Atkore Inc. (ATKR) Earnings Call Transcript & Summary

All right. So I know there'll be some stragglers that will walk in, but maybe we'll get started, keep us on time here. We're very excited to have Atkore with us. We have Bill Waltz, who is the President and CEO; and then we have CFO, David Johnson. Bill joined Atkore in 2013. I think David joined Atkore in August of 2018. And since you guys have joined, the stock has only gone up. So I'm going to turn it over to you, Bill, to maybe give us a brief introduction of the company. Again, for those who don't know it. The company has been around now public for several years, but maybe there are some people in the audience who don't know it as well. So maybe talk about the company a little bit. Some of the competitive advantages, I think investors, some investors that I talk to think of the company selling commoditized products, but you've highlighted a leading position in several categories, so maybe talk about all that.

So great question. Good afternoon, everyone. So Atkore is a company with 2 divisions, electrical products and safety and infrastructure. I would say our products, I hate to say is more on the commodity end, but I would take nothing away from innovation, labor savings, patents and so forth. But probably if there was a secret sauce, it's the fact that we have a suite of products across a whole breadth where most of our competitors have 1 or 2 of those products. So you can either go to 6 or 7 competitors to buy a truckload or you can come to us with one order, one delivery, one invoice, package it all together, quicker delivery, less freight costs, less inventory costs and bundle. And then obviously, as you mentioned, the stock price, that value more focus on customers is absolutely showing through.

Maybe you can give us a little more color on that specialist hospital because like when you became CEO, I thought you guys were already doing that, but it seems like it's sort of really improved in terms of your ability to sort of cross-sell some of the customers, your partnership with the distribution channel.

Yes. I think it's where Dave and I have been together now for 5 years and a great management team, and I've been here for 10. It's an evolution. So I don't want to say there was a spot, but that whole focus on how we bring their products together, how we bundle the products, how we group rebate the products, how we have one sales force. And we have added acquisitions like recently, the HDPE type of that material and conduit, the fiberglass product. So we continue to grow, continue to put these things together, and we really have evolved to more externally growth focus over the last 5 years as paid dividends.

Got it. And maybe I'll just ask you while we're at it, how have you tweaked the Atkore business system because, again, it's, I think, part of your special sauce. Maybe you want to describe it and talk about it.

Yes. David?

Well, I think at the beginning was pretty internally focused when we're in the beginnings of our public life. And now I would say it's just been more externally focused, just how we handle our distribution channel, how we handle those relationships contractors, so on and so forth. I would say that's the biggest innovation is probably the long viewpoint of it.

Got it. That's helpful. So maybe just a little bit in the near term. You reiterated your FY '23 outlook, mid-single digit volume growth you reported 1Q buying in line with that. So there's obviously some concerns out there, like you and I have talked about destock is truly over, higher rates, macro uncertainties. So maybe you can give us a snapshot of what your channel or your distribution partners are telling you and what gives you the confidence that destocking your major markets, including PVC is over?

Yes. I think as a whole, destocking is over for us. Like David mentioned, our whole management team spends our time externally focused on growth. And whether I'm with customers last week in Phoenix, whether we're with our sales agents in Vegas the week before, that overall, people did buy and had extra inventory, but they worked through a lot of that last year. And at this stage, I think we're really optimistic or optimistic as we go into spring for volumes. And you saw it somewhat even in the first quarter, where we had 5% organic growth. And I think as we get in talking later probably on the secular trends and all the different things that will help us grow, we're pretty excited for the future.

And maybe just to that optimism, Bill, like you've got a lot of customers, they have their own significant backlog. So maybe talk about that because, again, we look at you guys as dealing with the channel. But like behind that, obviously, is big customer backlog. So you said you go around and talk to a lot of customers, sort of what are they saying?

One of the thing is Andy, that we look at is there's association of building contractors, a third party that does some surveys of contractor backlog. And right now, if you look at that, it's about 9 months, which is historically pretty high. It's actually pretty close to what it was before COVID. And then we also look at those big other players in the electrical industry that have huge backlogs that we know eventually we will tie into their equipment. So with those 2 data points and then construction employment, which has been going up every single quarter, that is super important, I think, to the construction industry. And obviously, we'll participate in that.

I'd just add to David, so we have the statistical stuff that anyone, any investor can go confirm and then just out in the market, the customers are optimistic. They're focused on partnership. And quite frankly, with some of our products like HDPE, they are more concerned can we keep up with the demand. So that's a pretty reaffirming though.

