Atkore International Group Inc . (NYSE: NYSE:ATKR) reported its fiscal year 2024 third-quarter earnings, facing a challenging market with flat organic volume growth year-over-year. The company, which specializes in electrical, safety, and infrastructure solutions, saw its net sales at $822 million for the quarter, with an adjusted EBITDA of $206 million, maintaining a strong margin of over 25%. However, Atkore faced increased competition from imported steel conduit, pricing pressures, and a lackluster construction demand, leading to a revised fourth-quarter EBITDA outlook of $145 million and an initial fiscal year 2025 estimate of $650 million.
Key Takeaways
- Atkore's Q3 net sales stood at $822 million, with adjusted EBITDA reaching $206 million.
- The company faced significant competition from imported steel conduit, primarily from Mexico.
- Softness in the telecom and utility markets, along with pricing pressures in PVC and metal conduit segments, impacted results.
- The adjusted EBITDA outlook for Q4 has been revised to $145 million.
- Atkore's initial estimate for FY 2025 EBITDA is $650 million.
- Strategic share repurchases continued, with $125 million in shares bought back this quarter.
Company Outlook
- Atkore anticipates the pricing environment will remain challenging through the remainder of the year and into FY 2025.
- Growth initiatives in solar, HDPE, water, and construction are expected to potentially improve EBITDA.
Bearish Highlights
- The company experienced flat organic volume growth year-over-year.
- There was a significant increase in competition from imported steel conduit from Mexico.
- The telecom and utility markets continued to show softness.
- Pricing pressures were particularly strong in the PVC and metal conduit segments.
- The expected uptick in summer construction demand did not materialize.
Bullish Highlights
- Strength in construction services and solar partially offset the softer performance in other segments.
- Year-to-date volume increased by 4% compared to the previous year.
- The company maintains a strong adjusted EBITDA margin of over 25%.
Misses
- The company's performance was softer than expected across several segments.
- The lack of expected summer construction demand contributed to the weaker performance.
Q&A Highlights
- The company expressed a baseline expectation for next year's performance.
- Management indicated that current demand issues are significantly impacting pricing discussions.
- Confidence in the company's strategy and processes was reiterated despite the current challenges.
Leadership Changes
- CFO David Johnson is departing Atkore.
- John Dizer and James Albee will take over as CFO and Chief Accounting Officer, respectively, on August 9.
Atkore International Group Inc. is navigating through a period of market adversity, with a mix of challenges and strategic initiatives shaping its future outlook. The company's leadership remains confident in their strategy and the ability to overcome current obstacles, as evidenced by the ongoing capital deployment and share buyback program. Investors and stakeholders will be watching closely as Atkore continues to adjust to the dynamic market conditions and strives for growth in its various business segments.
Full transcript - Atkore International Group Inc (ATKR) Q3 2024:
Mark, Conference Operator: Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's 3rd Quarter Fiscal Year 20 24 Earnings Conference Call. All lines have been placed in a listen only mode. After the speakers' remarks, there will be a question and answer session.
As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Klein, Vice President of Treasury and Investor Relations. Thank you. You may begin, sir.
Matt Klein, Vice President of Treasury and Investor Relations, Atkore: 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 and any 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.
Bill Waltz, President and CEO, Atkore: Thanks, Matt, and good morning, everyone. Starting on Slide 3, in the Q3, organic volume was essentially flat year over year. We saw strength in our construction services business due to large mega projects and from solar due to increased production in our Hobart, Indiana facility. These gains were offset by broad pricing softness across most of the electrical business. We did not see a noticeable summer construction uptick in demand as is generally the case.
Pricing was softer than expected due to the slower end markets, particularly for our PVC conduit business and higher concentration of large projects where pricing tends to be more competitive. Overall, selling prices were also down 4% sequentially from the 2nd quarter. Volume grew 8% sequentially and 4% year to date. The 3rd quarter proved to be more challenging than we initially projected. While our net sales were within the range of the outlook we presented back in May, adjusted EBITDA and adjusted diluted EPS were both off the midpoint by 4%.
Our lower than projected EBITDA was due to overall softer than expected market conditions. We believe the current market is flat to slightly lower than last year. However, this trend varies by major business. Another challenge we are facing is an increasing amount of imported steel conduit coming primarily from Mexico. There are currently provisions in place between both countries that are meant to limit the amount of steel conduit imports.
