Q4 2024 Atkore Inc Earnings Call
Rob: Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to ADCOR's 4th Quarter Fiscal Year 2024 Earnings Conference Call.
Rob: All lines have been placed in listen-only mode. After the 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 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1.
Speaker Change: 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.
Matt Kline: Thank you and good morning, everyone. I'm joined today by Bill Waltz, President and CEO, as well as John Deitzer, Chief Financial Officer.
Matt Kline: We will take your questions after comments by Bill and John.
Matt Kline: 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 Kline: Such statements involve risks and uncertainties such that actual results may differ materially.
Matt Kline: Please refer to our SEC filings in today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.
Matt Kline: In addition, any reference in our discussion today to EBIDTA means adjusted EBIDTA.
Matt Kline: and any reference to EPS or adjusted EPS means adjusted diluted earnings per share.
Matt Kline: Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures.
Matt Kline: Reconciliations of our non-GAP measures and a presentation of the most comparable GAP measures are available in the appendix to today's presentation.
With that, I'll turn it over to Bill.
Bill Waltz: Thanks Matt, and good morning everyone. Starting on slide 3, we will discuss both our quarterly and full-year financial results. We will also provide an update on our business, the markets we serve, and our intentions for capital deployment.
Bill Waltz: These updates will serve as a basis for our FY 2025 financial projections and our approach for the position of ACOR to take advantage of longer-term secular trends.
Bill Waltz: Turning to slide four, I want to reflect on certain highlights from the year.
Bill Waltz: We achieved volume growth in each of our key product categories and 3.5% volume growth for the overall company.
Bill Waltz: We returned approximately 75% of our operating cash flow to shareholders through our shareware purchase program and the introduction of our quarterly dividend.
Bill Waltz: ACOR also became a leader in environmental impact awareness by releasing environmental product declarations for various products and we continue to be recognized as an employer of choice. In addition to our strategy and processes, our talent teams are a fundamental part of the ACOR business system and a true competitive advantage for the company.
Bill Waltz: I'd like to take a moment to recognize their dedication. Thank you.
Turning to slide 5.
Bill Waltz: We will review the most recent quarter in full year, while also providing our perspective on forward-looking factors we believe will drive stronger demand for ACOR into the future.
Bill Waltz: Organic volume was up 3% in the fourth quarter with contributions from both segments. We are encouraged by the performance of certain products in the fourth quarter as we head into FY25.
Bill Waltz: Overall, we were pleased that Net Sales, Adjusted EBITDA, and Adjusted EPS were all within our range of expectations.
Bill Waltz: Pricing was the primary driver of the change in our year-over-year results. We are also impacted by some unanticipated material conversion and overconsumption within our S&I manufacturing operations.
Bill Waltz: Separately, our S&I team recorded double-digit sequential growth in sales and solar torque tubes in the fourth quarter.
Bill Waltz: Accord generated strong operating cash flow in the fourth quarter which allowed us to return over 50% of the cash flow to our shareholders.
Bill Waltz: As we reflect on the totality of the year, we saw volume strength across all key product areas while we continue to experience demand challenges for our HDPE products due to softness in the telecom market.
Bill Waltz: We announced earlier in the year our expansion of ACOR's network of regional service centers.
Bill Waltz: I'm pleased to announce that we are now servicing customers from two regional service centers located in Texas and Georgia. This milestone in AgCorp's growth journey is important as we now have a complete footprint that enables us to service all of our customers more efficiently.
Bill Waltz: We remain committed to our Capital Employment Strategy, having repurchased over $380 million of stock in FY 2024.
Bill Waltz: Since initiating our share repurchase program in November 2021, we repurchased over $1.3 billion of our stock, which equates to over 20% of the company's outstanding shares.
Bill Waltz: Currently, we have approximately $428 million remaining of our $500 million repurchase program, which was authorized earlier in the year.
Bill Waltz: As we look forward, we remain focused on AgCorp's ability to participate in long-term trends related to the adoption of renewable energy, grid hardening, digitization, and the surging demand for electrification.
Bill Waltz: We've also identified areas where we can leverage our manufacturing and commercial capabilities to capture growth opportunities from other economic trends.
Bill Waltz: The first additional opportunity we have identified is to grow and expand our offering of PVC and HDPE products for water-related end markets.
Bill Waltz: Second, we have an opportunity to leverage our existing construction services capability to support growing demand for global megaprojects, which include data centers, chip manufacturing plants, and other large projects, both in the U.S. and abroad.
Bill Waltz: Through it all, we remain focused on executing a balanced capital deployment strategy with a strong commitment to returning cash to our shareholders.
Speaker Change: Now I'll turn the call over to John to talk through the results from the fourth quarter in full year in more detail.
Speaker Change: and John McClure. Thank you. Thank you. Thank you. Thank you.
Thank you, Bill, and good morning, everyone.
Turning to slide six in our consolidated results.
In fiscal 2024, we stayed focused on executing our strategy.
Speaker Change: The year was not without its challenges, predominantly related to pricing softness and weakness in certain end markets.
Adjusted EBITDA for the full year was $772 million.
Turning to our consolidated bridges on slide seven.
Speaker Change: In the fourth quarter, net sales were $788 million, and our adjusted EBITDA was $140 million. We achieved adjusted EPS of $2.43.
Speaker Change: Looking at the full year, net sales increased $123 million due to volume growth, contributing incremental adjusted EBITDA of $60 million at 48% margins.
Speaker Change: Our average selling price has decreased by $406 million. As we have been discussing over the past several years, price normalization, primarily in our PVC business, started at the end of FY22 and continued through FY24.
Speaker Change: Softness in the telecom market contributed a challenging price environment for our HDPE products throughout the course of the year.
Speaker Change: During our third quarter call in August, we indicated that our steel conduit business was beginning to face pricing pressure due to increased competition of imported product.
Speaker Change: As expected, we did experience sequential price declines between Q3 and Q4.
Speaker Change: Moving to slide 8. One of our core strengths is the breadth of our product portfolio. We've been very deliberate in how we've approached entering new markets and expanding product offerings.
Speaker Change: Indeed, the diversity of our product portfolio has not only helped us manage our exposure to headwinds in any one particular end market.
Speaker Change: but it has also allowed us to continuously find ways to bring additional value for both new and existing customers.
Speaker Change: In FY24, we grew our PVC business, which included both electrical and water-related products.
Speaker Change: Our metal framing, cable management, and construction services products area grew mid-single digits due to increased support for megaprojects in the U.S. and abroad. Keep in mind this business grew double digits in the prior year as well.
Speaker Change: Our electrical cable and flexible conduit products continue to be best in class with the success of our patented and differentiated product line which enabled us to grow in FY24.
Speaker Change: Finally, our mechanical tube products have grown double digits each of the last two years due to the expansion of our solar torque tube business.
Speaker Change: We are pleased with the continued improvement of our output at our Hobart, Indiana facility.
Speaker Change: Turning to slide 9 and our segment results in the fourth quarter.
Speaker Change: Net sales in our electrical segment were $565 million, and our adjusted EBITDA margins compressed due to continued pricing normalization in our PVC products and pressure from import competition in our steel conduit products.
Speaker Change: Shifting over to our S&I segment, net sales increased just under 2% during the quarter compared to the prior year. Although our EBITDA dollars and margin were largely in line with the prior year, both were down sequentially from the third quarter. As Bill mentioned earlier, we experienced some headwinds around material cost conversion and overconsumption in our manufacturing operations.
Speaker Change: Turning now to our outlook on page 10, we anticipate low to mid single-digit volume growth in FY25 tied to market expectations and contributions from our growth initiatives.
Speaker Change: For the full year, we expect FY25 net sales in the range of $2.9 to $3.2 billion, and adjusted EBITDA between $475 and $525 million.
Speaker Change: Adjusted EPS is expected to be in the range of $7.80 and $8.90.
Speaker Change: Moving to slide 11. We recognize there are a few critical dynamics between our performance in FY 24 and our outlook for FY 25.
Speaker Change: Therefore, we've outlined some of the key components and impacts to both net sales and adjusted EBITDA.
Speaker Change: We continue to expect price versus cost to be unfavorable year over year. Our estimate is higher than we previously expected when we spoke in August.
Speaker Change: As we look forward in FY25, pricing for our PVC conduit continues to be challenged.
Speaker Change: One aspect contributing to our PBC conduit pricing is additional new domestic competition entering the market.
Secondly, steel conduit continues to face pressure from import competition.
Speaker Change: As of now, we have planned for the possibility of year-over-year declines in our pricing.
Speaker Change: However, we continue to actively engage with various third parties who are monitoring this important topic and working with various groups to address.
Speaker Change: With that, I'll turn it back to Bill to give an update on our business, including our strategic initiatives.
Bill Waltz: Thanks, John. Turning to slide 13, whether you've been following us for many years or are relatively new to our story, we want to take this opportunity to highlight ACOR's compelling value proposition.
Bill Waltz: Since our IPO in 2016, ACCOR has made tremendous progress reshaping and creating our identity.
Bill Waltz: We maintain a strong financial profile, diverse product portfolio supported by strong secular tailwinds, and a disciplined approach to capital deployment focused on returning cash to shareholders.
Bill Waltz: We've invested heavily both inorganically and organically to position the company for the future.
Bill Waltz: Slide 14 summarizes the strength of our financial profile. Our cash flow generation has always been a strength which helps support a healthy balance sheet. Our liquidity provides the foundation that enables us to execute key strategic opportunities while returning capital to shareholders.
Turning to slide 15
Bill Waltz: Our portfolio is structured to grow with the market and in certain instances grow at a faster rate. Our extensive portfolio supports growth across a wide variety of construction and markets supported by macroeconomic tailwinds and long-term megatrends.
Bill Waltz: Our six regional service centers are strategically located across the U.S. and designed to enable COLO capabilities, providing high-quality service to our customers.
Bill Waltz: As with any business, there are evolving dynamics impacting the competitive landscape.
Bill Waltz: Certain product categories are experiencing new or additional capacity competition, whether from imports or domestic expansion. As we monitor these developments, we continue to find opportunities to differentiate ourselves as the customer's first choice.
Bill Waltz: One example is our ability to expand our manufacturing capabilities into adjacent markets, such as waterworks and plumbing for PVC and HDP piping products.
Bill Waltz: Having a national footprint has been a key to success with our electrical PVC conduit business. Historically, our participation in water-related end markets was very narrow and represented a small geographical presence.
Bill Waltz: growing outside of current radius requires further investment in which we began.
Speaker Change: Further, with a substantial portion of our products related to electrical infrastructure, ACCOR is well positioned to support electrification megatrends that are driving the construction of data centers, chip manufacturing plants, and other global megaprojects.
Speaker Change: ACCOR's construction services team has been expanding its ability to support these global mega projects by leading with our globally recognized Unistrut brand.