Yes, that's good. Let me ask you kind of related question. So between 60% and 70% exposure to non-res markets. So I think we all track ABI and Dodge. There's been some softening in sort of the lead indicators, but non-res space overall seems pretty solid. But can you give us a snapshot of what you're seeing across your non-res markets? Again, I know you're going to the channel, but like any color you can give us on data centers, warehouses, office buildings, health care. Those are the sort of major markets, what you're seeing there.

Yes. I'll start there, but David. So yes, I think overall, it's strong. As you mentioned, non-res is slowing down. Oh, let me rephrase that. Single-family home non-res, multi-home is actually growing. Across the gamut, it's going well. And then the nice thing with Atkore with our performance, we're taking a lot of that money and reinvesting both in the sales channel people, technical sales. So I think as we go forward with really strong secular tailwinds, we're well positioned for all of these products, whether that's our new product development, getting in spec, whether it's the one order, one delivery, one invoice, the technology that, that order comes in automatically does through API, it's a good time. But the markets are strong.

So Bill, I think it's a good follow-up question to just ask you in general about the electrification of buildings, right? So when I started covering Atkore, it's like a very interesting company, good systems, all that kind of stuff. But again, maybe a little commoditized, but then all of a sudden, like electrification took off. And to some extent, your earnings took off. Now we're going to talk about pricing a little bit later, but like what do you think in terms of the electrification and buildings impact on your company?

I think it's going to be huge, both short term and especially long term. Like I'm just picking Andy, one random thing, but there are 2 or 3. One, you think about EV chargers, that really hasn't started yet. It doesn't matter what EV charger. What I can guarantee you there will be electrical lines, cable, conduit hooking up to that. So no matter what product gets installed, our products will be carried along with that, all the different infrastructure. For example, people talk about hardening the grid, basically, euphemism for taking electrical lines and putting them underground. So whether it's a fire in California or we're down in Florida here today, hurricanes and so forth. So that's, again, our conduits taking electrical lines and put them underground. So across all the different electrifications, I just think it's really an optimistic time frac or probably the best time frac or to your point, with all the different trends going on right now.

Are there any bigger drivers? Like again, I look at it as horses in a race. So are there any bigger horses or faster horses that you see now impacting your business?

Yes, I'll give 2 or 3, but again, there's just so many, but one is the inflation reduction Atkore, honestly, so much stimulus to go knows part of the different stimulus package, but to put fiber optic lines out to basically everybody's home in the country means a lot of conduit to put those data cable lines in. Our own internal estimates have that market doubling in size over the next 5 years. So that's like a 15% compounded growth rate that literally, the only concerns I think I have are: one, is there enough blue-collar labor to install all those lines? And two, can we actually keep up with the market demand. So that's a nice position to be in. So that's probably one of them. I mentioned bearing electrical lines and so forth being another secular trend there with that. And then probably the third one, I'm switching from our Electrical division to our Safety & Infrastructure division, but there's a lot of focus with different incentives to make all the torque tubes, which are the backbones of solar panels here in the states. So we had already planned 2 years ago to start up a whole production facility around that. We were in the solar market. But perfect timing is that we start that factory up here in the summertime to actually take hold at literally anything made in China with incentives will probably be made here in the state. So again, that's another market poised to double in size very rapidly going forward.

And the fibrotic cable is more of an HDPE application?

That's correct. Yes, because it's a long run. So it could be a little PVC, but basically HDPE.

Okay. Got it. And then on your last earnings call, you mentioned a rebound in metal electrical conduit volumes that you're seeing. I mean is that because demand is improving in certain non-res markets for you? Or was that more of a supply-constrained issue that's now been relieved? And then maybe the same question on PVC markets, like pricing there look like it was dropping still, but how would you define demand for PVC? Obviously, we all know about residential weakness, but there are other applications for PVC and such.

I think when you look at the conduit specifically, we did have some destocking earlier like mid last year, towards the end of last year. So I think right now, we're to a point where we are seeing the real demand in the marketplace. And you will have a little bit of an impact when you start seeing steel costs go up, which they are right now, people want to make sure they're getting ready for that building season, Andy. And so that's why we're starting to see some volume there. I think PVC is very much in balance supply and demand in the marketplace. PVC's probably the one that has a little bit more of an effect with winter and what have you because we do have to put it in the ground. So this isn't not the typical busy season for the PVC market. That should be coming up here in the spring. And so I think we're well positioned. And if you look at the way our year is kind of playing out so far. Q1 actuals and our Q2 guide were pretty similar in nature. So I think embedded in that is a stabilization of pricing over that period of time.