However, the statistics reveal the amount of conduits shipped from industry, prompting a call to action. These increased amounts of foreign steel conduit negatively impact our volume year over year, while the overall market inclusive of imports has grown year over year. We also continue to experience softness in the telecom and the utility markets. Despite the challenges we are facing in the market, we are progressing well in our own operations and are confident in our long term opportunities. We are pleased to share that our production and shipments of solar torque tubes at our Hobart, Indiana facility improved meaningfully from the Q2 to the Q3.
We continued executing our capital deployment strategy during the quarter by repurchasing $125,000,000 in shares, bringing our year to date total for shares repurchased to more than $280,000,000 On that note, I want to remind everyone that as we near the end of our previously approved multi year $1,300,000,000 share repurchase authorization, our Board of Directors authorized a new $500,000,000 buyback program in May, which will be available upon the completion of our existing plan. This new authorization is consistent with our commitment to returning capital to shareholders and reflects the Board's continued confidence in the compelling value of Atkore shares. In light of the challenging market environment, we are adjusting the midpoint of our 4th quarter EBITDA outlook. However, we remain confident in the long term opportunities for our diversified product portfolio. Overall, our broad product portfolio provides essential elements for nearly all types of construction, especially those that support secular trends, including solar power, data centers, artificial intelligence, infrastructure digitization, grid hardening and support for the energy transition.
The breadth of our product portfolio enables Atkore to be resilient to changing end market demand while remaining a supplier of choice across our channel partners. With that, I'll turn the call over to David to talk through the results from this quarter.
David Johnson, Chief Financial Officer, Atkore: Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the Q3, net sales were $822,000,000 and our adjusted EBITDA was $206,000,000 We delivered a strong adjusted EBITDA margin of over 25%. Our tax rate to quarter was just under 22%. As a reminder regarding the year over year comparison of our tax rate and adjusted diluted EPS, the change in our accounting treatment for the solar credits associated with the IRA in the Q3 of fiscal 2023 drove a tax benefit that lowered our effective tax rate to less than 9% as we recognized 3 quarters of the expected benefits in Q3 of 2023.
During the Q3 last year, we changed the accounting treatment from what we had recorded in the 1st 2 quarters. This change reflected the benefit of the credits as a reduction of tax provision rather than a reduction in cost of sales. This lower tax rate also helped contribute $0.50 to our higher than expected adjusted EPS of $5.72 last year. Turning to Slide 5 and our consolidated bridges. Our volume in the quarter was essentially flat compared to prior year, while net sales were at the midpoint of our guide.
Our 3rd quarter results were below expectations. While we saw sequential growth in net sales during the quarter, we did not see a lift from the seasonal construction demand. Typically, our Q3 benefits from the seasonality and we see sequential profit growth. The net impact from Solar credits was a reduction in EPS of $0.37 year over year. As mentioned in my comments on the previous slide, our change in accounting a year ago added $0.50 to EPS.
Moving to Slide 6. Our year to date volume increased 4% compared to the prior year with contributions across the portfolio. We continue to see growth in our overall PVC products category. Our metal framing products also contributed to growth as they benefit from data center expansion. Our year to date performance has been impacted by continued softness in the telecom market.
As Bill outlined earlier, our steel conduit business has met resistance from a significant increase in imported conduit. Our year to date volume has been negatively impacted by this surge in imports. That said, we remain confident in the long term potential of our diversified portfolio. We expect that our portfolio of value added price along with our resilient business model will continue to provide us with sustainable growth opportunities as our markets stabilize. Turning to Slide 7.
Both segments had strong EBITDA margin performance in the 3rd quarter. Our Electrical segment achieved 30% margins. Price versus cost continues to be unfavorable on a year over year basis. Last quarter, we acknowledged that in addition to PVC price compression, we also experienced year over year declines from our HCP business, which continued this quarter. Our S and I segment EBITDA margins continued the trend of sequential improvement since the Q1, achieving just under 14% in the 3rd quarter.
This improvement is due in part to better operational performance at our Hobart, Indiana facility. Turning to Slide 8. We continue to execute our capital deployment model supported by robust cash flow generation. The strength of our balance sheet allows us to be flexible in the ways we deploy capital to deliver value for our shareholders. With that, I'll turn it back to Bill to talk through some updates relating to our FY 2024 outlook as well as our views on FY 2025.
