Atkore crash: Was $ATKR a mistake?
Atkore’s share price has been demolished in the last few months, especially in the last weeks. In my last post, I already made some comments on the situation, but I want to dedicate a post to it and go into more detail. I currently own a ~3% Atkore position in my portfolio. We’ll discuss the last earnings, the short report, management changes and integrity, capital allocation and what I’ll do now. Let’s get straight into it.
What happened?
First, the CFO, who had been there for six years, left the company unexpectedly to pursue the CFO role at Corteva, a $36 billion market cap chemicals business. I do not blame him for taking the job because CFO job openings at enterprises of that size are rare and a large step up in his career. Unfortunately, it coincides with the current developments on Atkore. Insiders also have sold many shares this year, but Atkore sadly never was a play with large insider ownership. However, management integrity has been good in the past, with a mindset of underpromising and overdelivering. We can see below that management has far exceeded expectations in all quarters for the last four years, up until this quarter, with a 5% EPS miss.
Earnings
Atkore dropped 12% after reporting Q2 earnings and around 14% after Q3 results. The company did not miss badly, but the problem was the lowered outlook both times.
Q3 saw a massive guide down from the initial FY 24 EPS of ~$17 to $14.4 at the midpoint. Net sales are $400 million lower than initially expected, and EBITDA ~ is $130 million lower. The company also lowered CapEx guidance in favor of higher stock repurchases.
A yellow/red flag for me was when management raised the point of illegal product from Mexico, which is far above negotiated limits, not paying the tariffs and commanding around 20% of market share in steel conduit. This has apparently been happening since 2015-17, when NAFTA switched to USMC and took down the 25% tariff. I find it odd that management only now complains about this point, and it feels like scapegoating. Additionally, they blamed the delay of interest rate cuts and government subsidies (valid points) to justify the lack of demand.
Ready for More?
By becoming a paying subscriber, you can read the rest of this article and all of my writing on businesses, valuations and investing. Don't miss out on the opportunity!
Subscribe now and get 15% off your first year using the code below: