On Tuesday, RBC Capital maintained its Outperform rating on Atkore International Group Inc . (NYSE:ATKR), with a steady price target of $212.00.
The company's second fiscal quarter of 2024 results were largely in line with expectations, showing a smaller-than-anticipated decline in pricing of 9.5% compared to the predicted 13.9%. However, Atkore's volume decrease of 0.8% fell short of the anticipated 6.3% increase, resulting in revenues of $793 million against the forecasted $813 million. Core revenues dipped by 10.4%, which was more than the 7.6% decline estimated.
Atkore's earnings per share (EPS) came in higher than expected, primarily due to a lower tax rate. The company's adjusted EBITDA margins shrank by 410 basis points to 26.7%, which was still better than the projected 26.1%. Consequently, the decremental margin was -62% compared to the estimated -77%. The free cash flow (FCF) for the quarter remained consistent with the seasonal average at 31%.
Looking forward, Atkore has revised its full-year volume forecast, changing from a previous low double-digit percentage increase to a mid-single-digit to high-single-digit percentage increase. This adjustment reflects ongoing inventory challenges in the telecom sector and a slower-than-expected increase in the production of solar torque tubes at the Hobart facility.
The company has also factored in a $3 million startup expense related to the new facility in this quarter's results.
As a result of these factors, Atkore has reduced its full-year 2024 cash EPS guidance by approximately 3% at the midpoint, which is about 3% below the consensus. The guidance for net sales and adjusted EBITDA margins has also been lowered by approximately 5% each. This marks the first full-year guidance reduction in RBC Capital's coverage during this earnings season.
Additionally, third-quarter guidance for cash EPS is set roughly 11% below consensus, with adjusted EBITDA approximately 16% below expectations.
Despite the lowered guidance, RBC Capital suggests that Atkore's relatively low valuation compared to its electrical industry peers might mitigate the impact of selling pressure on its shares. The company's stock performance before the earnings report had lagged small to mid-cap peers by 190 basis points over the past three weeks, and the stock was trading near the midpoint of its relative price-to-earnings range versus peers.
InvestingPro Insights
Atkore International Group Inc. (NYSE:ATKR) has demonstrated resilience amidst market fluctuations, with a notable performance in its stock price. According to InvestingPro data, Atkore has experienced a significant 36.4% price uptick over the last six months and an impressive 40.87% return over the past year. This robust performance is a testament to the company’s strong fundamentals, as indicated by a P/E ratio of 9.96 for the last twelve months as of Q1 2024, which suggests that the stock is trading at a low earnings multiple compared to its historical average.
InvestingPro Tips highlight that management's aggressive share buybacks could be a sign of confidence in the company's value, while the company's ability to cover interest payments with its cash flows reflects a solid financial position. Additionally, with liquid assets surpassing short-term obligations, Atkore operates with a moderate level of debt, balancing financial flexibility with leverage.
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