Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to Welcome everyone to Atkore's Second Quarter Fiscal Year 2022 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. If you'd 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 one. As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, John Deitzer, Vice President of Treasury and Investor Relations. Thank you. You may begin .
Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings 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. In addition, any reference in our discussion today to EBITDA means Adjusted EBITDA. With that, I'll turn it over to Bill.
Thanks, John, and good morning, everyone. Starting on slide three, I'm pleased to report that Atkore again delivered outstanding performance and strong results in the second quarter of 2022. Despite continued challenges across the macro environment, we increased sales and profitability. Our businesses are performing well, and we continue to execute our plans for Capital Deployment. During the quarter, we repurchased $157 million in stock and continued to invest in our business for the future. Given the outstanding performance and results in the first half of the year, we've increased the size of our share repurchase authorization from $400 million to 800 million, and we are increasing our expectations for fiscal year 2022.
Turning to slide four, we are increasing our outlook for full year Adjusted EBITDA to a range of $1.25 billion-1.3 billion. This is up $375 million from our previous expectation as we continue to expect profitability levels in our PVC-related products and other parts of the business to remain strong. We are also now planning to repurchase at least $400 million in stock this year. With our increased expectations for FY 2022, we also thought it'd be helpful to provide some preliminary perspective on FY 2023. Our initial expectations for Adjusted EBITDA in FY 2023 are in the range of $800 million-900 million. There are many variables and market conditions that could cause this range to fluctuate, but we believe this is a good estimate for next year. With that, I'll turn the call over to David to discuss the quarter.
Thank you, Bill, and good morning, everyone. Moving to our consolidated results on slide five. Net sales increased 54% year-over-year to $983 million. Adjusted EBITDA increased to $346 million, which drove our Adjusted EBITDA margin to 35% in the quarter, both up versus the prior year. Our Adjusted EPS increased to $5.39. Turning to slide six and our consolidated bridges. Net sales increased by $343 million, primarily due to higher selling prices and the contributions from recent acquisitions. As we've mentioned previously, volumes have been impacted by several factors. Within Q2, our volumes for certain steel-related products in the U.S. in both electrical and safety and infrastructure were down approximately 20%, as many customers were holding off on purchases given the volatility we've seen recently with steel prices.
For example, the average spot price for hot-rolled steel was down over 30% in fiscal Q2 versus Q1. However, the average price of steel has rebounded approximately 20% in April versus Q2. With the increased demand from the start of the building season, we expect volumes to improve for these products as we progress through the year. Volumes for the rest of our products were up over 12%. In addition, our award-winning MC Glide products continued to gain traction in the market. Our overall product vitality percentage reached high single digits as a percent of sales. Shifting to our segment results on slide seven , the electrical segment increased Adjusted EBITDA by $142 million and Adjusted EBITDA margins by 490 basis points.
In our safety and infrastructure segment, net sales increased by 47% from the prior year and Adjusted EBITDA increased 79%. Now a quick update on our Capital Deployment progress on slide eight. We are now on track to exceed our plan to deploy over $1 billion in cash over the next two to three years that we announced in November, and we've deployed approximately $325 million in the first half of 2022. Across our three pillars of Capital Expenditures, M&A, and share repurchases. We're very pleased with the performance of our two most recent acquisitions of Sasco and Four Star Industries, and both of these teams are off to a great start. As Bill mentioned earlier, we've also increased the size of our current stock repurchase authorization ending in November 2023 from $400 million to 800 million.
One thing to remember in this current interest rate environment is that in 2021, we were able to successfully refinance and restructure our 100% floating debt portfolio at very competitive rates. Today, we have approximately 50% of our long-term debt with a fixed interest rate for the next nine years. As we wrap up the first half of 2022, we have extended our track record of outstanding operational performance over the past few years, during which we've continued to successfully execute on our M&A program, invest in our business for future growth, and consistently return capital to our shareholders via stock repurchases. Given our conviction in the future and our ability to execute, we will continue to buy back shares both consistently and opportunistically within our Capital Deployment Model. With that, we'll turn it to the operator to open the line for questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Deane Dray with RBC. Your line is open.
Thank you. Good morning, everyone.
Good morning, Deane.
Good morning, Deane.
Hey, congrats on another outstanding quarter.
Thank you.
Thank you.
What's your latest thinking? 'Cause we get this question from investors about how much of the price will you keep. We had some volatility in steel, this quarter, and still you posted over 50% price. So just to start it here, how much of the price do you expect to keep, and any sort of visibility in terms of, near-term demand? Thanks.