And John, just to your point on PVC, how much does weather matter? Because like if I looked at the home builders and all that kind of stuff, at least their stocks have been up, maybe that's just rates, but like generally, it's been warmer in a lot of the country. Does that matter? Do you see that in your PVC market?

I wouldn't say. So really single-family homes are a fairly minor component of our overall demand profile. In PVC, if you're building a new, say, entire neighborhood, the first thing you do need is the PVC underground. So in that case, I will say we'd see that. But I don't see the warmer -- like if you're in the winter climate, a lot of contractors, they plan their trips whether it's 70 degrees in Green Bay or not.

They're all here with us, right now.

Exactly.

Okay. Got it. And then obviously, another big question for you guys on price, right? So maybe, again, we could just step back and you give us perspective again on how Atkore was able to record $1 billion in price versus cost and related to EBITDA improvement since 2017. We'll start with a simple question.

Yes. I'll please start that I want to frame it in several ways. First off, Underlying Atkore is what we call the Atkore business system. I think a lot of companies talk about having a business system or a process. We truly have a system from how we recruit people to how we price. And that was literally like a 3-year initiative of all the intricacies of how we do it well, and that's what's paying fruition. Then for Atkore, just to frame it, the biggest thing is supply demand. So again, if there's demand out there, you don't want to not -- if you think about this, you have a building and all of a sudden, it's been slowed down because of products that we deliver that are literally 2% or 3% of the cost of building. So if you had to pay 20% or 30% premium to ensure you're getting delivery, getting the value, ease of getting the order and that's the primary driver along with supply demand. The other thing, Andy, that helps us. So that's what was kind of the catalyst, but then is our ability that literally Atkore has a competitive sustainable advantage of one order, one delivery, one invoice. As we continue to do that, David and I have done analysis with our team, for example, that when we package multiple products together, we're getting a high single-digit increase in price compared to what we're even seeing for us selling that same exact product at the same customer, same time a full truckload. And you can imagine any of us as a consumer would you want to just go and buy everything together versus going to 7 stores? And would you pay a premium for that. So I think those things are the primary drivers that we've done really well. We did well before pre-COVID especially with the nuances of different things that happen during COVID. And now it's how do we maintain it, then how do we grow and continue to provide more value as we go forward.

And Bill or David, you guys see no evidence that some of your larger competitors who maybe have a few product lines, but not all the product lines you have, but that they're trying to bundle a little bit more against you?

Nuances Andy. I never want to say absolutely never, but I don't see anybody making PVC conduit or PVC products going into copper or steel. I don't see the people making steel going into copper or that. So within those realms, is somebody making copper wire saying maybe I can do a little bit more cable, but it's rounding of the edges.

Got it. Got it. And maybe just your partnership with the distribution channel, like how has it changed, if at all, over the last few years? And maybe did that also factoring because you were the only ones that were kind of reliable during the Texas freeze.

Yes, I think a couple of things there to what David mentioned at the beginning, and I'll just reecho it to go. One of the things that we have done over the last 5 years with Atkore that's helped with the stock and the value to our customers is become growth-focused, externally focused with our commitment to talent. We actually made an acronym around growth, external and talent to get and double the size of the business, which we have done already. And with that focus, it is all about our mission statement to be the customer's first toys. And I could give you so many examples where the distributor association has picked us as manufacturer of the year. There's 2 buying groups. Abos picked us as manufacturer of the year. Last year electrical sales agents, picked us as manufacturer and engineer. So yes, you're seeing at investors on our stock price, but our customers with that one delivery, one invoice are also seeing the value that we're providing to them. So they can focus on what they do best, which is selling to the electrical contractors, kidding projects, the logistics and let us worry about actually providing the inventory to them.

Got it. And then let me ask you, so then you said 40% of price versus cost improvements that you've had is sustainable. Like how did you come up with that particular number? And what gives you the confidence in that number?

So we actually did kind of product by product, customer by customer, kind of a bottoms up versus trends what we're seeing before COVID and then the dynamics around our competition and what have you and where we saw that. So that's when we came up with that estimate. I will say that the large piece of our rate so far this year was, I think we were actually a little too conservative in that, and that we feel like pricing is a little stronger than what we had thought going into the year. So I think as we go through the rest of the year, we'll probably even have a clearer picture on the future there. But we actually did go through it in a very detailed, very Atkore systematic way of looking at it.

