Good afternoon. My name is Trip Caldwell. I'm with Wells Fargo on the banking side. Pleased to have representatives from Atkore today: John Deitzer, who's the Chief Financial Officer, and Matt Kline, Treasurer and Director of IR. Welcome back to the conference, guys.
Thanks, Trip.
Atkore is a $2.5 billion market cap manufacturer of electrical, mechanical, safety, and infrastructure products. But maybe, John, for those less familiar with the story or a little dated, maybe you could give us a brief overview of the business.
Yeah, wonderful. Thank you, Trip. So again, my name's John Deitzer. I'm CFO. I've been in the role since August of 2024. Our company headquarters are actually here locally in Chicago, about 45 minutes south of the city in Harvey, Illinois. As Trip mentioned, we are a producer of electrical infrastructure products. So what does that mean? Conduit, cable, a lot of the items that are in this room, but that we can't see right now. And so we enable the transfer and protection of electricity from the generation source here into the outlet through those types of products. The majority of what we do is here domestic in the U.S. So 90% of company sales are roughly here in the United States. And we also produce domestically. So our largest facility is our corporate headquarters here in Harvey, Illinois.
But we have a network of facilities that make these different products throughout the U.S. So we have 10 different facilities that make our PVC-related products spread from Binghamton, New York, all the way down into Texas and out onto the West Coast into Oregon. And so we have a really broad footprint from a manufacturing standpoint that then is supplemented by an also footprint that we think is very strong and strategic from a distribution and service center facility. So we have six regional service centers spread across the U.S. that then enable us to distribute or sell our products onto primarily here in the U.S., the electrical distribution channel.
That is where the overwhelming majority of our sales are through a third-party distributor and primarily that electrical distribution channel in the U.S., which is a network of a lot of strong enterprises, some public, some private, but then also a lot of family-owned businesses that are consolidated together through various buying groups. That ability to have that broad range of products into this market has been a strength for us and a differentiating factor. One of the key drivers for the business is the demand of electricity. We have two operating segments between our electrical business and our safety and infrastructure. Even on the safety and infrastructure side of our business, which produces things like metal framing and cable management, there's an electrical infrastructure component. Those products, some of those, going through the electrical distribution channel in the U.S.
So by and large, we would say that 90% of our products somehow touch the electrical industry in one way or another, whether directly through some of our conduit or cable products or on an ancillary basis in thinking of our metal framing and cable management products as well. So that exposure to the secular trend of electrification and then digitization as well is really a key enabler for us. And a differentiating factor for Atkore versus some of our other competitors is the breadth of our portfolio. Some people can do some of the products or maybe one or two, but we don't have a competitor that quite does the full suite of products that we do here in the U.S.
From an international standpoint, it is 10% of sales primarily located in the U.K. and Western Europe and then a little bit in Australia and New Zealand as well. Also in markets that share strong relationships with the electrical distribution channel partner, as well as kind of the secular demand trends for electrification and digitization. We do have several growth initiatives that we've invested in over the past few years, whether it's related to our solar products that we can talk a little bit more about, or recently we have expanded our PVC product portfolio into growing our presence in the water-related end market for municipal water pipes, as well as other types of applications in that, also primarily selling through distribution channel partners as well. That's generally an introduction or overview. Maybe I'll pause there. Matt, if there's anything I've forgotten or turned around.
Let me ask. Yeah, you've mentioned multiple times the leverage to the distribution channel, but maybe talk about the importance of brands with the end user and how you drive that pull-through?
Yeah, absolutely. It's a great question. So the founding of the company is here in Chicago, the Allied Tube & Conduit brand, which really created the steel conduit industry in 1960. And so that is a well-recognized brand. Another really critical brand for us is our AFC Cable Systems, which is a product line that's been around for 90+ years that has really, again, created its component within the category and is extremely well-respected. We think about another key product line for us on our metal framing products, the Unistrut brand, which just celebrated its 100th year anniversary last year. And it is really ubiquitous and somewhat recognized as the Kleenex of the industry if people are referring to strut. And that has been very unique for us because that is truly a global brand. Unistrut is the linking factor I talked about between the U.S., U.K., Australia, New Zealand.
Our go-to-market is really under a lot of that Unistrut brand internationally, and it is very well-respected and has a tremendous reputation. And the reason that is important is it does help us create pull-through demand at the end user through the distribution channel because of the recognition of the quality of the products that we make, that people are comfortable with these products. They've been using them for 60, 80, 90 years across different types of construction application, and they're tried and true in a lot of ways, which has been a real benefit for us. So that ability to have that recognition and the quality that we produce of our products, then bundle that together, we think is really a key part of what makes us unique.
Great. Maybe we turn to a little bit of the financial framework here. You all ended your second quarter in March, announced earnings in May, finished the quarter in line with a pre-announcement you made. I think the setup for the back half was basically nice mid-single-digit volume growth with still some challenge on the PVC pricing front. But maybe for the group, you can sort of roll the tape back and walk us through how you see the setup for the back half and some of that dynamic between volume and price.
Yeah, that's a fantastic question. Thanks, Trip. I would say this year has been a little bit of a unique dynamic. The first quarter, we were down 5% on a volume basis. In our second quarter, we were up 5%. So our first six months of the year, we were roughly flat. That is actually kind of what we were anticipating and within our expectations, and as we look forward into the back half of the year, we do expect to continue to grow because we have a view around a low single-digit volume growth for the enterprise for the full year, which if we're essentially at a flat basis here six months in, that really gets us to right around that mid-single-digit type environment for the back half of the year.
Where we've seen very strong growth, especially in the second quarter and the first half of the year, that we do anticipate some of it continuing is the metal framing product line has done very well in the front half of the year, and I talk about that, the Unistrut brand there, and that really ties into that category. That product line was actually up high single digits in the first six months of the year and probably anticipate that to continue to grow. We might have a little bit of a noise element related to our construction services business that's associated with that, but by and large, the metal framing product lines really have a strong pull-through in end markets like data centers and heavy manufacturing that we do see continuing.
And we have some capacity and capability for our metal framing and cable management products that we think will do well, that will continue to do well and have done well in the first half of the year. So that's been a good driver for us that we think is really continuing. As we look in other parts of the portfolio, we have mentioned we've invested in our ability to grow our water-related products. And we've continued that investment for the past couple of years, but now we're seeing some opportunities to grow our PVC water products in the municipal end market and opportunities like that, which have a really high exposure to things associated with the infrastructure investments that the U.S. is making.
So we feel not just this year, but the long-term benefits there where we get a real advantage operationally by leveraging the investments we've made at our existing footprint of facilities that manufacture our PVC conduit products. So that's really been an opportunity where we see going forward operational synergy and then a little bit of commercial diversification working with distributor and channel partners on the water side as opposed to on the electrical distribution side. There are a few that cross over, and we're also trying to see where we can leverage those relationships. So we think there's some specific company elements that will help us continue to grow. But the markets, by and large, there is some concern, and there's been talk of push-outs and things like that.
But we do see strong parts of the end markets on the non-residential side, things like data centers continue to do well. But then you see some large projects for manufacturing or reshoring that are also high consumers of the products we produce.
And are you seeing real demand yet, or is it just assumed it will come on the large project side that sort of ties into this theme of reshoring or what have you? Can you see some line of sight to actual activity improvements there?
Yeah, absolutely. I would say, and we've seen that in particular on the construction services side of our business. The Unistrut Construction team that we have has participated in some of those. Now, not all of that has been necessarily just here in the U.S., but some of it has been where we've been associated with some large projects, and that's a unique opportunity for us where it's not just selling the metal framing. It's combining that with essentially an off-site manufacturing facility where we combine it into essentially a kit, but assemble that and then deliver and install into a manufacturing facility or potentially into a data center and things like that, so that's a value-added component here where it's more than just the product sale, of designing even for a customer's specification of what they're looking for and then combining that in with our technical knowledge.
That's really been a great opportunity. That's been a very specific item. I would say anecdotally, though, even when we're talking about large project wins for steel conduit products or PVC, definitely can tie that sometimes to some of these large projects that people have talked about, and you continue to look at things like the Dodge Momentum Index around what's going into planning, as well as the Dodge Starts projects that are starting, whether it's certain battery facilities and things like that. These are happening, maybe not at the rate everybody had thought, but I think others in the industry, certain larger electrical players, have talked about their backlog being in multiple years associated with some of these large mega projects, so I definitely think it's a real element.