Yeah. I'll do them in reverse order, Deane. Near-term demand looks strong. You know, obviously, we're factored by labor. I'm saying labor out, you know, contractors, other products, challenges out in the market. Things like Architecture Billings Index, Dodge Momentum Index, and so forth are all exceptionally positive. We're still optimistic for the future. Pricing is a challenging one. We're probably, you know, we're still seeing some growth in some areas, some other products probably have hit peak and so forth. That's why while it's hard to predict, Deane, I wish I had a crystal, you know, ball that could tell us exactly three years out. We are at least comfortable enough that we're raising earnings for this year pretty dramatically, and then also giving that guidance of next year of $800 million-900 million.
I don't know if we move off the $600 million long term, even though we've kind of said in the past we hope to always with our organic growth M&A exceed that number. Hopefully that helps, that we see pricing lasting into at least 2024, if not beyond, you know, as we start to give some type of estimate for 2023.
That's real helpful. Yeah, I really appreciate the fact you're giving this forward guidance into fiscal 2023. You know, we're expecting normalization to be something above, if not well above 600. What's your thinking about normalization? When and how does that base $600 million become meaningfully increased, and what are the factors there?
Well, I think it's Deane, it's a factor of a couple of things. Again, if anyone goes back as you've, you know, been with the stock since it's been a stock, you know, we've compounded our EBITDA 10% a year pre-COVID. Like, we're doing the right stuff, the Atkore business system , organic investments, new product development, and then M&A. As you keep adding that up based off against the headwind of, you know, we will have margin compression, or maybe we won't, but I would think it'd be very prudent to assume from an investor standpoint there would be margin compression.
Is that out a couple of years? You know, just as those two intersect and exactly what number that, you know, we've margin compression normalizes and then everything we do is upside. It's just hard to say, Deane. I would at least plan 2024 just as we've given numbers here this morning, Go ahead .
Deane, as you know, there's just so many variables. Right now, with the world with interest rates and everything, there's just so many different unknowns, and we're already giving, you know, perspective a year and a half out at this point in time. I think beyond that, you know, I think normal market dynamics, we're doing what we can. We obviously every day work to make sure that there isn't a normalization impact.
Great. Just last question from me. Then Bill, from a historical context, I actually covered Atkore in its prior life when it was part of the Tyco portfolio.
Yep.
I go way back, and that's the degree of confidence in historically that you've always been able to pass through higher raw material costs 100% to customers. That's been proven. It's just some context and color around what was going on in the steel products. It was really interesting that you say that some of the customers were holding off in a period of declining price. But what are the lessons learned? It seems to have rebounded in April, and any color there would be helpful in that.
Yeah. Again, I'll just kind of do reverse. It has rebounded, at least that it's again, without being too specific for April that we're just, you know, wrapping up and getting into May as we close the books, is more in the flat versus down. I think David mentioned 20% in the last quarter. You know, these are rough numbers. I think, you know, in the, you know, depends on what type of steel and so forth. But steel prices went, for example, hot-rolled directionally around $1,800 a ton to less than $1,000 all here in the last couple of months, and then bounced back up $1,200-1,300. I haven't tracked in the last week or so. You know, our buyers are efficient. They need to buy. These are a lot of must-stock products.
If you're on the industrial side, for example, with a solar farm or something else, and you can hold off a month or two, it obviously, you know, they get the forecast to make economic sense. On the electrical side, it's more of a must-have product, for example, with metal conduit. Again, a distributor that probably was trying to buy ahead just to make sure they could keep stock in this precarious, you know, supply environment all of a sudden go, "Hey, let's hold off for two weeks." You know, just one week of inventory in a 13-week quarter is 7%-8%. You see where all of a sudden, "Hey, let's cut a little bit." It's enough to swing that number in metals, you know, between our safety and infrastructure business and electrical is a large portion of our business still.
As David mentioned in prepared remarks, you know, I think the steel costs from what our forecasts say are kind of moderating at this level. As we go into you know, kind of spring buy and stuff like that, we're starting to see the demand pick back up. The last quarter statement I think David once had, again, the other parts of the market were just amazing. I mean, we were up 12%, as David mentioned. I think well above what anybody would say is typical market at this point.
