Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Volume grew 8% sequentially and 4% year-to-date, indicating some positive momentum.
- Production and shipments of solar torque tubes at the Hobart, Indiana facility improved meaningfully from the second quarter to the third quarter.
- Atkore Inc (ATKR, Financial) repurchased $125 million in shares during the quarter, bringing the year-to-date total for share repurchases to more than $280 million.
- The Board of Directors authorized a new $500 million buyback program, reflecting confidence in the value of Atkore shares.
- Both segments had strong EBITDA margin performance in the third quarter, with the Electrical segment achieving 30% margins.
Negative Points
- Organic volume was essentially flat year-over-year, indicating stagnation in growth.
- Pricing was softer than expected due to slower end markets, particularly for the PVC conduit business.
- The third quarter proved to be more challenging than initially projected, with adjusted EBITDA and adjusted diluted EPS both off the midpoint by 4%.
- An increasing amount of imported steel conduit from Mexico is negatively impacting volume year-over-year.
- Continued softness in the telecom and utility markets is affecting overall performance.
Q & A Highlights
Q: Could you give us your latest thoughts on what the overall price cost normalization could end up being versus the initial estimate you gave us of $585 million? And can you give us some color on the puts and takes versus the run rate in '25?
A: The $325 million this year includes HDPE, which was not in the original $585 million estimate. Without HDPE, we would be just under $300 million this year. Given current conditions, next year could see over $200-$250 million in price cost normalization. The initial EBITDA estimate for FY25 is around $650 million, with modest volume growth and benefits from initiatives like solar and mega projects.
Q: What changed in the environment between last quarter and this quarter? Did you see any more project delays or customer destocking?
A: The market for most of our products and services is currently down. There are job delays, and distributors are seeing weaker markets, particularly in commercial construction and utility markets. This has led to more price competition than expected. We are adjusting our forecasts to reflect these conditions.
Q: Can you give us more perspective on the impact of increased import pressure in steel conduit?
A: The import of steel conduit from Mexico has grown significantly, now representing around 20% of the market. This has led to a 15% price decline in the product. We are responding to this competition, but it remains a significant challenge.
Q: Can you give us some color on the incremental $50 million of headwind in the outlook? How much is due to import headwinds versus incremental PVC and HDPE pressures?
A: The headwind is likely split, with a bit more attributed to metal conduit imports. PVC and HDPE also contribute to the pricing pressure. While some products are seeing price increases, the overall market conditions are tougher than expected.
Q: How has the ramp of the solar torque tube facility progressed versus expectations?
A: The ramp-up is positive, though we expected to be here sooner. We are seeing double-digit percent growth and are on track for further growth into next year. The facility is currently above 50% utilization and continues to ramp up.
Q: How are the telecom and utility markets performing sequentially?
A: These markets are relatively flat sequentially, with minor increases in quotes that may indicate better volume in the future. However, overall activity remains subdued.
Q: Can you talk about inventory levels and whether price weakness is due to excessive inventory or demand-driven competition?
A: Inventory levels are about normal compared to pre-COVID times, but distributors are cautious about holding stock due to pricing pressures. There is no excessive inventory, but distributors are likely keeping levels slightly below normal.
Q: What is the impact of the Mexican steel conduit imports, and what would the market share be if tariffs were enforced?
A: The imports have grown significantly, and if tariffs were enforced as per USMCA agreements, the market share of imports could drop substantially. This would positively impact domestic manufacturers.
Q: What is the relative price risk for fiscal '25, particularly for PVC?
A: PVC pricing represents the biggest risk moving forward due to its significant increase during the pandemic and subsequent decline. The market conditions and competitor actions will continue to influence pricing.
Q: Any update on the ramp of the Hobart facility and its utilization rate?
A: The facility is currently above 50% utilization and continues to ramp up. We expect further growth into next year, potentially increasing utilization by 20-30%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
