Electrical safety company Atkore (NYSE:ATKR) fell short of analysts' expectations in Q2 CY2024, with revenue down 10.5% year on year to $822.4 million. It made a non-GAAP profit of $3.80 per share, down from its profit of $5.72 per share in the same quarter last year.
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Atkore (ATKR) Q2 CY2024 Highlights:
- Revenue: $822.4 million vs analyst estimates of $830.2 million (small miss)
- EPS (non-GAAP): $3.80 vs analyst expectations of $3.99 (4.9% miss)
- EPS (non-GAAP) guidance for the full year is $14.41 at the midpoint, missing analyst estimates by 13%
- EBITDA guidance for the full year is $777 million at the midpoint, below analyst estimates of $876.8 million
- Gross Margin (GAAP): 34%, down from 38.2% in the same quarter last year
- Adjusted EBITDA Margin: 25.1%, down from 29.4% in the same quarter last year
- Free Cash Flow of $73.08 million, up 26% from the previous quarter
- Market Capitalization: $4.32 billion
“Atkore delivered Adjusted EBITDA margins over 25% on essentially flat volume compared to the prior year,” said Bill Waltz, Atkore President and Chief Executive Officer.
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
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Atkore's 11.7% annualized revenue growth over the last five years was impressive. This shows it expanded quickly, a useful starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Atkore's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.1% 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 seeing lower sales at this time.
This quarter, Atkore missed Wall Street's estimates and reported a rather uninspiring 10.5% year-on-year revenue decline, generating $822.4 million of revenue. Looking ahead, Wall Street expects sales to grow 7.8% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
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 25%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Atkore's annual operating margin rose by 9.3 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Atkore generated an operating profit margin of 20.5%, down 4.8 percentage points year on year. Since Atkore's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its 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 36.7% compounded annual growth rate over the last five years, higher than its 11.7% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Atkore's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Atkore's operating margin declined this quarter but expanded by 9.3 percentage points over the last five years. Its share count also shrank by 21.5%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Atkore, its two-year annual EPS declines of 10.9% show its recent history was to blame for its underperformance over the last five years. We hope Atkore can return to earnings growth in the future.
In Q2, Atkore reported EPS at $3.80, down from $5.72 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Atkore to grow its earnings. Analysts are projecting its EPS of $16.21 in the last year to climb by 5.8% to $17.16.
Key Takeaways from Atkore's Q2 Results
We struggled to find many strong positives in these results. Its EBITDA forecast for the full year missed and its EPS fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Atkore. The stock traded down 5.6% to $111.79 immediately after reporting.
Atkore may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.