And then we're seeing an opportunity similarly on an international basis to partner with a few select end users where we think there's an opportunity to help support them as they're growing, whether it's their manufacturing footprint or if they're in the data center industry where we can support that.
Great. Let me circle back to sort of tie out on the second quarter. You did announce an impairment charge and just thought it would be helpful for the group to understand the elements of that impairment and the implications.
Yeah, understood. So we did have an impairment in the second quarter related to the long-lived assets for our HDPE-related products. We had done a series of acquisitions as well as some organic investments for HDPE conduit-related products in 2021, 2022, and early parts of 2023. The impairment is related to that area of our business. A key end-use part of that is the expectation for the telecom industry in the rollout of the BEAD funding associated with fiber internet to the home. That funding has continued to be delayed, and there is also new entrants and new potential competitive technologies to fiber optic versus using satellite internet that previously were not part of our view of the market. And that is clearly a new item that's occurred. So that's been part of our reassessment there and led to the impairment charge.
We do think there are opportunities in that business, in the telecom industry, and we're continuing to watch that closely and understand the dynamics there with the funding.
Okay, thank you. I think we're 15 minutes into this, and we remarkably haven't said the word tariff yet. So maybe we can pause and acknowledge that elephant in the room and maybe just comment on the impact of the tariff regime as currently constructed on your outlook and opportunities.
Absolutely. I'll start and then Matt, please feel free to support here as well. Tariffs, we do, in the May second quarter earnings presentation that you referenced earlier, Trip, believe tariffs to be a net benefit for us, the primary benefit being associated with our steel conduit or our metal conduit products, which are roughly around 20% of company sales. There are several tariffs that have been in place, whether it's the Section 232 tariffs that have been in place for several years, but have gone through some modifications and things like that. That's primarily where we see the benefit potentially to our enterprise or believe the benefit to be associated with that, and that has changed from a 25%-5 0%, but we're also understanding there could be some dynamics associated with that as well.
Taking a step back, our business has seen a growth of imports over the past several years from predominantly Mexican-made steel conduit coming into the U.S., and that has impacted our market share and some of our competitive dynamics, so that's why we believe that the tariffs here were a net benefit. The remaining tariffs, I think there are some positives and negatives throughout the rest of the portfolio that by and large probably net to a slight incremental benefit. Coming back to the framework, we started the conversation with 90% of our sales are here in the U.S. Predominantly, we source the products here in the U.S. We manufacture for what's here, so we're very isolated in the region to the region. That's an approach that we've had historically, so we think about the business that we have in Western Europe.
We source locally, we produce locally, and sell locally. That's been somewhat of our approach to these things.
Yeah, I mean, the only other thing I would add is if you just look at the breadth of our portfolio, there's quite a few of our products that really don't face any competitive dynamics associated with imports or tariffs, whether that's our cable business, metal framing, even products like PVC coated and stainless. Those competition, the competitors are all based in the U.S. We're all sourcing materials primarily from the U.S. So most of the conversation has been centered around steel conduit and PVC, rightfully so. But I do think it's important to understand that there's a good portion of what we do that's really outside the conversation.
Any steps you are taking proactively, commercially, operationally from a supply chain perspective to address tariffs specifically, or is it just more reacting to on a normal course?
I would say generally reacting on a normal course, but I think in terms of commercially, the benefits we have of the portfolio, the continuity of supply, which is really critical on these large projects, that ability to produce and sell is critical to the channel partner onto their customers, the end users, whether that's electricians or other people in the construction industry, so I think commercially promoting that advantage is really critical, and then where we need to improve our operational efficiency, so if there is a share capture opportunity that we're ready to do that, so making sure we can try to improve where we've had the opportunity or can get back share, those are certainly critical elements from our side.
You've talked publicly about becoming more in-market focused. What does that mean? How do you execute on that topic? And where are you in that journey?
