Atkore Inc. Q1 FY2026 Earnings Call

Good morning. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's First Quarter Fiscal Year 2026 Earnings Conference Call. 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. You may begin.

Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; John Deitzer, Chief Financial Officer; and John Pregenzer, Chief Operating Officer and President of Electrical. We will take questions at the conclusion of the call. 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 and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA, and a reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill.

Thanks, Matt, and good morning, everyone. Starting on Slide 3, we are pleased with our first quarter performance. We achieved net sales of $656 million and adjusted EBITDA of $69 million, both were above our outlook range. Our $0.83 of adjusted EPS was also above the top end of our outlook range. Organic volume increased 2% in the first quarter, driven by strong performance in our Electrical segment. Our teams have been focused on improving manufacturing efficiency and controlling costs, which has helped generate over $30 million of productivity savings year-over-year. We also continue to advance our strategic alternative process to evaluate opportunities to strengthen our business and maximize value for our shareholders. During the quarter, we completed the divestiture of our Tectron Mechanical Tube product line and manufacturing facility. The sale further enhances our focus on the electrical infrastructure portfolio and is aligned with our broader 80/20 initiative aimed at directing our manufacturing capacity to electrical end markets. In the second fiscal quarter, we expect to complete the previously announced exit of three manufacturing facilities. We will continue to provide updates on our ongoing strategic alternative process as appropriate as we move forward. I also see some highlights released for the fiscal year 2025 sustainability report, which we recently published. This report details our ongoing initiatives and accomplishments over 2025 goals. Looking ahead to the remainder of 2026, we are on track to deliver our FY '26 outlook that we presented in November. We expect net sales to be in a range of $2.95 billion and $3.05 billion. Our net sales outlook is adjusted for approximately $40 million of annual sales related to our Tectron mechanical tube product line resulting from the divestiture. Our adjusted EBITDA between $340 million and $360 million remains unchanged. Adjusted EPS is expected to be in the range of $5.05 and $5.55. We remain focused on our core electrical infrastructure portfolio, which is supported by broader megatrends and where we see the most opportunity for growth. Our team is focused on continuous improvement initiatives in our plants and providing unmatched service and quality for our customers. By doing so, we are confident in our ability to drive sales volume and profitability. I'd like to take a moment to thank all of our employees for everything they do to support our key stakeholders. With that, I'll now turn the call over to John Deitzer to talk through the results from the quarter and provide more details on our outlook.

Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the first quarter, we achieved net sales of $656 million and adjusted EBITDA of $69 million. Adjusted EPS was $0.83 per share compared to $1.63 in the prior year. Our tax rate in the first quarter was 3%, a decrease from 21% in the prior year. The first quarter tax rate reflects a one-time discrete benefit associated with tax planning related to a foreign operation. Turning to Slide 5 and our consolidated bridges. Organic volumes were up 2% compared to the first quarter of fiscal '25. Our average selling prices declined 3% during the quarter, most of which came from our PVC conduit products, which were partially offset by increased average selling prices for our steel conduit products. Moving to Slide 6. Our 2% volume increase during the first quarter was driven primarily from our metal electrical conduit and our plastic pipe conduit product categories. Both product categories benefited from healthy non-residential end market demand. Our metal framing, cable management, and construction service businesses saw lower volume compared to the prior year, primarily due to the timing of certain project-based work. We expect growth from these businesses throughout the duration of the year. Our mechanical tube business, which includes our solar-related products, is also expected to grow throughout the year due to the expected timing of large utility-scale solar projects. As we previously communicated, we are shifting certain available capacity from our existing non-solar mechanical products to our electrical conduit products as part of our 80/20 initiative. We would expect that to continue throughout the year to help support electrical end market demand. Overall, we continue to expect mid-single-digit volume growth for the full year. Turning to Slide 7. Net sales increased year-over-year in our Electrical segment, driven by higher volume growth, offset by lower selling prices. Adjusted EBITDA margins compressed in our Electrical segment due to higher material costs and lower average selling prices. Net sales in our S&I segment were lower compared to the previous year, primarily due to lower volume. Adjusted EBITDA and adjusted EBITDA margins both increased year-over-year due to increased productivity. As Bill mentioned earlier, Atkore recognized over $30 million of year-over-year productivity, most of which was generated from our S&I segment. Turning to Slide 8. We ended the quarter in a favorable cash position despite a year-over-year decline in our operating cash flow. Keep in mind that our Q4 FY '25 operating cash flow was our strongest quarter, generating approximately $200 million. Our first quarter in FY '26 ended before we typically receive large collections from our accounts receivables. Those cash collections fell into the first part of our fiscal Q2. Our results included approximately $18 million in cash proceeds recognized from our Tectron tube divestiture. These proceeds represent a portion of the divestiture proceeds. We anticipate receiving an additional $7 million in the second quarter from the sale of our real estate where the products were manufactured. Our balance sheet remains in a strong position with no debt maturity repayments required until 2030. Moving to Slide 9. We continue to expect volume growth to be mid-single digits for the full year. Our volume growth expectations are a combination of core construction growth as well as contributions from certain growth initiatives such as solar and global construction services. The recent Dodge Momentum Index forecast continues to support growth in the core non-residential end markets. As a reminder, we are no longer providing quarterly guidance. Rather, we will continue to update our full year expectations. In November, we communicated that our full year expectations are weighted more toward the back half of the year. We still believe this to be true. With that said, we expect our second quarter to be similar to but slightly better than our first quarter results from an adjusted EBITDA perspective. For the full year, we expect net sales to be in the range of $2.95 billion to $3.05 billion and adjusted EBITDA in the range of $340 million to $360 million and adjusted EPS in the range of $5.05 and $5.55. With that, I'll turn it to John Pregenzer to give an update on our end markets and our long-term strategic focus.