Bill Waltz, President and CEO, Atkore: Thank you, David. Turning to Slide 9. While we achieved 3 consecutive quarters of adjusted EBITDA over $200,000,000 in fiscal 2020 4. We currently believe that Q4 will be lower than this trend due to ongoing softness in the overall market, which has led to a more challenging pricing environment. As we look forward to Q4 of fiscal 2024, we are amending the midpoint of our adjusted EBITDA outlook to $145,000,000 Our 4th quarter outlook reflects a continuation of or an acceleration of several factors that have impacted us, most notably, the pricing dynamics in PVC and import issues in steel conduit, in addition to the overall soft markets diminishing volume growth.
As I've discussed at the start of the call, we expect the softness in overall market to continue into the 4th quarter, which impacts both volume and price. Further, domestic manufacturers of sale of conduit are likely to face continued pricing pressures to compete with these elevated and increasing steel conduit imports. Turning to Slide 10. We have updated our key bridging assumptions for the full year, which is reflective of the items mentioned earlier, which are likely to impact our 4th quarter performance. We are currently in our annual planning process.
As we look beyond fiscal year 2024, we now believe that FY 2025 will be our new earnings base. We expect to see EBITDA improvements from some of our growth initiatives related to solar, HDPE, water, construction and our regional service centers. Some of these initiatives are still significantly below our original expectations and where we expect these businesses to operate in the midterm, but we do anticipate them to contribute positively year over year. For the remainder of the business, we expect to see continued productivity improvements and overall modest volume growth in the low single digits with a possibility of higher growth as new switchgear capacity comes on board and further supported by the prospect of a lower interest rate environment. The larger question that remains is what the pricing environment will be as we progress through FY 'twenty five.
We expect the environment to remain challenged through the remainder of this year and into FY 2025. Although there are many uncertainties at this time and we will have a more informed perspective in November, our initial EBITDA estimate for FY 2025 would be around $650,000,000 given the market environment. However, this estimate could go higher if construction activity in areas such as residential and utility starts to improve. We anticipate having strong free cash flow and will continue to be investor centric in our capital deployment strategy. We remain focused on preserving our history of transparency and will continue to provide updates on key topics that impact our business.
Before we go into Q and A, I also want to address the announcement we made relative to David's departure. Atkore has been extremely fortunate to have David's leadership over the past 6 years. Under his leadership, Atkore has created a balanced capital deployment model, enabling acquisitions, internal investments, stock repurchases and quarterly dividends to drive value creation for our shareholders. David will be missed both as a colleague and an Atkore teammate, and we truly wish him the best in his next chapter. Thank you, David.
Looking ahead, Atkore has a strong model for organizational leadership succession planning, which enables a smooth transition. We are fortunate to have 2 incredibly strong leaders in John Dizer and James Albee, who will assume the roles of Chief Financial Officer and Chief Accounting Officer, respectively, as of August 9. We look forward to all that is to come with this new and talented financial team that will help support John and James as they get up and running in their new roles. With that, we'll turn the call over to the operator to open the line for your questions.
Mark, Conference Operator: Your first question comes from the line of Andy Kaplowitz with Citigroup (NYSE:C). Andy, your line is now open.
Andy Kaplowitz, Analyst, Citigroup: Good morning, everyone. David, thanks for all your help.
David Johnson, Chief Financial Officer, Atkore: Thanks, Andy. Appreciate it.
Andy Kaplowitz, Analyst, Citigroup: So obviously, you revised higher the amount of price versus cost normalization to $325,000,000 this year versus the initial $250,000,000 But could you give us your latest thoughts on what the overall price cost normalization could end up being versus that initial estimate you gave us of $585,000,000 And then I think you said, Bill, dollars 650,000 is your initial estimate of EBITDA for $25,000,000 But when we think about the exit rate in Q4 of $145,000,000 you give us some color what would be the puts and takes versus that run rate in 2025? Anything to quantify would be helpful.
David Johnson, Chief Financial Officer, Atkore: Sorry, Andy. Obviously, 2 very important questions. I think when you look at the 325 this year, I will remind everyone that a portion of that does include HDPE, which would not have been in our original estimate of the $585,000,000 So if you assume somewhere around $35,000,000 plus or so of that price cost is in the $325,000,000 We would have been just under 300 this year. So you add that to the 250 last year, you're at 550 or so against the 585. Given where we are right now and what we saw last quarter and what's built into our Q4 forecast, you would expect next year to be over 200, 250 type of range.