Speaker Change: Turning to slide 16, while we invest and augment our product and service offerings to capture growth opportunities in new markets.
Speaker Change: We remain well positioned to benefit from the strong secular trends related to the need for a more electrical infrastructure. These trends are supported by large government stimulus programs, some of which have a multi-year funding horizon.
Turning to slide 17,
Speaker Change: To meet the growing need for data storage, developers have steadily increased capacity of new data centers.
Speaker Change: which is crucial for supporting the continued growth in generative AI, Bloomberg Intelligence has projected the generative AI market to grow to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022.
Speaker Change: In FY25 alone, Dodge Construction Network expects data centers to grow by 15% in terms of square footage and 20% in terms of dollar value.
Speaker Change: In terms of what this means for Accor, while it's challenging to dimension our precise end market exposure to any category of construction, demand for our products generally follows the market.
Speaker Change: As we shared during a previous call, data centers have the highest concentration of ACOR products, followed by manufacturing and healthcare, and should be key contributors to our growth expectations for FY25.
Speaker Change: Turning to slide 19, our capital employment model has been and will continue to reflect our intention to invest and grow our business with a mindset of returning cash to shareholders.
Speaker Change: During FY24, ACOR's Board of Directors authorized a quarterly cash dividend, which is an additional element of our capital deployment model.
Speaker Change: We also have been executing on our commitment to return cash to shareholders through a robust buyback program. Since November 2021, we repurchased the equivalent of over 20% of Accor's stock, or over $1.3 billion, underscoring our confidence in the future of our business.
Speaker Change: We remain selective in our approach to M&A, but are committed to finding opportunities that would further enhance our portfolio.
Turning to slide 20.
Speaker Change: We spend approximately $150 million in capital expenditures in FY24, with over 50% supporting our growth initiatives, including those related to solar,
Speaker Change: HDPE, and our new RSCs, as well as an investment we made in water-related product expansion in areas to support the global megaprojects.
Speaker Change: Looking ahead to FY25, we will continue to invest in these initiatives for water and construction services.
Speaker Change: Our future investment decisions will be made with a disciplined return on capital mindset.
Speaker Change: Turning to slide 21, I'm thrilled to share more detail about our initiatives related to growing our water-related end markets through our expansion of PVC and HDPE offerings.
Speaker Change: As we have highlighted, ACCOR offers a diversified set of products to serve a variety of construction-related end markets, but it is important to underscore that while our products are diversified, they are also complementary.
Speaker Change: Growing our product offerings to meet the needs of water-related end markets is an opportunity to further complement and expand our existing portfolio.
Speaker Change: Until now, our existing capabilities enabled us to participate in these markets in a limited way. When we acquired our HDP assets, we recognized the synergy of offering a broad line of both PVC and HDP pipe for these new water markets.
Speaker Change: Our national footprint allows us to reach a broader geography to serve the municipal waterworks and plumbing markets.
Speaker Change: Several of our AgCorp products are already benefiting from the funding related to the Infrastructure Investment and Jobs Act and growing our water related products allows us to benefit in an even greater way.
Speaker Change: Also known as the IIJA, this federal program has authorized $55 billion in federal funding for use in water projects, with an emphasis on the replacement of aging water infrastructure.
Speaker Change: These products also have applications in both residential and commercial plumbing end markets. Dodge Construction estimates this end market will grow approximately six percent in FY25.
Speaker Change: Turning to slide 22, on prior calls, we've discussed the potential to leverage our legacy construction services business to participate in a unique way with global megaprojects. As we enter FY25, we have better line of sight for these opportunities.
Speaker Change: We have made certain investments to support these global megaprojects, including off-site manufacturing operations.
Speaker Change: By leveraging Accor's global manufacturing footprint, legacy design, and engineering services, we are able to utilize off-site manufacturing to construct scalable, modular designs, which can then be installed efficiently.
Speaker Change: The team has done a tremendous job growing Accor's presence with some of the most recognized companies in the world, supporting both data centers and chip fab companies.
Speaker Change: Turning to slide 23, while we have navigated various challenges in FY 24, we remain focused on our core business, our strategic growth initiatives, future capital deployment, and productivity opportunities.
Speaker Change: As with future projections, there are various factors which could positively impact our year beyond what we initially outlined, as well as potential challenges that could materialize over the course of the year.
Speaker Change: These topics outlined here provide insight on what we are actively monitoring and the associated impact it may have on our adjusted EPS.
Speaker Change: As we discussed earlier, our price versus cost assumptions reflect various competitive dynamics, including new domestic competition and continued impacts from imported products.
Speaker Change: However, we believe there is the possibility that pricing could stabilize and potentially improve with the clarity on the allowable import population.
Speaker Change: Our volume expectations could have additional upside. If certain end markets, specifically single-family, multi-family, hospital construction begins to rebound, we believe that we're in a great position to benefit from the incremental volume.
Speaker Change: Several of these end markets have been impacted by a higher interest rate environment over the past several years. As interest rates begin to decline, we will be watching third-party construction data for leading indicators for these end markets.
Finally, turning to slide 24.
Speaker Change: I can't emphasize enough Actor's outstanding financial profile and differentiated product portfolio making us a compelling investment opportunity. Our primary focus continues to be on serving our customers and creating shareholder value.
Speaker Change: John and I, as well as the entire management team, are proud of what we've accomplished in the past several years. More importantly, however, we recognize that there's still a lot of work to be done. Our commitment to strategy, people, and process is the framework
for how we move forward and continue ACCOR's strong trajectory.