David, so let me ask you on that front. So commodities, we already mentioned steel has bounced off the bottom. Copper has bounced off the bottom. So how much of the sort of [indiscernible] of price versus cost is that combines are just higher than you thought versus you guys are sort of keeping the...

I still feel like we keep saying it, but demand is by far the most important aspect of this because if you have strong demand, which we feel we have across many of our businesses, the opportunity to keep that price were that obviously is much higher. I think it does help whenever you have commodities starting or at least the mentality of commodities starting to increase because you start seeing our competitors actually leading price increases on different occasions which I think, helps the industry in total.

But I just want to -- if you don't mind, double down what David said, if I was to separate at, supply/demand, huge, Atkore's value-add, and by the way, more than just one order, one delivery, one invoice. But our ability to have every product with a BIM model, so electrical contractors can design their building and then tell the distributor, I want Atkore products because it's been designed around that, innovation, we've taken innovation from 2% to 7% or 8% of our products, which kind of mature industries. The least factor, it is a factor is the actual commodity cost itself. That's just isn't what drives us for the industry versus value.

And Andy, I know you know this, but in the electrical business, our pricing is very dynamic. So it's every single day by region, by product and what have you. So we can be very, I would say, agile when it comes to any changes in input costs.

Yes. And David, I guess I'll start with you on this question. Like as you said, you raised your guidance after just 1 quarter. Was the reason mostly or almost all because pricing was a little bit more resilient. And then when you step back, right, you're already up to $16.80 for '23 and you said 18 plus for $$25 million. So what is the raise this year tell you about what you might do in '25?

This will be a good Bill question, by the way. No, basically, it was definitely pricing was holding a little bit firm. I think we're just as comfortable with volume going kind of where we are right now versus going into the year. And then one of the things our M&A is performing very well, too. So we bought 6 companies last year. I think in many cases or in all cases, they're exceeding our plan. So I think that was a basis of kind of where we came out for this year. We are just under $17 right now with the guy. We said 18 and that we did say...

18-plus?

Greater than.

Maybe I just add the plus then.

And so I do think at the end of this year when we typically would do kind of a more formal outlook for the future, we might be adjusting those numbers. So I would just say, in general, we're on track or favorable to where we thought we would be.

Okay. That's helpful. And then since you mentioned M&A, Dave, let me just ask about that. So again, we've talked about HDPE a fair amount already. But maybe elaborate on sort of is HDPE, like the new PVC for you guys? Like how big can you meet that market? And can you update us on the competitive landscape there? Is it similar to PVC and metal where it's pretty consolidated? Or is it more fragmented?

So walking through, I do think that HDPE can be Atkore's next PVC. And then in background for everybody, we've done a lot of acquisitions in PVC over the last 10 years where we had one facility. Now we have 10 and the next biggest brand has 4. And it's a geographical play by the way. You have to be close. These are big bulky products. HDPE very similar. We were not in that industry at all 2 years ago. And now there is one person larger than us, but in the conduit space, we are the second largest player. We're going to continue to look potentially at M&A. We're going to continue to look organically. There's probably more of a tail. So there's still other acquisition targets out there that I think we can bring value. The other thing to realize with this industry is customers are either, there's like 5 large ones that are national or there's 2 buying groups. They want to set up programs with the manufacturer that's nationwide. You don't want to have to set up 6 different suppliers for the same product. So all of a sudden is we buy some of these smaller regional players, we can introduce them, so to speak, to our large relationships, put them in the same rebate program and grow their sales. Obviously, we can save costs from the manufacturing and supply. So it's really synergistic as we continue to buy companies and bring quite frankly, more value to our customers as we do it.

So you already have very significant share for PVC and steel conduit. Do you now have significant share already for HDPE center #2?

Yes, I think so. I mean it may be not quite the same amount, but yes, we're #2 with a tail. So yes.

Okay. And then maybe just broadly, as you focus on M&A going forward, how are you prioritizing your targeted pipeline? You still have a strong balance sheet. Do you want to add scale? You've talked about international occasionally, but it's still 10% of your business. So how do you balance M&A repurchases, U.S. versus international?

