Q3 2024 Atkore Inc Earnings Call
Mark: Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's 3rd Quarter Fiscal Year 2024 Earnings Conference Call. All lines have been placed in a listen-only mode. After the speaker's remarks, there will be a question and answer session.
Operator: At this time, I would like to welcome everyone to Atkore's 3rd Quarter Fiscal Year 2024 Earnings Conference Call. All lines have been placed in a listen-only mode.
Operator: After this speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1.
Mark: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
Speaker Change: If you would like to withdraw your question again, press star 1. As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin, sir.
Operator: As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin, sir.
Matthew Kline: Thank you and good morning, everyone. I'm joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments from Bill and David.
Matt Kline: Thank you and good morning, everyone. I'm joined today by Bill Waltz, President and CEO , as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David.
Speaker Change: 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.
Speaker Change: Such statements involve risks and uncertainties such that actual results may differ materially.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures.
Speaker Change: Reconciliations of Non- GAAP measures and a Presentation of the Most Comparable GAAP measures are available in the appendix to today's presentation.
Speaker Change: With that, I'll turn it over to Bill.
Bill: Thanks, Matt. And good morning, everyone.
Bill: Starting on slide 3, in the third quarter, organic volume was essentially flat year over year.
Bill: We saw strength in our construction services business due to large megaprojects, and from solar, due to increased production in our Hobart, Indiana facility.
Bill: These gains were offset by broad pricing softness across most of the electrical business.
William Waltz: We did not see a noticeable summer construction uptick in demand, as is generally the case.
Bill: We did not see a noticeable summer construction uptick in demand, as is generally the case.
Bill: Pricing was softer than expected due to the slower end markets, particularly for our PVC conduit business and higher concentration of large projects where pricing tends to be more competitive.
Bill: Overall, selling prices were also down 4% sequentially from the second quarter.
Bill: Volume grew 8% sequentially and 4% year-to-date.
Bill: The third quarter proved to be more challenging than we initially projected, while our net sales were within the range of the outlook we presented back in May, adjusted EBITDA and adjusted diluted EPS were both off the midpoint by 4%.
Bill: Our lower-than-projected EBITDA was due to overall softer-than-expected market conditions.
Bill: We believe the current market is flat to slightly lower than last year. However, this trend varies by major business.
Bill: Another challenge we are facing is an increasing amount of imported steel conduit coming primarily from Mexico.
Bill: There are currently provisions in place between both countries that are meant to limit the amount of steel conduit imports.
Bill: However, the statistics reveal the amount of conduit shipped from Mexico into the United States far exceeds these negotiated limits.
Bill: This reality has been acknowledged by others within the industry, prompting a call to action. These increased amounts of foreign steel conduit negatively impact our volume year-over-year, while the overall market, inclusive of imports, has grown year-over-year.
Bill: We also continue to experience softness in the telecom and the utility markets.
Bill: Despite the challenges we are facing in the market, we are progressing well in our own operations and are confident in our long-term opportunities.
Bill: We are pleased to share that our production and shipments of solar torque tubes at our Hobart, Indiana facility improved meaningfully from the second quarter to the third quarter.
Bill: We continue executing our capital deployment strategy during the quarter by repurchasing $125 million in shares, bringing our year-to-date total for shares repurchased to more than $280 million.
Bill: On that note, I want to remind everyone that as we near the end of our previously approved, multi-year, $1.3 billion share repurchase authorization, our Board of Directors authorized a new $500 million buyback program in May
Bill: which will be available upon the completion of our existing plan.
Bill: This new authorization is consistent with our commitment to returning capital to shareholders and reflects the Board's continued confidence in the compelling value of Atkore shares.
Bill: in light of the challenging market environment.
Bill: We are adjusting the midpoint of our fourth quarter EBITDA outlook.
Bill: However, we remain confident in the long-term opportunities for our diversified product portfolio.
Bill: Overall our broad product portfolio provides essential elements for nearly all types of construction, especially those that support secular trends including solar power.
Bill: Data Centers, Artificial Intelligence, Infrastructure Digitization, Grid Hardening, and Support for the Energy Transition.
Accor: The breadth of our product portfolio enables Atkore to be resilient to changing end market demand while remaining a supplier-rich voice across our channel partners.
Accor: With that, I'll turn the call over to David to talk through the results from this quarter.