And then you will see some benefits from our initiatives coming up. Obviously, you'll see some from solar year over year, our global mega projects, so on and so forth, Andy, very modest kind of volume built into that $650,000,000 number, which is what Bill mentioned. So hopefully that helps out.
Andy Kaplowitz, Analyst, Citigroup: It does. And then Bill, maybe you could elaborate a little more on what changed in the environment between last quarter and this quarter. I think last quarter you did talk about a weaker start to the construction season, but it seems like conditions on the ground got a fair amount worse. Did you see any more project delays than you thought? Did your customers start destocking?
And then you do have pretty severe decrementals in Q4 versus Q3. Is that just all prices? There's something else going on?
Bill Waltz, President and CEO, Atkore: Yes, Andy. I'll say yes to all the above. So in other words, you have to remember kind of either our products or our markets that we serve all markets and we're proud of that. And things like data centers are really strong and moving ahead and so forth as David just spoke about as we go into next year and solar and so forth. But obviously markets, whether it's commercial construction, I assume from you or other shareholders and so forth that utility markets are weak right now.
Again, that should bounce back, hopefully as we get in the second half and all the other long term secular trends. But right now for most of our markets and especially we called out the one page, the deck where we showed the percents, the 1 or 2 key markets. But that's where like, okay, we serve everything. But if you're PVC, hey, it's utility and residential and they're just not sub developments being built at this stage. Obviously, multifamily home is down.
So the specific markets that drive us close are much quieter. I do think there's job delays. I would have to start speculating on how much when the Fed starts cutting interest rates that that should pick up even into next year. But the markets and whether you look at public companies, whether a distributor or others that have commented in our markets, But I can tell you from talking without naming them, these 2 of the top 10 largest distributors that are private are seeing the same thing we're seeing quite frankly, I think worse than we're seeing. So there is a little bit of us using our RSCs and so forth that it's a down market in the market end market in the markets we serve right now.
So and that is driving more price competition, Andy, than we thought that again, I can't control obviously what our competitors do is they try to fill factories or listen to somebody else saying here's the price you need and reacting to that. David did call that out I think in our prepared earnings as we looked at this quarter. To say, hey, if the markets are weaker and they are and as obviously it's a crystal ball, but as we go into next quarter, I'd rather get out in front of it now and pick numbers that obviously it's a forecast, but we expect to hit or exceed probably like every quarter and then just focus on our fundamentals, which I'm absolutely so convinced of our people and the long term strategies.
Andy Kaplowitz, Analyst, Citigroup: Bill, one just one more quick one for me. You mentioned increased import pressure in steel conduit. Can you give us a little more perspective on how much of an impact that is having on the business? We know metal conduit is 20% of your business, but since you called it out, is that having an even bigger impact on your business than that? And I think you are seeing increased competition within core PVC, but is it really the steel stuff that hits you more this quarter?
Bill Waltz, President and CEO, Atkore: Yes, Andy, you did. That's where again, I assume every company has been trying to be transparent. But as we go from our fiscal Q3 to Q4, I don't want to rank, but I'll just say it's in the top two of challenges. In the following way, just to give more color here. There's always almost for every product when customers ask, is there an import?
Well, yes, there's a little bit of like cable, I'm making up a number, but 1% or something coming from Canada. Steel Conduit had been that way and it's grown over 10 years or so from 3% to 5% now to quite frankly somewhere around 20%. And there still is a preference for made in the USA, the quality of the products, everything else, we're going to electrical contractors here that appreciate our brands and want to support American Made. But it's grown to the point that whether I moved first or my domestic competitors have moved to the point that you just can't tolerate a 15% price decline in that product line. And these are all rough numbers.
It's on the quote job. So as we factor that back into our business here to respond, at some point you can ignore 5% market share. You can't at some point you just can't ignore competition coming in and undercutting the market. Appreciate the color. So, following and answer Yes.
Thank you, sir.
Andy Kaplowitz, Analyst, Citigroup: Thanks, guys.
Bill Waltz, President and CEO, Atkore: Thanks, Andy.
Mark, Conference Operator: Your next question comes from the line of David Tarantino with KeyBanc Capital Markets. David, your line is now open.
David Tarantino, Analyst, KeyBanc Capital Markets: Hey, good morning, everyone.