Deane, the other thing I would add is that was the cost of steel that's making that fluctuation, not necessarily the price in the market of our products, because obviously there's other inflationary factors from freight and labor and energy, and you name it. It's not like there was a correlation in pricing. It's just more of a delay if people can reduce stock and so on and so forth in this quarter.
That was really helpful. Thank you.
Thanks, Deane.
Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is open.
Hey, Good morning, guys.
Good morning, Andy.
Good morning, Andy.
Bill, maybe I can follow up on Deane's question around pricing. You know, obviously, you just raised guidance again by 40%. Maybe you give us a little more perspective on your price cost spread. It doesn't seem to be going down still, despite I think last quarter you mentioned that competitors were starting to discount more. Maybe you can talk about lead times, you know, the overall competitive environment you're seeing?
Yeah. I think, Andy, to your point, overall, you're correct. Margins have not gone down. I think we built that in not knowing what would happen, and obviously. And by the way, in some cases, you know, margins on some products are still going up. From there, I think lead times have continued to get a little bit better. Again, I'm giving directional numbers. It all depends on what competitor, what product, what region in the country. If it was, let's say, four to five weeks in last quarter, estimate is it now instead of four to five , three to four. I think slowly the market is getting back to normal, and that's why both the balance of we don't think next year would be as strong.
Obviously, we hope and wish and will drive to be in another, you know, almost $1.3 billion, but I don't think that's prudent from an investor standpoint. On the other hand, just knowing where we are now, it's not like margins or pricing across every product with every competitor in every region is going to collapse in the next six months, and therefore we feel comfortable enough to give a preliminary, yeah, preliminary estimate of $800 million-900 million for next year.
Bill, kudos to you for continuing to give that, you know, forward estimate. Let me maybe ask you a follow-up there.
Yeah.
Like, what are your sort of assumptions at this point into that $800 million-900 million? What does the market look like? You know, what does price cost look like? Any sort of, you know, extra color you could give us would be helpful.
Yeah, good question. I will share that we actually did a bottoms-up, but you got to watch for a lot of false precision here. You know, in other words, to your point, Andy, doing all those estimates. I think normal market, you know, 2%-4%, you know, low- to mid-single-digit organic growth, which seems to me very logical when I look at how strong Dodge is and ABI and all the other indicators, like everything's positive from that standpoint. It's an assumption by each product line, but some compression of margin. In other words, hey, assuming it's going down versus up, that leads that number. To say precisely how much price, Andy, it's by product line.
Got it. Then just maybe one more quick one. You obviously upped your share repurchases. Maybe just talk about for the M&A market that you're seeing now, obviously a lot more volatility in valuations these days. You still think you can sort of get, you know, your normal bolt-on strategy this year, moving forward?
Yeah. The challenge, you know, then I'm going to say a definitive strong yes. The challenge is it's binary. In other words, we can get down to the deal and all of a sudden have a disagreement on working capital paid or something. It's just at the point of it doesn't make sense if we're going to not have deal fever and keep to our values and our business system, that you can never absolutely no in the deal. I would reemphasize again, there's a lot of deals out there.
We doubled down on the size of our team. We have you know, the balance sheet to make this happen, the cash flow, and therefore the bolt-on acquisitions and maybe even slightly larger ones than we've done in the past. They're still Strategic, Synergistic, Debt Rresponsible, and with our management bandwidth, I'm relatively comfortable with that we will achieve.
Appreciate it.
Thanks, Andy.
Next question comes from the line of Chris Moore with CJS Securities. Your line is open.
Good morning, guys.
Hey. Good morning, Chris.
Good morning. Good morning. Thanks for taking the questions. Maybe I'll just beat this pricing question to death. When PVC pricing really increased sharply in calendar 2021, it seemed like the conversation with end users was much more about guaranteeing on-time delivery than pricing. Has that dynamic changed at all?
I think it ebbed some. In other words, there was no discussion of just, you know, of price, say no, but it was just, "Can we deliver? What confidence do you have, you know, in a customer that we will our say-do ratio?" Because it was all over the place. I think, Chris, to earlier questions where, you know, I'm saying it's two to three, three to four weeks again on delivery, price is more of a consideration there, but it's still the value package of confidence and delivery, and then the other things. Atkore really does well with the one order, one delivery, one invoice, you know, our reputation and so forth. It's helping keep the market strong at the moment, but not as much on pure supply-demand.