David: Thank you, Bill, and good morning, everyone.
David: Moving to our consolidated results on slide 4.
David: In the third quarter, net sales were $822 million, and our adjusted EBITDA was $206 million.
David: We delivered a strong adjusted EBITDA margin of over 25%.
Speaker Change: Our tax rate declare was just under 22%.
Speaker Change: As a reminder regarding the year-over-year comparison of our tax rate and adjusted diluted EPS, the change in our accounting treatment for the solar credits associated with the IRA
Speaker Change: and the Third Corps of Fiscal 2023.
Speaker Change: drove a tax benefit that lowered our effective tax rate to less than 9%, as we recognized three-quarters of the expected benefits in Q3 of 2023.
Speaker Change: During the third quarter of last year, we changed the accounting treatment from what we had recorded in the first two quarters. This change reflected the benefit of the credits as a reduction of tax provision rather than a reduction in cost of sales.
Speaker Change: This lower tax rate also helped contribute $0.50 to our higher-than-expected adjusted EPS of $5.72 last year.
Speaker Change: We're each at site 5 in our consolidated bridges.
Speaker Change: Our volume in the quarter was essentially flat compared to prior year, while net sales were at the midpoint of our guide.
Speaker Change: The third-core results were below expectations.
Speaker Change: While we saw sequential growth in net sales during the quarter, we did not see a lift from the seasonal construction demand.
Speaker Change: Typically, our third quarter benefits from the seasonality, and we see sequential profit growth.
Speaker Change: The net impact from solar credits was a reduction in EPS of 37 cents year-over-year. As mentioned in my comments on the previous slide, our change in accounting a year ago added 50 cents to EPS.
David Johnson: Our year-to-date volume increased 4% compared to the prior year with contributions across the portfolio.
Speaker Change: Moving to slide six.
Speaker Change: Our year-to-date volume increased 4% compared to the prior year with contributions across the portfolio.
Speaker Change: We continue to see growth in our overall PVC products category.
Speaker Change: Our metal framing products also contributed to growth as they benefit from data center expansion.
Speaker Change: Our year-to-date performance has been impacted by continued softness in the telecom market.
Speaker Change: As Bill outlined earlier, our steel conduit business has met resistance from a significant increase in imported conduit. Our year-to-date volume has been negatively impacted by this surge in imports.
Speaker Change: That said, we remain confident in the long-term potential of our diversified portfolio. We expect that our portfolio of value-added products, along with our resilient business model, will continue to provide us with sustainable growth opportunities as our markets stabilize.
Speaker Change: Turning to slide 7.
Speaker Change: Those segments had strong even and margin performance in the third quarter. Our electrical segment achieved 30% margins.
Speaker Change: Price versus cost continues to be unfavorable on a year-over-year basis.
Speaker Change: Last quarter we acknowledged that in addition to PBC price compression, we also experienced year-over-year declines from our HCP business, which continued this quarter.
Speaker Change: Our S&I segment EBITDA margins continue the trend of sequential improvement since the first quarter, achieving just under 14% in the third quarter. This improvement is due, in part, to better operational performance at our Hobart, Indiana facility.
Speaker Change: Turning to slide 8, we continue to execute our capital deployment model supported by robust cash flow generation.
Speaker Change: The strength of our balance sheet allows us to be flexible in the ways we deploy capital to deliver value for our shareholders.
Speaker Change: With that, I'll turn it back to Bill to talk through some updates relating to our FY 2024 outlook as well as our views on FY 2025.
Bill: Thank you, David. Turning to slide 9.
Bill: Well, we achieved three consecutive quarters of adjusted EBITDA over $200 million in fiscal 2024. We currently believe that Q4 will be lower than this trend due to ongoing softness in the overall market, which has led to a more challenging...
Bill: Pricing and Environment
Bill: As we look forward to the fourth quarter of fiscal 2024, we are amending the midpoint of our Justity.outlook to $145 million.
Bill: Our fourth quarter outlook reflects a continuation of, or an acceleration of, several factors that have impacted us, most notably the pricing dynamics in PVC,
Bill: and import issues in steel conduit, in addition to the overall soft market's diminishing volume growth.
Bill: As I've discussed at the start of the call, we expect the softness and overall market to continue into the fourth quarter, which impacts both volume and price.
Bill: Further, domestic manufacturers of steel conduit are likely to face continued pricing pressures to compete with these elevated and increasing steel conduit imports.
David Johnson: Turning to slide 10. We look forward to all that is to come with this new phase in Atkore leadership. John and James are working closely with David to ensure a seamless transition, and we are fortunate to have a deep and talented financial team that will help support John and James as they get up and running in their new role.
Bill: Turning to slide 10.
Bill: We have updated our key bridging assumptions for the full year, which is reflective of the items mentioned earlier, which are likely to impact our fourth quarter performance.
Bill: We are currently in our annual planning process. As we look beyond fiscal year 2024, we now believe that FY25 will be our new earnings phase.
Bill: We expect to see EBITDA improvements from some of our growth initiatives related to solar, HDPE, water, construction, and our regional service centers.
Bill: Some of these initiatives are still significantly below our original expectations in where we expect these businesses to operate in the midterm, but we do anticipate them to contribute positively year over year.
Bill: For the remainder of the business, we expect to see continued productivity improvements and overall modest volume growth in the low single digits with the possibility of higher growth as new switchgear capacity comes on board and further supported by the prospect of a lower interest rate environment.
Bill: The larger question that remains is what the pricing environment will be as we progress through FY25. We expect the environment to remain challenged through the remainder of this year and into FY25.
Bill: Although there are many uncertainties at this time, we will have a more informed perspective in November of our initial EBITDA estimate for FY25.
Bill: would be around $650 million, given the market environment. However, this estimate could go higher if construction activity in areas such as residential and utility starts to improve.
Bill: We anticipate having strong free cash flow and will continue to be investor-centric in our capital deployment strategy.
Bill: We remain focused on preserving our history of transparency and will continue to provide updates on key topics that impact our business.
Bill: Before we go into Q&A, I also want to address the announcement we made relative to David's departure.
Speaker Change: Atkore has been extremely fortunate to have David's leadership over the past six years. Under his leadership, Atkore has created a balanced capital deployment model, enabling acquisitions.
Bill: internal investments, stock repurchases, and quarterly dividends to drive value creation for our shareholders.
Speaker Change: David will be missed both as a colleague and an Atkore teammate and we truly wish him the best in his next chapter. Thank you, David.
Speaker Change: Looking ahead, Atkore has a strong model for organizational leadership succession planning.
Speaker Change: which enables a smooth transition. We are fortunate to have two incredibly strong leaders in John Deitzer and James Albee who will assume the roles of Chief Financial Officer and Chief Accounting Officer, respectively, as of August 9.
Speaker Change: We look forward to all that is to come with this new phase in Atkore leadership.
Speaker Change: John and James are working closely with David to ensure a seamless transition, and we are fortunate to have a deep
Speaker Change: and talented financial team that will help support John and James as they get up and running in their new roles.
Speaker Change: With that, we'll turn the call over to the operator to open the line for your questions.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star, then the number on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Andrew Kaplowitz with Citigroup. Andy, your line is now open.
Andy Chopowitz: Good morning everyone. David, thanks for all your help.
David: Thanks, Andy. Appreciate it.
Andrew Kaplowitz: So, obviously you revised higher the amount of price versus cost normalization to $325 million this year versus the initial $250 million, but could you give us your latest thoughts on what the overall price-cost normalization could end up being?
Speaker Change: versus that initial estimate you gave us of 585, and then I think you said Bill 650 is your initial estimate of EVADOT for 25. When we think about the exit rate in Q4 of 145, can you give us some color what would be the puts and takes versus that run rate in 25? Anything to quantify would be helpful.
Speaker Change: Sorry, Andy.
Speaker Change: Obviously, two very important questions. I think when you look at the 325 this year, I will remind everyone that a portion of that does include HTP.
Speaker Change: which would not have been in our original estimate of the 585. So, if you assume somewhere around 35 plus million dollars or so that price cost is in the 325, we would have been just under 300.
Speaker Change: So you add that to the 250 last year, you're at 550 or so against the 585.
Speaker Change: Given where we are right now, what we saw last quarter, and what's built into our Q4 forecast, you would expect next year to be, you know, over 200, you know, 200-250 type of range.
Speaker Change: And then you will see some benefits from our initiatives coming up, obviously, you'll see some from solar year-over-year, our global megaprojects.
Speaker Change: So on and so forth, Andy. Very modest kind of volume built into that 650 number, which is what Bill mentioned. So hopefully that helps out.
Andrew Kaplowitz: It does. And then, Bill, maybe you could elaborate a little more on what changed in the environment between last quarter and this quarter. I think last quarter you talked about a weaker start to the construction season, but it seems like conditions on the ground got a fair amount worse. Did you see any more project delays than you thought? Did your customers start destocking? And then you do have pretty severe decrements in Q4 versus Q3. Is that just all the prices or something else?
Andy Chopowitz: It does. And then, Bill, maybe you could elaborate a little more on what changed in the environment between last quarter and this quarter. I think last quarter you did talk about a weaker start to the construction season, but it seems like conditions on the ground got a fair amount worse.
Speaker Change: Did you see any more project delays than you thought? Did your customers start destocking? And you do have pretty severe decrementals in Q4 versus Q3. Is that just all prices or is there something else going on?
William Waltz: I'll say yes to all of the above. So in other words, you have to remember kind of either our products or our markets, that we serve all markets. You know, to say, hey, if the markets are weaker, and they are, and as you know, obviously, it's a crystal ball. But as we go into next quarter, I'd rather get out in front of it now and pick numbers that obviously it's a forecast, but we expect to hit or exceed, probably like every quarter and then just focus on the next quarter.
Andy Chopowitz: Yeah, Andy.
Bill: I'll say yes to all of the above. So in other words, you have to remember kind of either our products or our markets, that we serve all markets.
Speaker Change: And we're proud of that. And things like data centers are, you know, really strong and moving ahead and so forth, as David just spoke about, you know, as we go into next year and solar and so forth, but obviously markets, whether it's commercial construction,
Speaker Change: I assume from you or other shareholders and, you know, so forth, that utility markets are weak right now. Again, that should bounce back.
Speaker Change: Hopefully, as we get into the second half and all the other...
Speaker Change: long-term secular trends, but right now for most of our markets, and especially we called out on the one page of the data where we showed the percents, the one or two key markets, because that's where like, okay, we serve everything, but if you're
Speaker Change: TBC, you know, hey it's utility and residential and they're just not sub-developments being built at this stage and obviously multi-family home is down so
Speaker Change: The specific markets that drive us most are much quieter. I do think there's job delays. I would have to start speculating on, you know, how much when the Fed starts cutting interest rates that that should pick up.
Speaker Change: You know, even into next year, but the markets and whether you look at public companies, you know, whether a distributor or others that have commented in our markets, but I can tell you from talking without naming them.
Speaker Change: We
Speaker Change: These two are the top 10 largest distributors.
Speaker Change: that are private.
Speaker Change: are seeing the same thing we're seeing, quite frankly, I think worse than we're seeing. So there is a little bit of us, you know, using our RSCs and so forth that it's a down market and the end market in the markets we serve right now. So, and that is driving.
Speaker Change: more price competition, Andy, than we thought. Again, I can't control, obviously, what our competitors do as they try to fill factories or listen to somebody else saying, here's the price you need. And
Speaker Change: David did call that out, I think, in our prepared earnings as we looked at this quarter.
Speaker Change: You know to say hey if the markets are weaker and they are and as you know, obviously it's a crystal ball But as we go into next quarter
Speaker Change: I'd rather get out in front of it now and pick numbers that, obviously, it's a forecast, but we expect to hit or exceed, probably like every quarter, and then just focus on our fundamentals, which I'm absolutely so convinced of our people and the long-term strategies.
Speaker Change: Bill, just one more quick one for me. You mentioned increased import pressure in steel conduit. Can you give us a little more perspective on how much of an impact that is having on the business? We know metal conduit is 20% of your business, but since you called it out, is it having an even bigger impact on your business than that? And I think you are seeing increased competition within core PVC, but is it really the steel stuff that...
William Waltz: Yeah, Andy, you did. That's where, again, I assume every company does this, but I'm trying to be transparent.
Speaker Change: that hits you more this quarter.
Speaker Change: Yeah, Andy, you did, and that's where, again, I assume every company does, but trying to be transparent. But as we go from our fiscal Q3 to Q4, I don't want to rank, but I'll just say it's in the top two of challenges in the following way, just to give more color here.