Speaker Change: With that, we'll turn it over to the operator to open the line for questions.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question today comes from the line of David Tarantino from KeyBank Capital Markets. Your line is open.
Hey, good morning, everyone.
Speaker Change: Good morning, David. Maybe just to start out on pricing, could you frame for us the drivers of the change in the pricing headwinds versus the prior framework looks like?
Speaker Change: 70 million more pricing pressure than previously expected, and then maybe on that, it looks like the guide implies that input costs remain a headwind. Where are you seeing the input cost changes becoming more acute?
Speaker Change: Yeah, let me start, David, here on the pricing change versus the prior expectation and then I think Bill can give some of the other dynamics as well. I'd say that it's an extrapolation here as we look forward, we see potential for further degradation than initially anticipated on the PVC electrical conduit side. We talked about some new entrants coming into the market and we've seen some softness even beyond prior expectations in the fourth quarter.
Speaker Change: and on the steel conduit side we've continued to see some declines in the fourth quarter and here in the start of the fiscal 2025 as well.
Speaker Change: Now, we do anticipate those to potentially moderate, and there could be some potential benefits from whether it's a government intervention and things like that that could be a benefit, but those largely wouldn't occur until the back half of the year and then into fiscal 2026 from a steel perspective.
Speaker Change: So those are, you know, those are probably the two material changes here versus the prior expectation, but largely driven more on the PVC side.
Speaker Change: Yeah, I was just going to add, John gave the same answer, David, versus follow-up question with Yeah, I was just going to add, John gave the same answer, David, versus follow-up question
Speaker Change: As we said in our prepared remarks, and John just said, what's changed, for example, at PVC is since we've had our earnings call, I think the beginning of August, is we have been, you know, informed that other people are starting factories in the States.
and there's still a slight increase in imports coming in.
Speaker Change: What we want to do is get the numbers out here that, you know, anticipating those things so that we don't, you know, as we know information, we communicate it and therefore from here hope we were ready to, you know, run our game plan.
Speaker Change: Okay, great. Then maybe to follow up on the volume assumptions, I guess, how much of the growth is just driven by the end markets versus some of the internal initiatives like solar torque tubes?
Speaker Change: Yeah, I think I'm going to split it 50-50 in other words to go if we say low to mid single digits
Speaker Change: the markets we are anticipating to grow low single digits. I mean, I could look at a lot of things from by now with us being the last basically to report.
Speaker Change: You see all the distribution out there. I'm going to basically stay flat. I could almost walk without naming names with different ones. And you look at ABI that for the first time ever in 20 months just broke 50. That right now it's a very slow market, but there's probably some growth going into next year.
Speaker Change: And then from there, it's really Accord, but from, as you just mentioned,
Speaker Change: solar with Hobart that the operation I'll jump probably other people's questions coming up that is running well.
Speaker Change: to all the things we just covered about that I'm pretty, we have challenges here in pricing, but I'm pretty ecstatic about where we can take this with solar picking up now.
Speaker Change: water things where we develop the products, so now it's in the sales hand, the global mega projects, a lot of these things like global mega projects I think kick in more than that. You know, we're starting to get backlog and a huge quote backlog and some wins but you know again these things will probably
Speaker Change: take off more in the summertime where we start seeing revenue or so forth. But those are the reasons we definitely anticipate growing faster in the market by at least a couple hundred basis points.
Dray, Andrew Kaplowitz, David Kline,
Okay, great. Thanks, guys.
Thanks, David. Thanks, David.
Speaker Change: Your next question comes from a line of Dean Drape from RBC. Your line is open.
Thanks. Good morning, everyone.
Speaker Change: Hey, good morning, Dean. Hey, I want to follow up these same lines of questions and hopefully add a little more precision if we could. So, look, it's always a good sign when new competitors come in from a perspective of you're in an attractive market and you're getting returns. Otherwise, you wouldn't see people.
Speaker Change: people coming into the market. So that part's not too surprising. But can you just, what are you expecting in terms of percent?
Speaker Change: new capacity from this competition. Is it one competitor or two competitors?
Speaker Change: but from what your market intelligence gives you today, how much new capacity.
Yes.
Speaker Change: I'll try to wing it, Dean, but I'll be real high level with, unfortunately, my competition doesn't tell me about where they're starting factories up and so forth.
Speaker Change: And I don't want to name one specific one, but if you assume we have eight or nine factories, our next two largest have four, again, different sizes, you're probably having to go down the pecking order, like 25, 30 facilities.
Speaker Change: I perceive with one person, it's at least three, maybe eventually going to four. One of their facilities seems pretty large to me.
Speaker Change: But again, how much of that space, how many lines you're putting in.
Speaker Change: But if I just did that, Dean, with that one, maybe it's a 10% with a ramp up, but then you have imports, not growing, just sharing here, again, I think we're always as transparent, but imports that were 3%, maybe grow into 5, 7%.
Speaker Change: So, is it an extra 15%? It's not a massive amount, I don't want to do that, but Dean, as you go into the next year, it's just that it's the price challenge more than the volume challenge. It's that those competitors, you know, tried it.
Speaker Change: sell the product they make. And that's why, Dean, almost to David's last question, when you sat here, I'll just be blunt, and said, hey, we think it's around $6.50. Now we're saying $5.50. I'm, as much as I can, I'm tired of
Speaker Change: saying, oh, there's a new dynamic. So as soon as we figure this out, we're getting in front of this. And now, I do want to switch gears and go, I'm excited about a lot of our capital investments are now in the sales ant.