Yeah, I'd say we're still probably fairly early in the journey, but the end market focus comes through really when we think about the key areas of the non-residential industry, whether it's a data center or other parts of it, where we can help provide a product element, whether it's a service element to the distribution partner because of our regional service center and the bundling and the co-load opportunity and what that can present opportunity-wise for them and then onto their customers, or on the construction services element where we've talked about the ability to do off-site manufacturing and assembly, especially on the metal framing product lines that have been that where we've seen a real benefit and some opportunity, and then we think about the areas that we had historically not been traditionally around the water piece and that infrastructure, the infrastructure spending that's set to come there.
So recognizing beyond just the product and the manufacturing standpoint, where are we trying to go commercially? And if we think about, we've historically been in the water markets, but not as much in the municipal side. And so that's an opportunity set that we see moving forward. We've had a presence, especially on the West Coast, on an agricultural standpoint, but where else can we think market-wise? So it's probably a little bit more that. I'd say some of it is continuation of where we've been, and some of it we're probably a little bit earlier days, especially think about the growth in the water side.
Right. One thing I would just add is I think we're very attuned to where the growth is coming from in the United States. Certain parts of the country are growing at different rates. The types of construction are going to vary. It's really important to win Texas, right? Not that it isn't important to win New England or here in the Midwest, but I think we're being very aware of where the growth is coming from and how we go to market and partner with our channel partners is part of the strategy.
Yeah, and I think that really comes through. You look at the investments we've made in our regional service centers in Texas and outside of Atlanta, to Matt's point. When you look at the Dodge Momentum Index or the Starts, where are things growing in the country to the point Texas, the Southeast? So having that capability of we have the manufacturing footprint and then coupled with the service center footprint, we think that is really key differentiator for us.
We want to touch on services. You've mentioned it already as it relates to a specific use case, but just curious to hear how the management team is thinking more broadly about incorporating a higher level of service across the business and how you scale that.
Yeah, I think on the scale side, we have some opportunities with, let's think about, the traditional electrical component of the business. Adding these two service centers, one in Texas, one in Georgia, has really been key, and it's moving more materials through there. We have that capability is really important in increasing the velocity. I think that's where that becomes scalable, and the co-load of multiple product lines is the differentiating factor. And so I think, really, those service centers are what enable that model to scale. And where that comes through is hopefully potentially getting a premium versus ourselves on a bulk basis or other single-line product competitors by being able to co-load multiple product lines under a single order, one order, one delivery, one invoice is that. So I think it's having that footprint enables that to scale.
On the construction services side, it is finding some key partners where it makes sense for us to invest in an off-site manufacturing facility, whether that's here in the U.S. or sometimes internationally, that we can potentially do. We'll produce the product in one of our traditional manufacturing facilities and then do some of the assembly and then deliver into a project. That's where that capability. We've done that really well internationally too over the past few years. So it's that opportunity probably on an international basis where we see very interesting for us.
The service rendered, though, is design, kitting, assembly. How do you sell that? What is the?
It's really early days conversations with those certain whether it's a semi-chip manufacturer or a data center customer, what is their design? How do we specify? How can we do this? A lot of them are looking for a partner who can really carry this through from this reduces their level of communication and friction of having to manage multiple partners. And so I think it really becomes enabled by the early on conversations and partnerships where it comes back to a little bit of especially on the metal framing side where our Unistrut brand really defined and created this industry. We have some technical knowledge, and then we've invested in our technical capabilities as well. We think about the digital tools that are needed in the building design investment that we've done and really hired from a technical and engineering standpoint.
That's really where the investment in the differentiator comes is having the right technical and engineering team to help design these things and collaborate with some of these end-use customers, especially on that metal framing side. And then how can we kit and assemble and then deliver that really? And then when it's delivered, complete that installation. Again, we've shown that internationally we've had a good opportunity there to do that, and we've done some here in the U.S. as well, but that's where we see the opportunity potentially grow.
Yeah. That sounds interesting to sort of subcontract de-risk installation for the customer and take some of the labor burden into your factory.
Exactly. Yeah, labor has been a constraint in the industry, for it certainly was a topic that was talked about during COVID and the few years post, but it was even an item pre-COVID where labor availability, the lack of qualified electricians, has been a governing factor inside of these markets. So that's where if we have the ability to, with some of the technical teams that we have, and we've been in some of these businesses over the years, and now we're just in an opportunity where we've seen a real benefit to growing them as well.