Speaker Change: There's always almost for every product when customers ask is there an import well, yeah, there's a little bit of like cable I'm making up a number but one low single digits 1% or something coming from Canada
Speaker Change: Steel conduit had been that way, and it's grown over 10 years or so from 3 to 5 percent now to, quite frankly, somewhere around 20 percent.
Speaker Change: And there still is a preference.
Speaker Change: for Made in the USA, the quality of the products, everything else. We don't have electrical contractors here, you know, that appreciate our brands and want to support American-Made. But it's grown to the point that whether I move first or my domestic competitors have moved.
Speaker Change: to the point that you just can't tolerate a 15% price decline in that product line. And these are all rough numbers. It's on the quote job. So as we factor that back into our business here to respond, you know, at some point you can ignore 5% market share. You can't, you know, at some point you just can't ignore.
Speaker Change: competition coming in.
Speaker Change: and Undercutting the Market.
Operator: Thank you, sir.
Speaker Change: So Bob went in and answered you guys.
Bob: Thank you, sir. Thanks, guys.
Bob: Your next question comes from the line of David Tarantino with KBank Capital Markets. David, your line is now open.
Unnamed Speaker: Hey, good morning, everyone.
Speaker Change: Hey, good morning, everyone.
David Tarantino: Good morning.
David Tarantino: Maybe just to start out to put a little bit of a finer point on the price normalization, can you give us some color on kind of the incremental $50 million of headwind in the outlook? Just kind of how you would expect that to play out in the future?
David Tarantino: How do you think the breakdown is by the incremental headwinds, like how much is the import headwind versus incremental PVC and HDPE pressures?
Speaker Change: Yeah so I'll try to and then David can give me more color or whatever us more color but I do think it's probably split if I had to like cradle it I'd give a little bit more to metal conduit that Andy just asked about I mean and that is a
David Tarantino: It's a trend that I mentioned to Andy that it's not like these guys came out of nowhere but it's just the reflection even in last quarter the guy and hey we have to start reacting to this.
William Waltz: and our customers here. So that's probably first, then it's probably PVC and HDPE. Again, I want to emphasize a little bit beyond, are there other products dropping 5%, like year-over-year? Yes, but there's also products going up 5%, you know, almost on a long term basis.
Operator: Okay, great. Thank you.
Speaker Change: And we are, and our, you know, customers too. So that's probably first.
Speaker Change: then it's probably PVC and HDP. Again, I want to emphasize a little bit beyond, is there other products dropping 5% like year over year? Yes, but there's also products going up 5%. So, you know, almost a long-term.
Speaker Change: normalization, you know a bunch of our products do move around a small sine wave and when, again I reference almost David's comment from last quarter, volumes pick up into next year as a lot of people expect.
Speaker Change: I'm assuming a stronger market and, you know, we actually could get price, but right now going into the year or even next fiscal year in this quarter, it's tougher than we expected at the moment.
Deane Dray: And then maybe could you give us an update on the ramp of the SolarTorque II facility? How has it progressed versus expectations from last quarter? I know it's early, but maybe could you frame how you're thinking about this for next year?
Speaker Change: Okay, great. Thank you. And then maybe could you give us an update on the ramp of the SolarTorque II facility? How has it progressed versus expectations from last quarter? I know it's early, but maybe could you frame how you're thinking about this into next year?
Speaker Change: Yeah, it's possible. I'll do the challenge first. The only challenge, which is not a new thing, is we expected to be here pick a time nine months ago.
Speaker Change: But from the standpoint of, and don't hold to exact what quarter and so forth, but we're ramping up at double-digit percents.
Speaker Change: You know, our customers are still out there. I think some of the customers, I don't want to speak for them, have a little bit of challenges, you know, on...
Speaker Change: Getting utility hookup with solar and stuff like that, but there's enough opportunity out there. We're watching those things, but there's enough opportunity for us.
Speaker Change: that, you know, we're growing. I'm really proud of the team. I mean, albeit that we should have been here before, but at this stage,
Speaker Change: We're ramping up in every facet, as expected.
Speaker Change: David, to your kind of follow-on question.
Speaker Change: Yes.
Speaker Change: Our David CFO references we look into next year. Yes, we may have pricing headwinds, but we do have a lot of these.
Speaker Change: growth initiatives, I should add, it's not in the prepared remarks, but at least $50 million, if not more, of incremental EBITDA going into next year. So, you know, we are on track.