Speaker Change: i.e. water products are up, solar products are up, global megaprojects are running, and now let's go start taking, not just share, but let's start adding value for our shareholders after years of capital investment.
Speaker Change: All right, I just want to clarify, because it sounded like, as you were talking about the bridge between the 650 and the 550 midpoint, and you said...
Speaker Change: You didn't want to be coming back and say, hey, there's a new dynamic. So does that 550...
Speaker Change: give you some cushion for other kind of dynamics that could come up during the course.
or a statistical...
John Euston
Speaker Change: Yeah, let me jump in here, Dean. You started to go down that path, and I just wanted to get there. Yeah, it's a fair question. So, just to be clear, slide 10 has 475 to 525 as the range for FY25 adjusted EBIT outlook. So, midpoint that at the 500. It is down versus the 650. I think Bill is being clear here. I mean, we're working with the teams. What we are trying to do is get a very realistic, but also very forward-looking view on what the rest of the year looks like. From our perspective here, you know,
Speaker Change: We did have a change here versus the fourth quarter, which is a, you know,
Speaker Change: relatively short amount of time. We don't want to be coming back, hopefully,
Speaker Change: in future quarters. But that being said, we do only have two weeks of backlog on several of these product lines, and they change pretty regularly. But we're trying to extrapolate forward as best we can. But those are the dynamics we have. So, in no way, I don't, I think our guide is balanced, and I think we are
Speaker Change: You know, there's a lot of things that still have to hit here. We do have a ramp built in here into the back half that, as Bill mentioned, you know, these new products, they're operational, the teams have done a great job, now we've got to make sure we execute both operationally and commercially.
I'm just going to not repeat John.
Speaker Change: Let's say it is a balanced number, and obviously we have to grow profits in the second half. Now, in a normal year...
Speaker Change: volumes come up. Obviously, we'll still have some price win if you only selected a sequential quarter over quarter. But then besides it is a balanced number is, you know, page 23, we try to document
Speaker Change: in the deck. What are the things that could make it stronger? What are the things that, you know, if we get hit with more than we anticipate and so forth? So, but I'll turn it back over to you, sir. All right. That was exactly the color around your thinking.
Speaker Change: into that reset guide. And just last one for me, and I believe you made a reference to the import. So when you say import, I'm thinking steel. And so very explicitly, is the Mexican steel
percent. Did that go up?
Speaker Change: like low single digit and then last quarter, surprise, it's 20%. Did it go above that and where does that stand? No, I apologize, Dean, I was answering for PVC. So I'll go through both again in the sphere of transparency, with also as we say, the percentage realized for.
Speaker Change: There's even what's in the denominator first before I get your answer like we don't know exactly what's the PVC market We have to guess there's nobody the best guess we actually get just sharing is resin manufacturers will say how much and conglomerate they sell for example into PVC pipe And then it's us trying to extrapolate how much of the markets municipal pipe versus plumbing so all these are estimates
Speaker Change: But for steel conduit, I would still keep with the following things. Mexico itself, which is the primary driver, is around 20 percent, maybe slightly above, because they're still growing. And then all imports of steel are probably a little bit less than 25, because there are
Speaker Change: for example, China imports and stuff like that. Now, recently, now I'm starting to forget exactly when, when the Biden administration added an extra 25% tariff with 301 tariffs, it's up to 50. It feels like for the last couple of months, as I would predict that like China,
Speaker Change: The Ocondo coming in has dropped. So overall, though, Dean, slightly above 20%. All things considered, maybe in.
Speaker Change: at max 25 from what we can tell, but below that. Bill's right on here, Dean. We saw a little bit, and I think this is in there's U.S. government data, other data around the imports. We saw a little slight tick down on the imports in totality for steel conduit in the month of September.
Speaker Change: But by and large, they were up, you know, several hundred basis points year over year between 23 to 24 So hopefully that month over month down year over year up and then again It's just before I go to PVC was really Genesis your question is the latest date is September So, you know as we're sitting here in November
Speaker Change: you know, we use and communicate the information that we have available. What I was referencing, Dean, is it's a lot less
Speaker Change: imports, but there is PVC imports, Dean, and I'll try to bridge you that's been.
Speaker Change: covering Accor and the Taikos and so forth, obviously, for well over a decade.
Speaker Change: is, if you go back in the day, Dean, I know something you referenced, like, hey, you have to have, and NACOR has this advantage, where we have like nine facilities across the country we can serve and deliver in two days, and when PVC margins were in the low, mid, single digits, you had to be within 500 or 700 miles, but if it is, and I'm making up a number, 30% margin versus low teens.
Speaker Change: a competitor could use that extra 10% to ship in. Now, obviously, as pricing drops...
that becomes less economically...
Speaker Change: feasible, but we do see, for example, some imports coming from Colombia and Dominican Republic and a couple other countries. And that's where I reference.
Speaker Change: low single digits, probably getting to mid-single digits here. And then what we don't know that we don't have baked into the formula back to page 23 is what the new administration will do with tariffs, and I kind of tongue-in-cheek, if anyone knows precisely, please let me know, but that's, you know.
Speaker Change: changing by who's in treasury and commerce and every talking head on that one. So we do not really have any
Tariff
Speaker Change: assumption in these forecasts, but I also think I'm going down a tariff thing to go, does it happen or is it a negotiating thing to get other things solved? Is it 90 days out from the start? What percent is it? What product? So we at least think it's the most logical thing to
Speaker Change: not include tariffs other than a call out that that could be an upside and it could bring optimism from year over year as we get into FY 26, not that I want to start giving those type of guides at this point.
