Q2 2024 Atkore Inc Earnings Call
Good morning, My name is poorly and I will be your conference operator today.
At this time I would like to welcome everyone to <unk> second quarter fiscal year 2020 full earnings conference call.
All lines have been placed in a listen only mode. After the Speakers' remarks, there will be a question and answer session.
Poorly: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
We would like to withdraw your question again press Star one.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Matt Klein, Vice President of Treasury and Investor Relations. Thank you you may begin.
Matt Klein: Thank you and good morning, everyone.
Matt Klein: 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.
Matt Klein: Such statements involve risks and uncertainties such that actual results.
<unk> may differ materially.
Matt Klein: 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, our 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 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, Matt and good morning, everyone starting on slide three.
We're 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 Andy.
In the first half of fiscal 2024, with a $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 one 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.
Matt Klein: Additionally, during the quarter Fitch ratings moved <unk> into their prestigious investment grade status. This designation reflects at cores operating profile financial flexibility and our commitment to a balanced capital deployment strategy.
At the halfway point of our fiscal 2024, I am pleased with the results we've been able to achieve.
Matt Klein: 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 HCP and solar initiatives, we're reducing our near term.
Term growth expectations.
Despite challenges in those two areas, we are within our expectations of the pricing normalization topic.
Matt Klein: 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 tailwind of the energy transition and expansion of digital.
Infrastructure over the long term.
Matt Klein: With that I'll turn the call over to David to walk through the results from the second quarter.
Thank you Bill and good morning, everyone.
Moving to our consolidated results on slide four.
In the second quarter net sales were $793 million.
David P. Johnson: 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 Nucor was approximately 19%, which benefited from both stock compensation and the impact of the solar tax credits.
Turning to slide five and our consolidated branches.
Our volume in the quarter was down 1% compared to the prior year, while net sales were at the midpoint of our guide.
David P. Johnson: 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 the EBITDA bridge, we saw overall improved plant productivity.
Moving to slide six.
Our year to date volume increased 6% compared to the prior year with contributions across the portfolio.
Turning to slide seven 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 <unk> 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.
David P. Johnson: 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 in 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 'twenty four outlook.
William E. Waltz: Thank you David turning to slide nine I want to provide an update on two of our category expansion initiatives.
Our investment in HCP is one of several growth initiatives that have long term positive impacts for our quarter.
During the first quarter, we discussed the demand for HCP telecom related products is challenged as the industry works through the excess inventory and our weights the rollout of government stimulus funding related to broadband investments.
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 tailwind.
Turning to slide 10.
Our updated fiscal year 2024 outlook reflects the impacts from both HCP and solar.
Overall net sales are down slightly from our previous guide due to the continued HCP market challenges and the delayed ramp up of our solar towards two facility.
Overall, adjusted EBITDA is down $50 million from our previous guide, we have reduced our expectations by HCP and 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.
William E. Waltz: Which is the same as our original FY 2024 projection.
We continue to expect 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 and the updated outlook if activity does not pick up as anticipated the pricing environment.
It 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 progressed 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 11.
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 'twenty for.
We've updated our price cost assumption to a midpoint of $275 million unfavorable impact versus our original projection of $250 million.
This shift is entirely due to HCP.
We have not adjusted our FY 'twenty four assumptions versus the overall expectation we presented in November 2020 to that approximately $585 million of elevated earnings would continue to normalize over a multiyear period.
William E. Waltz: Given the challenges to HCP in solar in FY 2024 are primarily timing related we remain confident in our ability to deliver $18 EPS and 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.
Thank you and at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
And your first question comes from the line of Chris Moore from CJS Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Yes.
Christopher Paul Moore: Good morning.
Christopher Paul Moore: I was.
I'm wondering if you could bridge or even just roughly bridge the $18 adjusted EPS and 25 to <unk> 50 in 2000 and for just <unk>.
Price or volume is it really just it's H C. P E and solar torque theyre going to be the big drivers just just any thoughts there.
Speaker Change: Yes, Chris we haven't given a specific bridge, but I think it's pretty logical when you sit and look at where we are with H D. P and solar and we said that in this year negatively impact $80 million you can assume that that would turn in the other direction and then even grow beyond that so there you have a pretty nice positive impact we built.
We also believe we're going to have a nice impact due to continuation of our large project business, which we're quoting quite a few opportunities. This year that we think will manifest itself next year and then we would expect some help from the overall market.
Offset some of that with continue.
Speaker Change: Continued reduction of our price cost kind of the last year, we think of that year over year impact.
And then probably a little bit of favorability on the productivity and if you add all that up.
Youre talking <unk>.
$16 50 to 18 plus.
Gotcha.
Very helpful.