I would say one thing, Chris, you know, that product line, the PVC-ACP product lines would be in that 12% growth we saw in this quarter. I would say the demand side is probably even stronger than what we thought of maybe, you know, six months ago, given the utility spend on putting their electric lines underground, all the continued, you know, residential construction, data center construction, what have you. The end market volume there is still really strong. So there's strong demand. To Bill's point, you know, I think that it's still an important aspect of getting the items on time.
Got it. Very helpful. Just one more on PVC. A little bit longer term, you know, what are the puts and takes for PVC pricing never giving back too much from current levels?
Well, our job, both for, I say for our customers and for our shareholders, is to provide a value equation that price isn't the largest thing, just like if anyone orders online. You know, it's the simplicity of dealing with, you know, clicking a button and getting your product the next day and so forth. I would aspire that we never give it back, but we do have competitors out there, and it's, you know, a competitive market and how they react. You know, there is that consideration that we'll have to factor in.
I think, Chris, and it feels weird as the CEO to say this, but I think factoring in some is just prudent. Now, it's a question of the fact that I think Deane asked of, you know, when does that occur and how much comes back? That's just tough to say so at this moment. At least we're comfortable enough that, again, besides raising this year substantially, putting a first pin in next year that's above the $600 million that we had before.
Got it. I know it's a long lead time on in terms of people being able to ramp up on PVC manufacturing. Are you seeing anything on that front in terms of any new supply capabilities coming into the market?
No. You know, again, I put the asterisk there that my competition does not call me and tell me about what they're doing internally, but we have not seen anything in the PVC. And again, I can't speak for if somebody has that plan or if they plan on adding a line or something, but it's challenging. In other words, even somebody in the industry would have to have space in one of their factories, would have to have the silo space, would have to have the rail car space, would have to have the blender capacity. Even there to say, "Well, I'm just gonna add one more line and have seven lines versus six," is not a simple task even for somebody already in the industry.
That's why back to our confidence in raising next year's estimate more in the $800-900 range than the $600 is we don't see supply demand changing dramatically next year.
Got it. I'll leave it there. I appreciate it, guys.
Yep. Thank you, Chris.
Your next question comes from the line of Victor Kong with Credit Suisse. Your line is open.
Good morning, everyone. Thank you for taking the question.
Yeah. Thanks.
This is John, John Walsh. My first question is, can you talk a little bit about non-resi and resi demand trends for steel versus PVC products in the quarter and in the outlook?
Yeah. I think, Victor, if I understood your question, I would say almost everything void of PVC is non-resi. That's kinda simple. Therefore, steel is all non-resi. I'm simplifying, but basically 90+, 95+%. For PVC, because the PVC conduit is used for, like, underground lines going into a subdivision and/or from the subdivision into the house, that market is probably 30%-40% residential, and then the other 60% is non-residential. PVC is probably the only residential product within-
Our major contributor to the utility.
Yes
Also would be the third subpart of there.
Thank you. A follow-up question, are you seeing any change in competitive dynamics around pricing from smaller suppliers specifically?
No, I don't think so. You know, I think, everybody has their own value equation and what they're trying to do to go to market and so forth. No, nothing jumps out.
I would say that everyone is really struggling with higher input costs, whether it's, you know, the stuff that makes the product itself or transportation or labor, you name it. I think a lot of people are struggling with high input costs. I think the mindset of a lot of industries right now is, you know, around pricing and making sure that they're holding or maybe able to expand the margins slightly.
Yeah. I'll just double down on David's comment that I think we've done a good job in the leadership team and the management at Atkore. But communicating that even in the past to " what's steel cost or what's PVC?" As you, each of you investors understand from this tracking other companies, there's so much. You know, freight costs up over 40% and labor and what's the cost of lumber for a crate, that we've done a pretty effective job of, you know, accurately communicating to our customers that there's a lot more cost input than just what's copper, steel and PVC at the moment. I think our competition also understands and has to adapt to that to keep in the business.
Okay, thank you for the question. I'll pass it along.
Cool. Thanks, Victor.
Thanks, Victor.
This concludes the question and answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.
Before we conclude, let me summarize my three key takeaways from today's discussion. First, Q2 was a great quarter, and we have a strong outlook for 2022. Second, we are executing our Capital Deployment Model with $325 million deployed in the first half of this year. Third, we have a bright future ahead, and we're committed to growing and building Atkore as a strong long-term franchise. With that, thank you for your support and interest in Atkore, and we look forward to speaking with you during our next quarterly call. This concludes the call for today.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call.