Thanks, John. Turning to Slide 10. Last year, we announced our intention to consolidate 3 manufacturing facilities. This decision helps us to prioritize our portfolio for domestically manufactured electrical infrastructure products. These actions are part of our broader 80/20 initiative to serve our customers efficiently while also creating a more streamlined cost structure. We are on track to exit these facilities in our second fiscal quarter. As John mentioned, our expected volume growth in fiscal '26 is a combination of base market growth and contributions from certain key strategic investments. The Dodge Momentum Index continues to suggest favorable forward-looking indicators of growth. A recent Moody's ratings analysis suggests that $3 trillion of investment will flow into the data center market in the next 5 years to support the need for servers, computing equipment, and new power capacity. Our portfolio of metal framing, cable management, and the entirety of our conduit product line are well positioned to benefit from this growth. As the electrical industry plans to support these growth figures, available labor continues to be top of mind. The associated builders and contractors estimate that approximately 350,000 additional workers are needed to meet the demand for construction services in 2026, and that number grows to 450,000 in 2027. Atkore has a history of prioritizing labor-saving opportunities for installers through new product development. Our PVC junction boxes, 20-foot conduit, and patented MC Glide armored cable are just a few examples of how Atkore has made construction installation more efficient. The electrical industry is a great place to be, and we are working to meet the market demand by executing our Atkore business system centered on strategy, people, and process. With that, we'll turn it over to the operator to open the line for questions.

Your first question comes from Andy Kaplowitz with Citigroup.

Can you give us a little more color on the core markets that you're seeing? I know you just talked about it, but it looks like core PVC and metal conduit markets in terms of volume accelerated a bit in Q1 versus what you saw in FY '25. So maybe you can talk about that. And then conversely, I know you've talked about construction services ramping up at some point. I mean there are a lot of mega projects out there, particularly in data centers, as you kind of cited. So when can we see that start to move?

Yes, Andy, I'll begin and then pass it to you, John. You're right, and we can pull the exact figures from John Deitzer. We're witnessing good growth in PVC and steel conduit, which are both performing well overall in favorable markets. Regarding data centers, the timing of year-over-year projects is key. We are observing strong backlogs and commitments for orders and expansion opportunities, so we are optimistic about this fiscal year and even more so as we approach fiscal year '27 and beyond.

And Bill begs the sorry, did you want to say something else?

No, Andy, just a few more information on that is strong Dodge Momentum Index in the quarter. We could really see obviously being driven by data centers. Warehousing is strong and education, health care, some other end markets, we're seeing some growth. Specifically to PVC, we have seen some increases from the border wall. So it's been one of the areas that's been driving some of the stronger PVC conduit demand.

That's very helpful color. And it begs the question. Obviously, it's early in the year, but you didn't raise your EBITDA and EPS despite pretty good Q1, especially given the good productivity. So is there anything incrementally you're concerned about? Or is it just really early in the year?

Andy, I'll jump in here. I mean. Yes, go ahead, Bill.

Go ahead John.

Yes, Andy, we're pleased with the results of the first quarter. Looking ahead, we still have a lot to accomplish. I can outline some of the other dynamics we're currently observing. Overall, we had a strong first quarter and aim to maintain our position. Bill, do you have anything you would like to add?

I was planning to say something similar. Let's focus on achieving our targets and growth. We have seen great productivity, and things are progressing well at this stage. However, before we move too far ahead, let's wait for another quarter before discussing the second half of the year, as there is still a reasonable expectation for improvement in Q3 and Q4. It seems prudent to take this approach for now.

Agreed. And then just one more quick one. An update, I think you talked about the competitive environment a little bit. You mentioned PVC kind of pricing is still down, but steel conduit up. I think you said import competition in PVC kind of remains. But sort of what are you seeing in the 2 major markets there, particularly from the foreign competition?

Yes, regarding foreign competition, specifically in PVC and steel, imports of PVC continue to arrive, which is not surprising given the minimal tariffs, just 10%. The valuation claims haven't changed significantly, and the market share remains likely under 10% overall, though it is growing alongside our PVC business. As for steel, the situation appears to be shifting in our favor, with strong growth observed. In the last three months, year-over-year, imports saw a decline in the low to mid-single digits, while we are still experiencing growth. Both our sequential quarterly prices and margins are increasing, indicating progress in the metal conduit segment.

Your next question comes from David Tarantino with KeyBanc Capital Markets.

I appreciate there's an update specifically on the strategic review, but maybe could you give us some more color and an update on the cost saving efforts, what you expect productivity to contribute following the nice start to this quarter and particularly around the exit of those 3 facilities that it's expected to be completed here soon.

Yes, I will provide an overview and additional insights from the team. We're still working on strategic alternatives, but as we've stated before, the Board does not have a specific timeline. I don’t want to speculate on the timing or provide any further details. We are making progress on various fronts, including the divestiture of Tectron. We're advancing with HDP, likely faster than anticipated when evaluating Atkore as a whole. Overall, we're experiencing a strong quarter in terms of productivity and I expect this to be our best year for that metric. However, it’s important to note that we won’t see $30 million in every quarter. We had a solid start in January, and last year was also strong in productivity. This year should continue that trend. Regarding the three plant closures, I’ll allow John Pregenzer or John Deitzer to provide further information, but as John Deitzer has indicated before, we anticipate savings of around $10 million to $12 million, with potential for more as operations ramp up. I would say the closures are proceeding smoothly and are on schedule. Would John Pregenzer like to add anything?

No, Dave, I think everything is going as planned, seeing favorable transfer of the manufacturing equipment and start-up, hiring of the people in the plants that are getting the additional capacity is going well. The training is going well. So we don't see any issues with executing all 3 of those actually on plan and on schedule.

Great. To add a bit of insight on the productivity trends throughout the year, we are very satisfied with the performance in the first quarter. As mentioned, we are optimistic about our direction. However, there are some variations from quarter to quarter this year. Specifically, the second quarter last year was quite strong, setting a high benchmark for us in terms of EBITDA. Therefore, the year-over-year comparison for Q2 will be challenging. Nonetheless, we are pleased with our overall plan for annual productivity this year and believe that some initiatives will continue to benefit us moving into 2027. We don't anticipate seeing the same strength in the second quarter that we experienced in the first quarter, mainly due to the comparison with last year. I hope this clarifies the situation a bit.

Yes. That's helpful. And then nice to see the price declines on the top line narrow, but maybe to put a finer point on price cost, could you give us an update on what you have here embedded in the guide? It looks like much of the year-over-year headwind that was previously expected has kind of already occurred. So how should we be thinking about that previous unmitigated $50 million headwind now and the offsets to it?