And maybe just on the on the solar torque manufacturing can you separate kind of use some of your manufacturing challenges from what youre seeing in the overall market.
Lead times look like as domestic capacity meeting demand.
Yes, I think Chris.
The markets are still strong there are out there it's really.
US fine tuning equate me, let me just give a soundbite probably deep diving, but if anyone thinks oh, you just buy a set of equipment just imagine one component like the saw that cuts the tubes. This.
This pipe is flying down torque tubes with high precision of several hundred feet a minute. The Sol has to go with it it has to cut within a 10th of an edge of tower and so obviously with no bears make that happen and also a different speeds different diameters and then just god forbid that over.
Time to tolerance uses closer to rivaling and you have to take the machinery down for three or four days to redesign. So it maintains its tolerance. It's just working through those things, but the end markets are there. The customers are there are relationships are there. So we just as we fine tune things like that.
We don't expect to repeat in future quarters. One example, it's what gives us confidence in the future in that area.
And Chris I, probably should have mentioned one other element obviously in the bridge would be our capital deployment, which we have been pretty.
<unk> robust about and you can see what we're implementing this year and we would expect similar levels next year.
Got it I appreciate that.
I will leave it there thanks guys.
Thanks, Chris.
Speaker Change: Your next question comes from the line of Andy Kaplowitz from Citigroup. Please go ahead.
Hey, good morning, everyone.
Hey, good morning, good morning, Andy.
David can you give more color into your visibility into the recovery and HCP first of all how big is <unk> right now as a percentage of that core sales. When do you think the channel and normalize and while I think we understand the volume component of the pressure on your guidance is it price versus cost pressure that you have solely because of HCP. I think you kind of suggested that but anything else you're seeing across the <unk>.
Folio, yeah, so I'll defer to David on happy if we get that specific on the size, but tomorrow.
The markets A&D, if I hit all your questions here definitely slow I think you know that you can see it whether its people that make the fiber optic whether it's other manufacturers that are public whether it's distributors. After us that have commented the markets are slower like everybody walked in sandwich.
Speaker Change: Start to come up with that.
Speaker Change: Ended this year people are still thinking that in saying that but the markets as you're actually slower than last year and that we did not assume in our guide our original estimates and so forth and then with it Andy Yes, we're seeing pricing go down which is not a new phenomenon for at core or any of our compare.
<unk> when volumes are slower people are more apt to drop price to try to fill up their factory and so forth. So hopefully as we go into next fiscal year, both of volume should pick up and therefore that pricing and spread should pick up.
Yeah, and the only thing I would add Andy is when we went into this year.
We did not count on much on H D. P. In our original guidance. We said that was mainly in FY 'twenty five story and we still believe that but what we didn't anticipate was that the business would actually be worse year over year. So we had kind of penciled in.
Similar level.
Performance in FY 'twenty four versus <unk> 23, and it's just not the case right now and here we are over halfway through our fiscal year I know others might have had a different opinion. They say later in their year, but they typically mean their calendar year not fiscal year. So I think it's just getting to the point, where we think the performance although.
Perhaps may be getting a little bit better going into the summer and so and so.
Speaker Change: So forth, it's just not going to be enough to make up kind of where we are in the year.
Got it and then could you elaborate on what Youre seeing in your core PVC products and markets. In your presentation. I think you mentioned strength from non electrical PVC products could you elaborate on what that means and can you help us size how does.
Everybody is talking about data centers. These days, how that might help add core how big of a market that can be frankly go up moving forward.
Yeah, well I'll do a couple of your Andy the overall markets right now are probably wide or in other words and again youre seeing this whether you listen to distributors or other people in the commercial industrial and that shouldnt be a surprise, we're growing faster than the market back to the 6% year to date and a lot of this is our so.
Speaker Change: If help for example in PBC, we specifically also callout products outside of electrical if you go back to previous decks, where some of our growth initiatives like the global Mega projects that David referenced and also with PBC expanding beyond our core markets are definitely helping us grow faster than the market and then for large projects.
It's David referenced there is a lot going on that shouldn't be a surprise anybody whether it's people trying to build things for artificial intelligence and any other type of chip manufacturer out their data centers out there its a booming market and we do have a reasonably good backlog.
Speaker Change: Projects that as we again David answer to a question was Chris what gives us comfort to bridge the $16 50 the $18.
That's one of several levers out there that we see playing out well for us.
Speaker Change: And then Bill just final quick follow up I just wanted to go back to your comment that if you're talking about spring and summer activities and electrical space. If it doesn't pan out pricing impact I guess why did you say that are you seeing something on the volume or pricing side that concerns us at this point.
William E. Waltz: Yeah, I'll start with David one no I think right now things are playing out as expected.