Bill Waltz, President and CEO, Atkore: Good morning, David. Maybe just
David Tarantino, Analyst, KeyBanc Capital Markets: to start out to put a little bit of finer point on the price normalization, can you give us some color on kind of the incremental $50,000,000 of headwind in the outlook? Just kind of how you think the breakdown is by the incremental headwinds, like how much is kind of the import headwind versus incremental PVCs and HDPE pressures?
Bill Waltz, President and CEO, Atkore: Yes. So I'll try to and then David can give me more color or whatever or ask more color. But I do think it's probably split. If I had to like credo it, I'd give a little bit more to metal conduit that Andy just asked about. I mean, and that is a it's a trend that I mentioned to Andy that it's not like these guys came out of nowhere, but it's just the reflection even in last quarter, the guy in, hey, we have to start reacting to this and we are and our customers see it.
So that's probably first. Then it's probably PVC and HDP. Again, I want to emphasize a little bit beyond, is there other products dropping 5% like year over year? Yes. But there's also products going up 5%.
So, almost a long term normalization. A bunch of our products do move around small sine wave and when I referenced almost David's comment from last quarter, volumes pick up into next year. It's all a lot of people expect. I'm assuming a stronger market and we actually could get price. But right now going into the year or even next fiscal year in this quarter, it's tougher than we expected at the moment.
David Tarantino, Analyst, KeyBanc Capital Markets: Okay, great. Thank you. And then maybe could you give us an update on the ramp of the Solar Torque 2 facility? How has it progressed versus the expectations from last quarter? I know it's early, but maybe could you frame how you're thinking about this into next year?
Bill Waltz, President and CEO, Atkore: Yes. It's positive with I'll do this and that's the challenge first. The only challenge which is not a new thing is we expected to be here pick a time 9 months ago. But from the standpoint of and don't hold exact what quarter and so forth, but we're ramping up at double digit percent. Our customers are still out there.
I think some of the customers, I don't want to speak for them, have a little bit of challenges on getting utility hook up with solar and stuff like that. But there's enough opportunity
Matt Klein, Vice President of Treasury and Investor Relations, Atkore: out there. We're watching those things, but there's enough
Bill Waltz, President and CEO, Atkore: opportunity for us that, before. But at this stage, we're ramping up in every before, but at this stage, we're ramping up in every facet as expected. And then David to your kind of follow on question is, our David CFO reference as we look into next year, yes, we may have pricing headwinds, but we do have a lot of these growth initiatives. I should add, it's not in the prepared remarks, but at least $50,000,000 if not more of incremental EBITDA going into next year. So, yes, we are on track out of the team and obviously there's still pressure to continue to pick up on that number.
But things are going well if I look at quarter over quarter for the last couple of quarters.
David Tarantino, Analyst, KeyBanc Capital Markets: Okay, great. Thank you.
David Johnson, Chief Financial Officer, Atkore: Thank you, David. Thank you, David.
Mark, Conference Operator: Your next question comes from the line of Alex Rygiel with B. Riley. Alex, your line is now open.
Alex Rygiel, Analyst, B. Riley: Thank you. Good morning. You referenced a softness in the telecom and utility market. I suspect that was year over year. But my question is, how are these markets performing sequentially?
David Johnson, Chief Financial Officer, Atkore: Really flat, actually, Alex. I mean, minor little bits of increasing in quotes, which I think maybe is a precursor for better volume kind of going into maybe next quarter, next year. But as we sit here today, I would say not a meaningful sequential increase.
Bill Waltz, President and CEO, Atkore: And then I don't know Alex, David just answered for us and asked what's most important. But just to triangulate it without obviously any other companies, there are distributors and so forth that mentioned their weakness in this market. If you looked at Dodge, they're predicting utility be down 6% this year. So, yes, I think I don't think anyone's going to question the long term secular trend of
David Tarantino, Analyst, KeyBanc Capital Markets: electrical and having utilities and solar
Bill Waltz, President and CEO, Atkore: and everything electrical and having utilities and solar and everything else, it just right. Right now and as we go into next fiscal year, it's a little bit more challenging than what we probably expected a year ago.
Andy Kaplowitz, Analyst, Citigroup: And then can you talk a
Alex Rygiel, Analyst, B. Riley: bit about inventory on hand or in the channel and where that stands? And is some of the price weakness due to excessive inventories at all sort of demand driven based upon competition and imports?