Got it, David. Yes, it's a good question. And the price versus cost headwind that we have this year is largely loaded here in the first half. You see the impact in the first quarter. We, again, think the second quarter year-over-year, we're going to have a price versus cost unfavorable. I don't want to start guiding price versus cost quarter-to-quarter, but we do anticipate the totality of the back half to be price versus cost positive here, might be very slightly, but that's potentially here as we're ramping. So it is very much loaded here in the first half. So we'll see how the dynamics play out throughout the year. But right now, to your point, very much a first half issue here that we're working through.

Your next question comes from Chris Moore with CJS Securities.

Yes. So terrific margins on S&I. Is that 16.2% is that sustainable moving forward? Or just kind of any thoughts there?

Thanks, Chris. I mean, I feel like a little bit of a broken record. I've said this a few times. We anticipate that business to be more in the, let's call it, 12% to 14% adjusted EBITDA margin level. It does have some mix dynamics when we think about the growth in solar, et cetera, that might have a little bit of margin dynamics with it. But that team has done a very nice job of performing from a productivity perspective and has driven those margins higher. So I do anticipate some of the mix dynamics probably will level out a little bit. And I don't know if we're going to be able to continue exactly at the positive productivity level we had. We did have some items that were more discrete benefits here in the first quarter that helped push that elevated a little bit. So we'll probably see margin regression in the S&I segment here as we move throughout the year.

Got it. And from a cash flow perspective, you talked about Q1 timing, some of the issues there. Just maybe from a fiscal '26 perspective, can you talk a little bit further in terms of kind of overall thoughts and how we should be thinking about it?

Yes, that's a great question. As we progress through the year, we expect our operating cash to improve. The first quarter presented some challenges, as we noted earlier. However, it's important to remember how robust our cash flow was in the fourth quarter of fiscal '25, during which we received multiple accounts receivable payments in July and September. The quarter ending on December 26 saw several significant receivables fall into our fiscal January, but they actually occurred around December 28 or 30. Looking ahead, we anticipate being slightly cash flow positive in the second quarter and continuing to improve in the third and fourth quarters. We have also modestly lowered our expectations for capital expenditures this year, as we are focusing on investing in the right projects as we move forward.

Got it. And maybe just last one for me. Obviously, backlog is not historically an important metric for you guys. But with some of the focus here on data center, et cetera, is it potentially becoming a little bit more important? And is that something that's building a little bit at this point in time?

Yes. I think, Chris, there are a couple of thoughts there. For the core business, it's shipping 5 days, 10 days and little backlog. For the data center business itself, global construction business, the question I answered for Andy, we are seeing backlogs grow in a couple of facets. One, the amount of orders we have in and then also things if it's not an order, kind of like an LOI and so forth. So I don't know at this stage or for this year, if we want to dimensionalize that publicly, but there is the potential as it continues to grow. It is a business that I think we're all very optimistic at the pace that, that business has in front of us.

Your next question comes from Deane Dray with RBC.

I would like to revisit some of the competitive dynamics and their impact on pricing during the quarter. The increase in steel prices year-over-year is quite encouraging. Is this mainly due to stronger volume or are there any changes in competition? Regarding the decline in PVC prices, I understand that new capacity is being introduced. How much of that is contributing to the ongoing pressure in the PVC market? This leads me to ask when you anticipate achieving a normalized year-over-year price. While it may be difficult to determine the exact quarter, do you still expect that to happen within this year?

Yes, Deane, I'll begin, and then John or John may want to add in. Starting with steel, overall demand was strong. I assume my competitors are experiencing similar conditions, and with imports returning, we had a favorable market for growth, pricing, and margins. Demand remains robust. Regarding imports, I can't say specifically, but I don't believe there is significantly more supply entering the market; rather, we're successfully meeting our targets. We perceive price dynamics affecting both top lines and spreads. I'm quite satisfied that we're currently aligned with our market expectations. However, I cannot predict the future with certainty. As John Deitzer mentioned earlier, we continue to anticipate spread compression within PVC. While determining a specific quarter for a turnaround is challenging, I'll defer to my colleagues on that matter.

Your next question comes from Justin Clare with ROTH Capital Partners.

I wanted to follow up on steel conduit pricing. It seems like this is the fourth consecutive quarter where pricing has improved. Can you share your expectations for the trend moving forward? Do you foresee continued price increases in fiscal Q2? Additionally, does the annual guidance reflect a sustained upward trend in steel pricing? What are your thoughts on that? Lastly, is the increased pricing contributing to margin improvement for steel conduit, and could you provide insights on the potential magnitude or how that is being influenced?

Yes, I'll begin, and the team can add later. You are correct that steel conduit prices have increased for four consecutive quarters, often rising sequentially. For instance, our last quarter was probably our best in terms of spreads in a long time. Those factors are moving in a positive direction. At this point in our forecast, we do not anticipate significant increases in spreads. However, I also won't factor anything additional into our guidance. Steel prices are expected to continue to rise slightly over the next six to nine months, based on various professional forecasts that we utilize. I believe we can maintain pricing, but I wouldn't expect a large increase in spreads, nor is that included in our projections.

Got it. Okay. And then just one on the tariffs. I believe aluminum tariffs were potentially expected to have an impact on the cost structure. Wondering how that's evolving if you've secured domestic sources of supply and what the potential impact on the margins could be?

Yes. Again, without getting too specific on future steps, but you are correct, Justin, that for us, the tariffs because where we did get our products, our aluminum from offshore, at least offshore Canada, I'll be specific. So they are being impacted by the tariffs. We are looking at domestic sources, but I don't want to give out even if nothing else for our competitors. The probability of that because even simple things like that, getting to it through specs. And then also, I do think the domestic manufacturers back to they know that people like us and so forth are looking for domestic supply, they're raising the price. So how much of an arbitrage we have compared to our competitors or how much we can save compared to the tariffs is hard to quantify. But I will tell you, it has been an impact that I don't think we've passed along the impact of the 50% aluminum tariffs. That kind of ties back to John Deitzer's question or answer, excuse me, even though things like copper are so volatile right now that us predicting that our cable business is a little bit more challenging in the short term here.

Your next question comes from Chris Dankert with Loop Capital.

I guess just to kind of circle back on solar, I think you touched on it in your prepared remarks, but I missed it. Can you just kind of give us a sense for what the solar activity is now, kind of how we're shifting capacity in that market? And then just kind of an update there.

Yes, what we mentioned is that solar activity for the quarter was down year-over-year due to the timing of projects. However, we have a solid backlog, and we are seeing commitments from OEMs for global mega projects. Additionally, our facility in Hobart, where we produce many solar torque tubes, is performing very well. This improves our productivity for the first quarter and our overall estimates for the year. The increase in throughput will help as demand rises. Therefore, solar, along with global mega projects, should be beneficial for this quarter and, frankly, for the second half of the year. As previously mentioned, the anticipated profit increase from Q1 to Q2 will be critical for us to meet our target of $350 million in EBITDA for Q3 and Q4.

As a point of clarification, I assume that the solar torque tubes were generally intended for domestic projects. Is any of that intended for export outside of North America right now?

I can't say for sure what the long-term outlook will be, but one of our customers has placed a significant order for projects abroad. However, it's unclear whether this will develop into a long-term trend as opposed to just short-term activity. Currently, most of our focus and our customer base is in North America, although we do have some projects that are taking place overseas in the short term.

Yes, Hobart is going well. obviously, bringing in the additional solar volume, but their operational rates are continuing to improve. A lot of the productivity that we delivered was contributed by Hobart. So I think everything is progressing as we need it to be.

Thank you. Let me take a moment to summarize my 3 key takeaways from today's discussion. First, Atkore's fiscal 2026 is off to a good start. Our results reflect a combination of healthy end markets and self-help productivity gains. We will continue to operate with a proactive mindset as we progress throughout the year. Second, we anticipate favorable market demand for the balance of the year as we reaffirm our full year outlook. Finally, as we execute previously announced strategic actions and evaluate additional opportunities, we are laser-focused on creating long-term value for our shareholders. With that, thank you for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today.

This concludes today's conference. You may now disconnect.