Speaker Change: proud of the team and obviously there's still pressure to continue to pick up on that number but things are going well if I look at quarter over quarter for the last couple quarters.
Speaker Change: Okay, great. Thank you.
David Tarantino: Thank you, David. Thank you, Doug.
Speaker Change: Your next question comes from the line of Alex Rygiel with B. Reilly. Alex, your line is now open.
Speaker Change: Thank you, good morning. You referenced softness in the telecom and utility market. I suspect that was year-over-year, but my question is how are these markets performing sequentially?
Speaker Change: Really flat, Alex. I mean, minor little bits of increasing in quotes, which I think maybe is a precursor for a better volume kind of going.
Speaker Change: into maybe next quarter next year but as we sit here today I would say not a meaningful sequential increase.
Speaker Change: And then, I don't know Alex, David just answered for us and that's what's most important, but just to triangulate it without...
Speaker Change: and obviously any other companies. There are distributors and so forth that have mentioned their weakness in this market. If you looked at Dodge, they're predicting utility to be down 6% this year.
Speaker Change: Yeah, and again, I don't think anyone's going to question the long-term secular trend of electrical and heavy utilities and solar and
Speaker Change: everything else it just right right now and as we go into next fiscal year it's a little bit more challenging than what we probably expected a year ago.
Speaker Change: And then, can you talk a bit about inventory on hand or in the channel and where that stands? Is some of the price weakness due to excessive inventory, is it all sort of demand-driven based upon competition and imports?
Speaker Change: I'll start. Here's where I would say the following. Now I'll almost tie it back to utilities because one of the, again, well, two are the top largest customers. We're talking to customers all the time.
Speaker Change: is with specifically utility they actually figure again lots of things hooking up to the grid weather putting in trenches that contractors are backed up and that's what's even slowing down distributors but overall my sense is
Speaker Change: that if you were to look back, let's say, two or three years ago, or whenever normal was before COVID, the actual inventories out there are about in line. Now that said...
Speaker Change: With pricing pressure no distributors would like the worst thing they can do is buy and devalue stock They just don't make enough money to have that happen
Speaker Change: So I think distributors in general are trying to wait and even cut below normal level. So I wouldn't say there's extra inventory, but I would say if you could round off a week right now.
Speaker Change: distributors. And again, we're delivering well, but frankly, so is our competition delivering well, that you just don't need to have quite the level of stock. And Alex, I would say that going into the quarter, I think everyone felt like their inventory levels were somewhat normal under their set, but I just feel like there
Speaker Change: activity going out the door is less than I expected and therefore they I do think that they have a little bit more inventory than they did. So I think they felt like they were kind of in the middle of that cradle and they're probably want to leak a little bit of that out if that makes sense.
Speaker Change: Helpful. Thank you.
Alex: Thanks, Alex.
Alex: Your next question comes from the line of Deane Dray with RBC. Deane, your line is now open.
Dean Dray: Thank you. Good morning, everyone. I'll also add my congrats to David. That sounds like a fabulous opportunity. And then congrats to John and James.
Deane Dray: Thank you. Thanks, Dean.
Speaker Change: I want to circle back on the situation of the Mexican
Speaker Change: steel conduit. I guess that constitutes dumping.
Speaker Change: And just to make sure I heard the number correctly, Bill, you said it now represents 20% of the market. Is that the right number? And if the... Yeah, it's a direction.
Speaker Change: Okay, but if the tariffs were enforced, what would that number be?
Operator: What would that number be?
Speaker Change: Oh so um let me go without getting too geeky here because I could go for hours on this one. It's around 20% obviously you can go up from there down is it Mexico versus a little from some other country all those other factors.
Speaker Change: in two minutes or less.
Speaker Change: What happened when NAFTA switched to USMC, they took down the 25% tariff that was part of NAFTA and they agreed to not have quote-unquote a word any surging occurring and over since that was done
Speaker Change: They picked a baseline of 2015 to 2017.
Dean Dray: We're up around, and again, depends on what year, I think seven-fold since then. So it's grown, you know, 50% a year, but it's compounded to the point of being significant. So if you go forward, Dean, and say that hypothetically the current administration or a different administration
Dean Dray: was to implement back to what USMCA requires.
Dean Dray: already written into contracts.
Dean Dray: or to put a tariff in.