Great. Thank you for all these specifics.
You're welcome, Dean.
Speaker Change: Your next question comes from a line of Chris Moore from CJS Securities. Your line is open.
Speaker Change: Hey, good morning guys. Thanks for taking a couple. So maybe just, yeah, the S&I EBITDA margin. You talked about, you know, unanticipated material conversion.
Speaker Change: Is that a one-quarter thing, or is it going to take a couple of quarters to get back into the double-digit range?
Speaker Change: I'll get through euphemisms here. So what happened, or again, the majority, there's always a couple other factors, is with like a new factory like Hobart with our materials, we take the steel and then we spray or dip it and so forth and zinc, which galvanizes it.
Speaker Change: having exactly fine-tuned to thousandths of an inch how much galvanization zinc goes on a product is something we fine-tune and it's not something you can cycle count every day when you have a swimming pool size of zinc.
Speaker Change: which is an expensive material. So honestly, when we went through.
Speaker Change: did our physical inventory. Throughout the year, we probably were slightly missing on how much zinc was being consumed. We caught it up. So good news here. I mean, it's real, but good news is reported in this quarter. And no, it's not an issue that we're, I mean, we're still making sure we do a better job of.
Speaker Change: exactly what's in supply, how do we forecast it, you know, so our accounting team is doing those type of things, but no, it's a one-time event.
Got it
Speaker Change: Further interest rate cuts, certainly less of a certainty today than perhaps a couple of months ago. What's the interest rate assumption embedded in the current guide?
Speaker Change: Yeah, it's a fair question, Chris. I mean, I think where we're expecting, to Bill's point, is that
Speaker Change: The market for the core electrical products, I'd say, you know, is expected to grow low single digits. And I think that's reflective of kind of the interest in rate environment that people are projecting. So there isn't a single built in
Speaker Change: you know, fed funds right here into the forecast, but generally what we're seeing
Speaker Change: Now that there is some clarity around the administration and the election
Speaker Change: There's probably less clarity here on what's happening with interest rates, but activity does seem to be picking up. As Bill mentioned, we're seeing some progress on the ABI. Then you have some other items that are not as interest rate sensitive.
Speaker Change: municipal water projects, the global megaprojects, things like that. So there's a dynamic between areas of the market that are interest rate sensitive and areas that are less sensitivity to that.
Speaker Change: I got it. I appreciate that and maybe more more big picture. May we just talk about the the puts and takes, you know, as to why fiscal 25, you know, could be the bottom from a revenue and adjusted EBITDA standpoint.
Speaker Change: several factors on pricing for, and again, pros and cons. If we have pricing declines this year for PVC and or any other product, as you get to 26,
Speaker Change: implicitly even if it levels off there is that year-over-year decline so it wouldn't surprise me when we get to a Q1 of 26 to have a negative price even if it levels off because it's a year-over-year comp.
Speaker Change: That said, the things that should help are the following. At some point...
Speaker Change: As pricing goes down, it will void of new competitors in PVC. It will, as Dean mentioned, hey, it's an attractive market. At some point for importers, it just doesn't become as feasible.
Speaker Change: as the price declines. There's also some, while we don't have it built in this year, whether the new administration puts in 25% tariffs, higher on China for some products.
Speaker Change: 10%, all the different things that we all read. I mean, it's what I read when I go to bed at night, what's the thoughts on tariffs and different administration leaders of cabinets is that that should help domestic manufacturing, which will be significant for us.
Speaker Change: From there, I truly believe, as we go forward, this is the year, and then going into FY26, and you'll see in the second half of this year, where everything we walk through, the water products, we basically have...
Extrusion lines up, they're ready, it's now in sales hand.
Speaker Change: Some have asked, or I interjected, Hobart is running well, can always see like any plant, continuous improvement for our solar, so now clearly in our business reviews the salesperson knows it's in his hands to go get additional sales.
Speaker Change: Global Megaprojects. I probably wouldn't have called out specifics, but I actually thought by now there'd been a very large job that were like
Speaker Change: very confident of that would win again that goes into the
Speaker Change: end of 25, mostly into 26, but it'd be nice to have that in our backlog here. And then also for things, even as I say, as small as the regional service centers, with our ability to co-load, as we called out in the prepared remarks, that, you know, we made the investments now.
Speaker Change: Now it's okay. We've got to get the customer promise and getting these products delivered or shipped in two days. Having the regional footprint is excellent. And then a different way, Chris, to think about this.
Speaker Change: is, if you look at the last couple years of CapEx...
We did know pricing was declining. Now, obviously, it's...
declined more in this coming year than we expected.
Speaker Change: But back in the middle of COVID, we purposely made these investments, and now they're starting to pay off, and indirectly, that's why we have a guide on cap exits significantly lower than previous years, in the 100 to 125, because the investments have been made.
The products are up. I mean, there's still more tweaking.
Speaker Change: who is accountable, the Accor business system, get the right people with the right metrics and accountability, and let's start moving forward. I think we're well-positioned as we go into the second half of the year and into FY 26 to make those things occur.
I appreciate it. Very helpful. I'll jump back in line.
Yeah, thanks Chris.
Speaker Change: Your next question comes from a line of Chris Dankert from Loop Capital. Your line is open.
