Electrical safety company Atkore (NYSE:ATKR) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 17.1% year on year to $661.6 million. Its non-GAAP profit of $1.63 per share was 4.9% above analysts’ consensus estimates.
Revenue: $661.6 million vs analyst estimates of $675.7 million (17.1% year-on-year decline, 2.1% miss)
Adjusted EPS: $1.63 vs analyst estimates of $1.55 (4.9% beat)
Adjusted EBITDA: $99.15 million vs analyst estimates of $99.41 million (15% margin, in line)
Management lowered its full-year Adjusted EPS guidance to $6.30 at the midpoint, a 24.6% decrease
EBITDA guidance for the full year is $400 million at the midpoint, below analyst estimates of $495.8 million
Operating Margin: 10.3%, down from 22% in the same quarter last year
Free Cash Flow Margin: 5%, down from 14.2% in the same quarter last year
Market Capitalization: $2.77 billion
“Atkore’s first quarter results were in line with the projections for Net sales, Adjusted EBITDA and Adjusted Diluted EPS we presented in November,” said Bill Waltz, Atkore President and Chief Executive Officer.
Company Overview
Protecting the things that power our world, Atkore (NYSE:ATKR) designs and manufactures electrical safety products.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Luckily, Atkore’s sales grew at a solid 9.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
Atkore Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Atkore’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 11.4% over the last two years. Atkore isn’t alone in its struggles as the Electrical Systems industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.
Atkore Year-On-Year Revenue Growth
This quarter, Atkore missed Wall Street’s estimates and reported a rather uninspiring 17.1% year-on-year revenue decline, generating $661.6 million of revenue.
Looking ahead, sell-side analysts expect revenue to decline by 1.8% over the next 12 months. While this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.
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Adjusted Operating Margin
Atkore has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Atkore’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years , highlighting the long-term consistency of its business.
Atkore Trailing 12-Month Operating Margin (GAAP)
In Q4, Atkore generated an operating profit margin of 10.3%, down 11.7 percentage points year on year. Since Atkore’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Atkore’s EPS grew at an astounding 25.5% compounded annual growth rate over the last five years, higher than its 9.9% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
Atkore Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into Atkore’s earnings quality to better understand the drivers of its performance. A five-year view shows that Atkore has repurchased its stock, shrinking its share count by 26.3%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Atkore Diluted Shares Outstanding
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Atkore, its two-year annual EPS declines of 25.6% mark a reversal from its (seemingly) healthy five-year trend. We hope Atkore can return to earnings growth in the future.
In Q4, Atkore reported EPS at $1.63, down from $4.12 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.9%. Over the next 12 months, Wall Street expects Atkore’s full-year EPS of $11.94 to shrink by 27.7%.
Key Takeaways from Atkore’s Q4 Results
It was encouraging to see Atkore beat analysts’ EPS expectations this quarter. On the other hand, its full-year EBITDA guidance missed significantly and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 6.4% to $74.40 immediately after reporting.
Atkore’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