So theres no foreshadowing, but on the flip side here one of the things. They know David always references it's tougher for US is I'd love to be that corporation that has a year of backlog and it is just when do I ship. It versus we are a company with two weeks of backlog over the last so trying to project out five months from now on how dynamics.
Right now things are exactly playing out as we expected weather bullshit, the HCP and bringing up Hobart.
<unk> to the point, David I think in our prepared remarks are Andy sorry is the whole thing of Hey, if it wasn't for the $80 million of ADP and solar we'd be on our estimates and are above our estimates including.
The price spreads we have products that are gaining price year over year as we speak so things are moving basically as we projected a couple of years.
Quite frankly, two years ago, when we originally gave estimates.
Yeah, Andy I would just add.
To those comments regarding you know we have the two weeks visibility, but also typically by now you would start to see more construction activity and just think that that's a little bit slower than what we had expected, but when you step back and you look at the fact that.
Construction employment in non res is still up three over 3% year over year. So I think that's a positive and the fact that contractors still have backlog that's over eight months. So again. This typical indicators we use our positive. It's just we need to start seeing the.
The actual activity pick up going into the building season.
I appreciate the color guys.
Okay. Thanks Sandy.
William E. Waltz: Your next question comes from the line of Deane Dray RBC capital markets. Please go ahead.
Thank you good morning, everyone.
Deane Michael Dray: Hey, good mind Deane.
Hey, can we circle back on Hobart.
Just.
And Bill you gave some good specifics about some of the ramp challenges can you give us.
Kind of a bigger picture in terms of what the volume or the output at the plant was in the quarter versus your expectation. So I don't know if you do it by linear feet I don't know if you do it by pounds, but just kind of hey, we expected to have ramped this much.
And our output was actually deaths so just.
Frame that for us.
The only thing Deane, we don't give that I prefer not to just because then you get into every quarter by factory, saying, what's our production and even for our competitors.
What I would tell you is Hobart is a very large facility I mean, I think Theres pictures and are in East Africa, we can share that would significantly increase our metal times for all of accor and well its not hitting our production levels. If you go back to one of the pages, where we bridge I'm trying to see which one.
Deane Michael Dray: Page six mechanical tube overall was still up double digits year over year. So again, it's a large mover, but again, if we estimated whether it's bringing that evening shift on whether it's taking the machines down for four days unplanned for preventative maintenance to make sure.
We keep the tolerances a couple of things like that just even the four days when you look and say hey.
60 day work week.
Quarter slightly more than that that's a big needle mover here for us so, but again Deane as I mentioned earlier things like that we have pokey hope the process and plan.
Deane Michael Dray: To see the output increase just a question is it playing out more for FY 'twenty five than we estimated in FY 'twenty four.
Deane Michael Dray: Okay. That's helpful and if we just think bigger picture regarding pricing being better than we had expected are not down as much versus expectation, but a volume shortfall was there any bias this quarter to hold on price.
At the expense of volume I know, it's hard to aggregate across the products, but was there any bias there.
I don't know about that but I think we're a couple of things Deane, we're always conscious of that as a market leader to go Hey can we go out with almost any customer that would probably prefer us for lots of reasons and gain volume.
And we don't want to do that flip side is.
Lease I think we did a good job for this specific quarter I think in our prepared remarks mentioned if you go back to the January call that go on Hey, just first quarter, our fiscal first quarter was strong because we did have two customers pull in orders at rebates that we allowed in January hope I never talk about the weather.
Again was allied so ice lining up 6% year to date.
Would bet for our market segments, I E commercial industrial and things like that I'm pretty confident in as much quicker or higher than what the market's growing so again the business plans work and we're still locked on the 18 EPS. We're driving ahead and we just have these two short term things that quite frankly are short term so.
Spot right now in my mind.
Alright.
Speaker Change: Good to hear and just last one from me since we get this question a lot recently can you comment on the significance of any imports of conduit, we know that the just the product.
Physical dynamics are not lend itself to economical cargo shipments but.
Still seems to be a very small presence of imports can you just comment on that were in here it is out.
Yeah. So great question, it without getting product byproduct it does vary.
But to give you like things that goes from zero percent with some products to 3% and then by the way that Canada in there you're talking non Canada and U S. Those type of things, but goes from zero percent to 3% the highest I'm aware of is around 20% and then it just gets their preference weekend Avi I say obviously.
Speaker Change: But have a price premium both for our reputation and our quality our ability to ship and then we're also seeing in some cases some products coming in that don't meet every product specification. So that's starting to go yet you saw and now youre not seeing it nearly as much so.
You know again Deane I think good question, but we keep back to our earnings guide what we expected we're running our game plan and quite frankly, I think it's going well.
Good and just to clarify on that important question.