Speaker Change: Hey, morning guys for taking the questions. I don't think it's the base case here, but how do we think about the Hobart facility in the context of there being some pressure to roll back the IRA? You know, can Hobart be profitable without those incentives or how do we think about that?
Speaker Change: Yeah, awesome question. Well, every question has been great, but absolutely. So, good or bad, we actually started the Hobart facility before the IRA ever came into place.
So it was called icing on the cake, getting that.
Speaker Change: Now, what I would claim is with all the pain that our financial teams and you guys have modeled over the years with solar tax credits.
Speaker Change: The majority of that has actually been passed on to the people that make the arrays and to the end customer.
Speaker Change: So for us, it's not that large of a thing, you know, we still get some of that
Speaker Change: Then to go where it helped us most, quite frankly, was half the market before the IRA was coming from China.
Speaker Change: With the fact that one thing I do feel comfortable with, first in the Biden administration, is we now have 50% tariffs on products coming from China, and I doubt the Trump administration would change that, if anything, increase it. So what we needed from that was to make products in the states.
Speaker Change: and therefore everything is still lined up and now the question you're not per se asking is
Speaker Change: where is the solar array companies and they're all, not all, but several are public and obviously we're dealing with them. You know, there's some short term concerns on getting permits and labor and stuff that, you know, they're each working through, but me skimming all their earnings reports and our sales team talking, they're still very comfortable for the, you know, double digit growth going into the years ahead. So.
Speaker Change: of all the different things, it's not my call a top five. It's more without naming my vice president of sales, but for that individual to get out there and let's build a factory.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Got it. That's incredibly helpful, Culler. Thank you for that. And then forgive me if I missed it, but when we're looking at the $250 million of pricing gift back in the year, have you delineated at all, you know, PVC versus steel, just proportionally how we should think about each piece?
Chris, are you referencing here in 24?
I just want to make sure.
Speaker Change: In 25, you guys got it for what was the number? Largely, on 25 versus...
Speaker Change: Yeah, on a 25 versus 24 basis, the price versus cost dynamic built in there is more heavily weighted, significantly heavily weighted towards PVC as opposed to steel. So the dynamic that we're moving forward on here is more of an
Speaker Change: extrapolation as opposed to you know exactly what we're seeing in the market today. We're trying to look ahead a little bit on that one here and that's driving that impact.
Got it. Super helpful. Thanks again, guys.
Thank you.
Speaker Change: Your next question comes from the line of Alex Riegel from B Reilly. Your line is open.
Speaker Change: Thank you. You touched upon it a little bit so far this morning but maybe if you can go into a little bit more depth as to your success to date in mega project opportunities and how you see that timeline playing out for future opportunities.
Double-digit growth.
Speaker Change: And we're tied in now again, as I kind of alluded, with some all well-recognized companies.
Speaker Change: that, again, we're hoping to like receive the purchase order anytime they've bought, you know, bought models from us to test things out and so forth. So I think we're committed there.
Speaker Change: optimistic of the future and then they're you know with one we just having some short-term challenges is they're trying to figure out and delay some projects and redesign things but that should still give
Speaker Change: you know, so opportunities for a future. So long term, I think we're in a very good spot. I, you know, I don't know if I can get more specific, but the backlogs up, the quote rates up.
We have multiple.
Speaker Change: large project where we, again, if we don't have the order, but my sales team is marking, you know, from 90% probability here, 75% or some large ones, it's down to two of us. It's 50, you know, 50-50 on which one wins it. Unfortunately, unlike the rest of Accor's products, where John Deitzer mentioned, hey, we have a
Speaker Change: four-day backlog and trying to predict out these are things you have to work a year in advance and then it's a you know a 12-week
Speaker Change: for FY26 and maybe the back half, the very last quarter of FY25, but...
Speaker Change: optimistic. Yeah I think I would just build on that because you know if I look at slide 8
Speaker Change: the Metal Framing, Cable Management, and Construction Services. That's where we have this team that's really focused on these global megaprojects.
Speaker Change: That business grew double digits last year, mid-single digits this year, but I'd say three, four years ago, that was probably, you know, if you stacked this page and we did it, you know, that was probably our third or maybe even fourth largest product area.
Speaker Change: Clearly, today, it's our second largest product area right behind the plastics products.
Speaker Change: it's been growing steadily. And then the Unistrup brand that we have, and that visibility we have globally, and how we've stepped that business up incrementally over several years and building that backlog, it's actually been a really nice story. We look at how we're investing, a lot of the water projects, those tie into the largest product category here with the plastic, but then the second other key investment area that we're trying to do is inside of this, our second largest product category. So it's areas where we have been growing, we have the brands, the ability to win in the future, this is what we're trying to do to combat some of the other more dynamics we have with the short cycle backlog and pricing dynamics. So this.
This is what we like about this business.
Speaker Change: into the future here. Yeah, if I can add without, you know, filibustering, so to speak, but if you also went to page 22, this is where I'm proud of this team specifically in ACCOR, back to questions about is FY25 our low point, there's a lot of things we're doing that's truly unique, i.e. the regional service center, getting into water products, but if you look at 22, it's
Speaker Change: There are other people in this industry. So I don't want to say like it's totally unique something for us But it's no longer just well, what's your price of metal framing versus? I won't mention our competitors, but well-known global corporations versus hey, you have a Unistrut brand that's globally recognized We have operations across the world with this, you know factory and we have companies that have worked with us for example in the States
Speaker Change: that, for example, have done things with us in Tel Aviv. You know, after you get...