Dean Dray: That number could drop substantially, and that's why it's hard to gauge next year with pricing. We don't have that built into our, you know, where we did mention the $6.50, so again, that's where in November we'll have a little bit more clear buoyancy on administrations, interest rates, and things like that.
Dean Dray: A little tougher to predict the forecast right now.
Speaker Change: Got it. But still, I know you've got a lot of moving parts between PVC and the steel situation.
Dean Dray: The previous...
Dean Dray: expectation was price normalization might be reached towards the end of
Dean Dray: calendar 24 that now
William Waltz: Here's how I would answer, Deane. First, the caveat, but then I'll get to your question, is that David and I have mentioned for six years now on calls that we live in a world with two weeks or less backlog and pricing changes every day. But with, you know, the fine print there of a forecast, one of the comments I made in my prepared remarks.
Speaker Change: To your question you've asked over the decade I am so proud of our internal pricing mechanisms weekly calls scatter diagrams apps that tell us probably seen that we.
Dean Dray: We drive our business and I'm going to claim that report is unsubstantiated from their conclusions that tries to me.
Speaker Change: We would agree thank you.
Steve: Thanks, Steve Thanks team.
Speaker Change: Your next question comes from the line of Chris Moore with CJS Securities. Chris. Your line is now open.
Chris: Hey, good morning.
Speaker Change: Congratulations as well to David.
Chris: Most have been answered, but maybe just one more on on pricing certainly it seems like on a on a relative basis. Since the pandemic began pricing on P. B C has increased more than than any other product. Obviously, it's come down significantly when you look at.
Christopher Moore: more than any other product. Obviously, it's come down significantly. When you look at relative price risk for fiscal 25, is it still fair to think that PVC pricing still represents kind of the biggest pricing risk?
Speaker Change: <unk> price risk for fiscal 'twenty five is it still fair to think that that PVC pricing. You know still represents you know kind of the biggest pricing risk moving forward.
Chris: Yeah, Kevin I'll give it a little bit more color, but the answer is yes, Chris and again, if you go back to Covid time.
Chris: With supply demand constraints, which drives our business. This has been a constant theme since react core existed.
William Waltz: And Chris, one other thing to remember during COVID times, not only was there a supply chain disruption, but there was very strong demand. And for me, I think that's we don't talk enough about the demand aspect of pricing. If we had that type of demand right now, I don't think we'd be talking about prices like we're talking about today. So I think, in that regard, the reason why we would say PVC for next year is probably just more uncertainty around the PVC market for next year as it goes in and affects pricing.
William Waltz: Yeah, David. And I don't have the number in front of me, but just to echo that, and again, everybody, this is public stuff, but to go single-family homes, it's an average market if you look at some of the information, but no sub-developments are being built. And I'm winging a number here, but if you get back to 1.2 million starts a year versus 900,000 starts
Unnamed Speaker: Large projects are becoming a larger piece of the overall activity.
Chris Moore: So one could think our revenue could be down if we make even the same price per ton, but again, Chris. This specifics, we will get into the broadly speaking not too far off no I'm not foreshadowing anything correct. Okay.
Unnamed Speaker: They're probably speaking not too far off. No, I'm not sure.
Chris Moore: I appreciate that.
Chris Moore: I mean, one thing we could meant I mean, that's the law is starting to get up into that mid teens again, which I think is certainly helpful. Also for the enterprise.
Chris Moore: Got it I appreciate it I'll leave it there.
Chris Moore: Well, thank you Chris.
Chris Moore: Our final question comes from the line of Chris Dankert with loop capital Chris Your line is now open.
Chris Dankert: Hey, Thanks, I'll just again, congratulations David and then thanks for all your help here.
Chris Dankert: I guess first off and then I'm, sorry for specifics, but I guess as far as the Hobart ramp goes any sense you can give us for kind of what the utilization rate is today. Obviously, you said you were hoping to get there sooner, but are we at 50% utilization today and that continues to ramp fully into 'twenty five.
Chris Dankert: Yeah, no it's higher than that Chris without getting too precise number and then you got two things going on so definitely north of 50%.
Unnamed Speaker: God, that's extremely helpful. Thank you. And then just, you know, finally for me, I guess, any update on kind of... Bean Program funding timing? I know New York and California have finally got some stuff stood up. Any anecdotal commentary there or kind of how that could impact HDPE volumes into next year?
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