Atkore Inc. ($ATKR): An Inflection Point?
A 2014 spinoff from Tyco Int’l, Atkore manufactures electrical conduits, armored cables, distribution boxes, and other electrical equipment for the non-residential construction, electrical grid, and telecom markets. The company is headquartered in Harvey, IL and operates 42 plants and distribution facilities in the U.S. and seven other countries.
The stock rose to $75 since we started buying it in early April. While the forward earnings multiple expanded from 11.5x to 14x since then, the earnings expansion potential is still there.
Atkore’s unit economics are heavily tied to commodity spreads, i.e. the difference between the cost of inputs, including raw steel, copper, polyvinyl chloride (PVC) resin, high-density polyethylene (HDPE), and prices of its finished products. Gross margins have recently normalized to around 25% from the highs around 40% during the pandemic-related supply chain crunch.
The company uses dynamic pricing, whereby rising steel prices almost immediately lead to higher product prices. That said, once commodity prices drop, as has been the case in recent quarters, the company has to adjust pricing as well, which leads to margin contraction. Stiff competition from imported products, especially in lower value PVC pipes, also contributed to the recent margin contraction as ocean freight rates collapsed following the COVID-related run-up.
Atkore’s primary customers are large electrical equipment distributors: Sonepar, Graybar, and Wesco. Atkore also sells to regional distributors, including U.S. Electrical Services and Crescent, and to buying groups such as Affiliated Distributors and IMARK. In 2024, the top ten distributors accounted for 40% of Atkore’s revenues with Sonepar being the only customer accounting for more than 10%.
The company is expecting an upswing in orders in the coming quarters on the back of the rapid build-out of data centers. The demand for high-volume cables and liquid-tight conduits, for example, is growing at double-digit rates with AI clusters requiring massive power density.
Beyond data centers, maintenance and upgrades of the aging U.S. electrical grid should also contribute to volume growth. For example, utilities replace aging steel conduits with Atkore’s corrosion-resistant fiberglass for high-voltage applications and high-density polyethylene (HDPE) options for underground lines.
There are some switching costs. Atkore integrates its products into the Building Information Modeling software (BIM) widely used by architects and project engineers. Once an Atkore part is specced into a digital project blueprint, it is rarely swapped for competitive products. Atkore’s sizable manufacturing and distribution scale also creates barriers to easy entry by newcomers.
Management is known for conservative guidance and aggressive share buybacks. CEO Bill Walz announced his retirement last August to spend more time with family, with the company promoting John Pregenzer, VP of the Electrical business, to the Chief Operating Officer likely to prepare an heir apparent.
The company has aggressively bought back its stock over the past ten years with the share count down roughly 30% since 2021. The hope is that Walz’s replacement continues the buyback policy and executes it opportunistically.
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