I think back to one of your earlier questions about brands, this isn't necessarily a brand, but it's a reputation, and I think doing this well overseas and then here, it gets you invited back, and I think that's what we're looking to grow with over time. Many of these projects look very similar from a construction standpoint. They just may be bigger, and they may be doing more of them here, and that's the opportunity we see is really getting that reputation on a spec and getting invited back multiple times.
Sort of frame where this sits inside of our business, 25% of our total company sales are in this area of metal framing and cable management and construction services. That has grown in the first six months of this year at a high single-digit rate. The services element is combined in there with the product element as well. It's important, but it kind of frame where it's at. If you think about high single digits on 25%, it's a key contributor at the enterprise level, but we're still talking low single-digit type of things.
Which is why I ask about scaling it and how you make it more relevant in the scheme of things.
Well, yeah, I mean, there's a balance that we're trying to make sure we work through, because as we want to scale that, it takes some. We've made investments, but we're trying to make sure we're really organized.
Yeah, makes sense. We've got a handful of minutes left. Maybe spend the rest of the time on capital allocation for the framework there, and we'll double-click on M&A a little bit.
Sure, sure, well, I mean, one of the bright spots of our company throughout its public company history is we've always been a strong cash flow generating -company. Certainly, we've had years where we've generated more cash, and I think we've put a lot of that cash to work. I mean, as we sit here today, our priorities are fairly unchanged. We may just be pivoting and changing the priorities a little bit. We've had a real nice run at share repurchases over the last several years. We've bought back roughly 20% of the company since 2021. We have, I'd say, a healthy amount of our available cash set aside for that this year at roughly greater than or equal to $150 million. One number that will definitely stand out over the last several years is our amount of organic investments that we've made with capital expenditures.
That number peaked at north of $200 million a couple of years ago. It started to come down. This year, we'll probably be around $125 million. Think of that number as probably normalizing to a lower base over the next couple of years. We've had a dividend for roughly a year, which we're very glad to have, and I think many of our investors have taken notice of it. That's roughly $45 million, give or take, on an annual basis. As treasurer, I'm happy to say that our balance sheet's in good shape from a debt standpoint. We have no maturities due for several years. We just went through a fairly successful refinancing of our ABL. I feel like we have a lot of availability.
I think to maybe get ahead of your M&A question, that's one area that this year we signaled we probably would not do much of. Some of that has been purposeful on our part as well. We have a lot of capital and even management bandwidth tied to finishing out some of these organic investments. But certainly, inorganic investments have been a big part of our history. We do anticipate getting back into that. I think we have a lot of support from our banking community. I think the capital markets are ready to support us to the extent that there's a need to do that. But we always reserve a decent percentage of our available cash for M&A. And we're always in the M&A market. I mean, we meet as part of our business system every month to look at what the landscape looks like.
There just hasn't been anything actionable here this fiscal year, but think of us as continuing to broaden ourselves in the electrical space from an M&A standpoint.
Okay. Any questions from the group? I'll close it with sort of an open-ended one for you, John, which is, is there anything you want this audience to know about Atkore that you don't think is fully or appropriately understood?
Yeah, it's a great question. That's a good one to end on. I think Matt mentioned it. The Atkore Business System is the fundamental of our enterprise. We have a very process-driven approach that we think is a really strong operating model. Combining that with the end market view of the need for electrification and digitization, especially here in the U.S., and the demand need for our products over the next decade is really important, and we think that is unique from a public company standpoint. Having this portfolio, there isn't a single company that can duplicate the entirety of our portfolio, and then given that consistent view from the need for electricity is really special and important.
And I think we are going through some dynamics related to pricing that we've talked about probably extensively, but we have a great operating model with the Atkore Business System, and we have a great end market exposure demand in terms of the need for electricity, especially here in the U.S. And given our 90% presence, we think that is really a unique set of circumstances that is a benefit for us over time. And so we're really excited and appreciate the portfolio, and then the channel partnerships that we have are really critical and important.
Yeah. Great.
Wonderful.
Thank you guys.
Thank you all. Thank you for your interest.
Thank you.