Bill Waltz, President and CEO, Atkore: I'll start. Here's where I would say the following. Now I'll almost tie back to utilities because one of it again, well, 2 of the top largest customers. Just We're talking to customers all the time is with specifically utility, they actually figure again lots of things hooking up to the grid, weather putting in trenches that contractors are backed up and that's what's even slowing down distributors. But overall, my sense is that if you were to look back, let's say 2 or 3 years ago or whenever normal was before COVID, the actual inventories out there are about in line.
Now that said, with pricing pressure, no distributors would like the worst thing they can do is buy and devalue stock. They just don't make enough money to have that happen. So I think distributors in general are trying to wait and even cut below normal level. So I won't say there's extra inventory, but I would say if you could round off a week right now, distributors and again, we're delivering well, but frankly so is our competition delivering well that you just don't need to have quite the level of stock.
David Johnson, Chief Financial Officer, Atkore: And Alex, I would say that going into the quarter, I think everyone felt like their inventory levels were somewhat normal under their sun. But I just feel like their activity going out the door is less than they expected. And therefore, I do think that they have a little bit more inventory than they did. So I think they felt like they were kind of in the middle of that parade out and they probably want to leak a little bit of that out if that makes sense.
Bill Waltz, President and CEO, Atkore: Helpful. Thank you. Thanks, Alex.
Mark, Conference Operator: Your next question comes from the line of Deane Dray with RBC. Dean, your line is now open.
Alex Rygiel, Analyst, B. Riley: Thank you. Good morning, everyone. I also add my congrats to David. That sounds like a fabulous opportunity. And then congrats to John and James.
Bill Waltz, President and CEO, Atkore: Thank you, Dean. Thanks, Dean. Thank you.
Alex Rygiel, Analyst, B. Riley: I want to circle back on the situation on the Mexican steel conduit. I guess that constitutes dumping. And just to make sure I heard the number correctly, Bill, you said it's now represents 20% of the market. Is that the right number? And if the Yes, it's the direction.
Okay. But if the tariffs were enforced, what would that number be?
Bill Waltz, President and CEO, Atkore: So, let me go without getting too geeky here because I could go for hours on this one. It's around 20%. Obviously, you can go up from there down. Is it Mexico versus a little from some other country, all those other factors? In 2 minutes or less, what happened when NAFTA switched to USMC, they took down the 25 percent tariff that was part of NAFTA and they agreed to not have qualm equivalent or any surging occurring.
And over since that was done and they picked baseline of 2015 to 2017, we're up around and again depends on what year I think 7 fold since then. So it's grown 50% a year, but it's compounded to the point of being significant. So if you go forward, Dean, and say that hypothetically, the current administration or a different administration was to implement back to what USMCA requires, already written into contracts or to put a tariff in, that number could drop substantially. And that's why it's hard to gauge next year with pricing. We don't have that built into our deal where we did mention the $650,000,000 So again, that's where in November we'll have a little bit more clairvoyancy on administrations, interest rates and things like that.
It's a little tougher to predict forecast right now.
Alex Rygiel, Analyst, B. Riley: Got it. But still, I know you've got a lot of moving parts between PVC and the steel situation. The previous expectation was price normalization might be reached towards the end of calendar 2024 that now feels like that's being pushed out. Based upon what you know today, where do you see the best case price normalization that would happen? Look, I know it's a fair question with the Mexico.
Where and from what you know today, where would normalization happen?
Bill Waltz, President and CEO, Atkore: Here's how I would answer, Dean. First, the caveat, but then I'll get to your question is, I and David have mentioned for 6 years now on calls, we live in a world with 2 weeks or less backlog and pricing changes every day. But with the fine print there of a forecast, one of the comments I made in my prepared remarks is that we think next year would be the baseline. So to say could some pricing drag on, up, down, maybe. But I think as you look forward and say organic growth, one of the things we didn't call out as much as productivity that's actually strong, higher than budgets.
Even with slightly more inflation, we have strong net productivity. And you look at our growth initiatives that will as the gentleman earlier, David asked like about Hobart that are kicking in place and our global mega projects that I think next year is the baseline. So I'm not going to put a pin in pricing, but I think it will become de minimis enough that the other things will drive ahead and we get back on track of growing earnings, which obviously will be a strong reflection point for our stock that goes with every other fundamental of our company.
