focus of how do you keep this flywheel spinning faster and faster so who knows I don't think were going to do re up.
Our numbers roll out Alex, but it's definitely a thing of how we continue to grow and take it to the next level price, formerly we'll update it again.
November like we normally would but I just would remind you that we did put a greater than sign in front of the 18. So we were thinking about that as we were putting that together.
Very helpful and very nice quarter. Thank you.
Thank you Alex.
There are no further questions at this time I now turn the call over back to Bill Waltz.
Before we conclude let me summarize my three key takeaways from today's discussion first Q1 was a solid start to the year with volumes up over 5%.
We are increasing our expectations for the full year earnings and share repurchases.
Third we're excited about the progress we made in regards to sustainability and ESG and we're very excited about what lies ahead in this area for our product customers and employees.
With that thank you for your support and interest in our company and we look forward to speaking with you during our next quarterly call. This concludes the call for today.
Okay.
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Yes.
Sure.
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