Speaker Change: on their shortlist and proven, and it is a unique thing where we can take multiple of our products, assemble them together in an off-site manufacturing, get a best practice down, use our lean ABS, and it's growing.
Speaker Change: It's still in the single percents, but it is definitely growing.
Speaker Change: double digits plus as we go forward. So this is where reshaping Accor, it obviously takes several years to make that happen, but it gives me optimism for where we're taking this corporation.
Speaker Change: That's helpful. And then just to clarify, did I hear correctly that from a pricing standpoint
products,
Speaker Change: The pricing is basically stabilized as of today, but you have negative year-over-year comps coming for a couple more quarters. No, I would say it's... You see more erosion in pricing and therefore... Yeah, I think...
Speaker Change: Yeah, I apologize. I would, and John can correct me, John and Matt are closer to the numbers, but I would say, no, what John answered earlier was the biggest change year-over-year is PVC. And that's forecasting in a way because of, again, new entrance into the market. Steel is still declining, but it's declining at the rate when we had, for example, when we talked in August and said, hey, you know, we have this 650. I would hope.
Speaker Change: that as we get, but it's not in the forecast, as we get into the latter half of the year that the new administration and somehow in tariffs will help that out. But again is that something assuming they do?
Speaker Change: Is that a one quarter? It's not going to dramatically change our fiscal year other than give me stronger optimism, even back to the question of why FY26 would be up over 25. But no, both are declining. PBC, we're forecasting to go down more year over year.
Dray, Andrew Kaplowitz, David Johnson,
That's helpful. Thank you
Thank you.
Speaker Change: And your final question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.
Speaker Change: Hi, good morning. This is Natalia Bach on behalf of Andy Kaplitz.
Good morning.
Speaker Change: I think you highlighted productivity opportunities, but can you elaborate on what are you doing and to what extent are these actions in your control versus dependent on volume growth? Not sure if you can quantify how much they're helping you, but any color would be appreciated.
Speaker Change: Yeah, that's a great, well, every question has been great, but no, we're expecting productivities, I don't, if we didn't directly, I'll just say in the tens of millions of dollars of net productivity this year, we're actually forecasting our highest.
Speaker Change: productivity year this year and obviously volume helps but there's enough things where we've again back to investments we've added I'll just say
Speaker Change: several tens of people, you know, I don't want to get specific amount of people, but we've hired dozens of people just to work, not in line jobs, but lean productivity, and it's everything from scrap production, for example, when you do a line changeover, and it takes, I'm making this up, but an hour or two to streamline that PVC line, and yeah, you can regrind the material, but let's get that more efficient. The same thing with uptime in some of our older factories and how we do a better job with preventive maintenance, so without, the volume would help.
Speaker Change: but without volume we should still get a good net productivity from this investment we're making going forward.
Speaker Change: Okay, got it. That's very helpful. And then just one more question for me. Your 1Q guidance seems to be relatively low. Can you elaborate if it's all seasonality, or are there other factors leading to a softer start? Not sure if pricing is a bigger headwind at the start of the year, but just thinking past 1Q, you set a ramp up in the back half. If you could provide some color on how we should think of pricing versus volume impact throughout the year.
Speaker Change: Yeah, I'll start. If we get back, which I'm optimistic we will, to normal seasons, and what I mean by that, for people that follow the company for a decade plus, the summer months...
Speaker Change: Q3 and Q4 are always stronger and there's logical reasons for that. Like you go to extreme PVC, HDP products where it's hard to put them in the ground when you have a foot in snow in half the country and so forth. So in just construction in general it's more efficient even if it's steel conduit on the 38th floor of some skyscraper in some building when it's windy and freezing out versus summertime. So there always is.
Speaker Change: call it 5-10% more volume growth and therefore profit in the summer. And then the other thing that will help us is kind of all these different things we talked about. For example, the water products like getting them out and going or as the ag season now
Speaker Change: kicks off and different things, or the municipal products, the same way to go. You're not going to be putting, this is a hypothetical.
Speaker Change: but a new water main probably in Detroit when there's a foot of snow and there's an ice permutation down a foot. So some of it's the initiatives kicking off, some of it's fine-tuning the initiatives, but those things and just the way the markets have always worked should give us a stronger second half of the year.
Speaker Change: Yeah, absolutely. And the only other item I would add is the year-over-year comparable in Q1 is against the more difficult comp.
Speaker Change: Our Q1 of 2024 was probably our highest level of pricing in the year, highest level of EBITDA, etc.
year-over-year comparison in the first quarter is probably the largest.
Speaker Change: But then in the volume, we do expect the ramp and then some of these projects and investments that we've made, those should start to improve as we progress throughout the year. So it's really a little bit of a different story dynamically between if you're looking year over year sequentially. But, you know, from an earnings perspective, probably it is, you know, embedded here higher in the back half than it is here at the start.
Okay, thank you. I appreciate all the colors.
Thank you.
Speaker Change: And this concludes the question and answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Bill Waltz: Before we conclude, let me summarize our key takeaways from today's discussion. First, ACCOR continues to evolve as evidenced by our expanding product portfolio. Our initiatives are natural extensions for what we've built over many years.
Bill Waltz: Second, we continue to monitor the overall market dynamics in competitive landscape and believe several factors could have a positive impact for us as we move throughout the year. Finally, we remain committed to our capital deployment strategy to create shareholder value over the long term.
Bill Waltz: 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.
Dray, Andrew Kaplowitz, David Johnson,
This concludes today's conference call. You may now disconnect.