Is it the same that it's been for the past couple of years has it gotten bigger just I think it changed it varies like this year, maybe slightly up but then 2023 was down compare fiscal year 'twenty three compared to 22. So it almost varies then Deane to go you're talking in the last three months you talk in year over.
Year, so the trend Deane I think in the last five years, we totally honest because at quarters, making more profits. It allows somebody that does not have any better cost position to my knowledge I'm not working on their books, but you know, but it does allow with us raising and our competitors racy market price for somebody to opportunistic.
Typically comment so there has been a trend there, but it's not again, it's more on the things we discussed here, let's get Hobart running smoothly, let's get the beads Act moving let's continue to act on our global Mega projects, our delivery our productivity was use our excess cash to continue buying back shares.
Ours, and I'm comfortable with where we're taking the corporation.
Thank you.
Thanks Deane.
Your next question is from the line of Chris Dankert from Loop capital markets. Please go ahead.
Christopher M. Dankert: Hey, good morning, Thanks for taking the questions.
Christopher M. Dankert: Yes, hi, good morning.
I guess to focus then on the <unk> I guess just to be clear as far as the guide goes are we assuming a stabilization at kind of current.
Order rates in activity levels or does the guide assume some incremental falloff in the back half of the fiscal year improvement just to kind of level set what is baked into the guide and then just what's giving you confidence from an order rate or customer active perspective on <unk> hitting that expectation.
Yes, Chris So I would say that the back half of the year would be slightly better than the first half of the year would be what's in the guide now let's say that's supported by some.
The uptick in current order rates, but not sizable.
<unk>.
Speaker Change: Got you Okay. That's helpful I'm glad to hear that.
And then again I know you mentioned in the past.
Destocking is pretty well behind us is that still the view or are we still seeing incremental destocking was there any anything to call out in the quarter or kind of looking forward here.
Speaker Change: I think great question Christy the only thing I would say is year to date HD p/e.
<unk> D stocked.
That was a new thing again that no no unexpected a year ago, but otherwise we do while we're always out with customers, but channel checks and.
Speaker Change: A lot of people because of the lighter economy or even cutting inventories more or we were only at the customer last week that was talking about what how they may take down too.
Speaker Change: Two days, but basically its level loaded I think across the market.
Got it well I'll leave it there and thank you so much for the detail.
Thanks for rescue.
Speaker Change: Your next question is from the line of Alex Rico from B Riley. Please go ahead.
Thank you and good morning, gentlemen couple of quick questions here. When you look at your sales bridge Windley when might we anticipate price to be more neutral on a year over year basis.
I would say.
Windley: Probably more so a couple of things, though I'll answer if you look at our guide even for this year on an EBITDA basis. The implied midpoint of Q4 would be fairly flat with Q4 of last year, so that would be more or less the quarter, where EBITDA would be flat now you're still going to have some.
Windley: Pricing year over year down and some volume up I would say pricing no again sales in total, including what happens with commodities. Because you know that also does impact our top line is probably more of a Q1 Q2 next year.
That is helpful and then.
Windley: As it relates to large project opportunities.
Windley: Can you talk about how you see that sort of sequentially progressing over the next couple of quarters and maybe not so much identify specific projects.
Identify specific sort of.
End markets that you see as being the biggest catalyst clearly theres a lot of talk about AI data centers, but if you could expand upon that.
Speaker Change: I think great question Alex.
Speaker Change: It will expand into mostly in FY 'twenty five and beyond story. So again the orders are coming in and now we do have orders now and we're shipping orders now. So this isn't a totally new thing, but we're dramatically increasing our team.
Speaker Change: Doing things called off site manufacturing, so partnering with some of the very largest names you can imagine like an <unk>.
Speaker Change: <unk> seven right now where we're doing their assembly offline and then providing them the products and as you mentioned I think if I had to pick two areas. It's both chip manufacturers.
Speaker Change: And then it's also data centers themselves.
Speaker Change: And it's across the world, mostly a U S story, but we do have operations, where customers have taken us and said Hey, you did such a great job in this specific city and said would you work with us.
Speaker Change: And different areas in Europe for example.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you Alex Thank you.
Speaker Change: 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 three key takeaways from today's discussion.
William E. Waltz: <unk> volume is up 6% year to date, and we expect mid to high single digit volume growth for FY 2024.
William E. Waltz: Second we continue to execute our balanced capital deployment model with over $150 million share repurchase year to date.
William E. Waltz: Third with a great team market, leading product portfolio and strategy supported by strong secular tailwind. We are excited about what the future holds frac or.
Speaker Change: With that thank you as always for your support and interest in our company.
William E. Waltz: Look forward to speaking with you during our next quarterly call.
Speaker Change: This concludes our call for today.
Speaker Change: This concludes today's conference call. Thank you for joining US you may now disconnect.
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