Alex Rygiel, Analyst, B. Riley: All right. Appreciate that. And just last question. What do you have any comments on some of the noise we're hearing about pricing and PVC? I hate to use that word collusion, but really trying to figure out, is this can this be substantiated?
Maybe if you could just start with your comments there.
Bill Waltz, President and CEO, Atkore: Yes. So I'm going to tell you first is if you saw some of this stuff going around, it's from a short seller, says they're short seller. And Dean, to your question you've asked over the decade, I am so proud of our internal pricing mechanisms, weekly calls, scatter diagrams, apps that tell us pricing that we drive our business and I'm going to claim that report is unsubstantiated from the conclusions it tries to make.
Alex Rygiel, Analyst, B. Riley: We would agree. Thank you.
Bill Waltz, President and CEO, Atkore: Thanks, Dean. Thanks, Dean.
Mark, Conference Operator: Your next question comes from the line of Chris Moore with CJS Securities. Chris, your line is now open.
Dean Dray, Analyst, RBC: Hey, good morning and congratulations as well to David. Most been answered, but maybe just one more on pricing. Certainly, seems like on a relative basis since the pandemic began, pricing on PVC has increased more than any other product. Obviously, it's come down significantly. When you look at relative price risk for fiscal 2025, Is it still fair to think that PVC pricing still represents kind of the biggest pricing risk moving forward?
Bill Waltz, President and CEO, Atkore: Yes. I'll give you a little bit more color. But Dan, the answer is yes, Chris. And again, if you go back to COVID time, with supply demand constraints, which drives our business, this has been a constant theme since REACOR existed. All of our products that I can think of all went up in margin.
So did both our competitors and other industries, maybe not as much. But then with PVC, if you go back to around COVID, you also had a hurricane hit and that my timing could be a little off here. But 4, 6 months later, you had the freeze in Texas. So we just had an abnormal thing that therefore allowed more opportunity for someone to say, hey, drop your price, pick at 3%, 5%, try to fill my factory. Then if you're up 10%, there isn't as much opportunity for somebody to try to drop their price.
So long winded reason that's dramatic thing that's happened in PVC. But yes, I do think it's PVC and then we'll see how metal conduit plays out. But at least in this quarter, I think we appropriately scoped that. And to Dean's earlier question or I'm going forward to Dean's mouth, administration's focus on the future on just enforcing a contract that's already been there that quite frankly some of our very large corporate competitor CEOs have called out in their earnings.
David Johnson, Chief Financial Officer, Atkore: And Chris, one other thing to remember during that COVID times, not only was there a supply chain disruption, but there was very strong demand. And for me, I think that's we don't talk enough about the demand aspect of pricing. If we had that type of demand right now, I don't think we'd be talking about pricing like we're talking about today. So I think in that regard, the reason why we would say PVC for next year is probably just more uncertainty around the PVC market for next year as it goes in and affects pricing.
Bill Waltz, President and CEO, Atkore: Yes, David, and I don't have the number in front of me, but just to echo that. And again, everybody, these are public stuff, but to go single family homes, it's an average market if you look at some of the information, but no sub developments are being built. And I'm weighing a number here, but you get back to 1,200,000 a year starts versus 900,000 starts, all this stuff. People unfortunately look at how are they doing on volume, what did they estimate, whoever their bosses and stuff above them. And you start getting the Fed dropping rates and residential picking up, some ifs there, that way we didn't pay fees into a forecaster next year.
But pricing could easily go up. But at this stage, I want to still stay around what we just said at the 6.50 at this stage.
David Johnson, Chief Financial Officer, Atkore: And Chris, one other aspect and Bill referenced this a little bit in his opening comments. When you look at the market right now, kind of the overall construction market, it is made up of large projects becoming a larger piece of the overall activity. And when that happens, 2 things happen. 1, typically the larger projects are a little bit more price competitive to begin with. But when there's not all these other opportunities kind of broad construction activity, it gives you less opportunity to do your pricing by location and so on and so forth.
So I think that element right now we're feeling that in Q3 and going into Q4.
Dean Dray, Analyst, RBC: Extremely helpful guys. And maybe just last one for me. So $650,000,000 is obviously a target, could come up, could come down. Any kind of EBITDA margin range that accompanies that?
Bill Waltz, President and CEO, Atkore: Hey, David, do you want to
David Johnson, Chief Financial Officer, Atkore: I think basically the way that we try to approach the $650,000,000 is we felt like that's kind of the minimum base, Chris, going into next year. So I think that's our viewpoint as we sit right now. I do believe that going into November, we'll know a lot more or the team here will know a lot more going into November with the uncertainties that exist right now. Yes.
Bill Waltz, President and CEO, Atkore: But I think to the margin thing, we focus more on year over year and quarter ex questions that we answered earlier versus trying to do a margin depending on obviously margins somewhat depend on this could help us on what our revenue is and things like steel costs. Again, I want to emphasize, cost is the least factor of things. So market demand, competitor actions and our value prop, but like steel costs are dropping. So one could think our revenue could be down if we make even the same price per ton. But again, Chris, the specifics we'll get into.
David Johnson, Chief Financial Officer, Atkore: So broadly speaking, not too far out of
Bill Waltz, President and CEO, Atkore: the way. No, I'm not just foreshadowing anything, correct.
Dean Dray, Analyst, RBC: Okay. I appreciate that.
David Johnson, Chief Financial Officer, Atkore: I mean, one thing we could mention, I mean, S and I is starting to get up into that mid teens again, which I think is certainly helpful also for the enterprise.
Dean Dray, Analyst, RBC: Got it. I appreciate it. I will leave it there.
Bill Waltz, President and CEO, Atkore: Thank you, Chris.
Mark, Conference Operator: Our final question comes from the line of Chris Dankert with Loop Capital. Chris, your line is now open.
Chris Moore, Analyst, CJS Securities: Hey, thanks. I just echo again congratulations David and thanks for all your help here. I guess, first off and sorry for specifics, but
David Johnson, Chief Financial Officer, Atkore: I guess as far as
Chris Moore, Analyst, CJS Securities: the Hobart ramp goes, any sense that you can give us for kind of what the utilization rate is today? Obviously, you said we're hoping to get there sooner, but are we at 50 percent utilization today and that continues to ramp fully into 25?
Bill Waltz, President and CEO, Atkore: Yes. No, it's higher than that, Chris, without getting into a precise number. And then you got 2 things going. So definitely north of 50%. But I'm plus remind somebody give you a wide range here, but like to use the 70%.
So yes, but I don't want a lot because Chris, there's a little bit with almost like my answer to the Mexico with Dean and so forth is, we get in at this thing called OEE, the account, the fact that preventative maintenance in that number, the account that we're not working starting a 3rd shift, but we're not working 4 shifts, I. E. Around the clock with weekends and SMED event or how quickly change over and so forth. So we're ramping up. It's definitely above your 50% number.
But as we go into next year, there's still growth. Again, not locking numbers, but could we grow 20%, 30%. The answer is absolutely flat volume.
Chris Moore, Analyst, CJS Securities: Got it. That's extremely helpful. Thank you. And then just finally for me, I guess, any update on kind of the bead program funding timing? I know New York and California have finally got some stuff stood up.
Any anecdotal commentary there or kind of how that could impact HDPE volumes into next year?
Bill Waltz, President and CEO, Atkore: Yes. So great question, Chris. All the questions are great, but I can't imagine if we would have went through the sell side questions and not hit that. I think cautious optimism, I'm going to put it, which we've always said in 25, I'm going to put it because it all gets on when, like what's the ramping of the economic success. I'm going to put it more into calendar 2025 than fiscal 2025.
But to your point, 2 states have approved it, other states that are closed, whether it's the people making the fiber optic or one of our very large competitors in that segment, we're all saying the end of this calendar year and so forth. So I think we've been cautiously optimistic in our guide. We're going to expect to see profit pickups from next year. But I will say, it's definitely going to be a ramp through 2025 and 2026.
Chris Moore, Analyst, CJS Securities: Got it. Thanks again so much for the color.
Bill Waltz, President and CEO, Atkore: Yes. Thank you,
Mark, Conference Operator: Chris. This concludes the question and answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.
Bill Waltz, President and CEO, Atkore: We shared today our perspective on several challenges that are currently impacting us and they may continue to impact us in the midterm. Despite these challenges, we have conviction in our people, our strategy and our processes, which are the 3 fundamentals of our business system and enable us to remain resilient and focused on the future. With that, thank you for your support and interest in our company. We look forward to speaking with you during the Q4 call in November. This concludes the call for today.
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