Yes. So I think on the following the nice thing in my mind is about any of the 3 primary uses we're using cash for. In other words, organic investments have a great return. Probably second after, and we've ramped that up from $30 million, $40 million to $200 million, which, by the way, helps give us confidence in that 2025 guide because we already know the things that will come on board that will be all incremental to what we're already currently doing. I think M&A is second with that list. And there is a lot of opportunities, both to either at regional places like look at HDPE, and I'm not foreshadowing anything it's a competitor listening or a customer. But to go, we have several facilities now, but we don't have any in the Northeast. So to go, could we acquire an HDPE company in the Northeast and help with the geographical play and so forth? Absolutely. And then there are products, if you will look back 2 years ago, we were not in fiberglass conduit. We were not in HDPE. There is other examples like that, that we can expand our product portfolio. And then at the end of the day, after we've done those 2 things really well, I think we'll continue to buy back stock as the investors can look, we've been pretty aggressive because we're optimistic on Atkore and its future. So not a bad use of capital, no matter what.

What's interesting to me is like it seems in hindsight obvious to move into HDPE as you guys have done, like you've done your job. So why haven't others tried what you've done because it seems very positive for you guys.

One difference with Atkore, if I had to speculate because obviously, I don't know what's going through our competitors' mind. I think most companies in our space define themselves by their manufacturing core competency. And I kind of referenced that earlier ago, if you're a metal manufacturer, you make metal conduit. By the way, you may make infrastructure eye beams for the building, but you make metal stuff. If you're copper, you make copper wire and copper cable. If you're a PVC, you do that, if you're HDPE. So could an HDPE player expand? But to date, I'm not aware of a single other competitor that is in multiple categories, whereas we, Atkore, have enough scale that we have good competency, but we really look at it from an end market and how can we provide value by bringing all these products together under one pricing regime, rebate programs, sales force, technical sales. And obviously, it's a winning proposition and no one else was replicated.

Great. I want to go back to sort of the horses of growth, if you may, because I want to ask you about IIJA, IRA chips. So are you seeing any incremental impact from any of this fiscal stimulus yet? And like you dialing any in your '25 outlook? Like how do you think about that?

I think we've marginally had some of that built into our '25 outlook, but honestly, it wasn't that baked in at that point in time. I would also say, like, right now, we're not really seeing a lot, Andy. I think this is more of a really 2024, '25 kind of thing, except for perhaps that solar torque tube that we talked about. I think the demand here in FY '23 is going to be stronger towards the end of the year because of that particular act. So I think it's more of a 24 and beyond.

Got it. And I think, Bill, you mentioned undergrounding of transition lines. Like how important is that? And maybe talk about -- because I think it's an important point, PVC has become more durable. So like 5, 10 years ago, I don't think you could have used it. for that application. Correct me if I'm wrong. But like anyway, so kind of 2 separate questions.

Yes. So I'll do the second one first, so to speak. I don't know the exact transition here, but definitely over the last, let's say decade or so to move from metal, even there is types that you put zinc on and so forth has transitioned to PVC that's much more accepted. To the point of besides conduit is in water applications with all the infrastructure, where there's ductile iron pipes to go. When you think about flint led poisoning, will that be more PVC? I think time will tell, but there's a lot of demand out there for that. And then to your main part of your question, we're seeing PVC use everywhere from California, is all the electrical fires, the utilities out there are putting them under. Don't quote me, but I want to say it's 10,000 miles of PVC conduit. I definitely know because you could go out to the utilities website. Their projection by year continues to almost go up exponentially. So that's an exciting thing. And then again, I use since we're here in Florida, but whether it's Florida or Louisiana, they're doing a lot of what happens when a hurricane hit. Well why is people stranded, is like electrical lines are down. So a lot of those lines are being put underground, which is mostly PVC and then in some cases, HDPE. So either way, the secular trends out there are just astronomical. And to your earlier question, David answered, then you get all the rest of the stimulus, the CHIPS Act and Inflation Reduction Act. It's pretty exciting for the years to come.

Did these different bills or whatever, like I guess the concern maybe that I would have is that somebody from overseas can come in and try and compete, but it sort of makes it harder. It's more made in America. You talked about the torque tubes. I think that helps you there. Like so maybe how much does shoring help you?

Yes. So I think 3 things. One, there's different incentives like you mentioned with the torque tube. So we'll actually double roughly the amount of torque tubes made in the States because there's such an incentive by the government. There's just no way the economics would work from Asia anymore. But beyond that, I think the reshoring that we've always been a company like very high, like 1% maybe of stuff not made in the states.  But as other people reshore products to states, that's again another secular trend that would help us. And then probably the biggest barrier, again, it's not black and white, but to go overall, just our products are big, they're bulky, it does not make sense economically, to make some product in India, Asia, South America and put it on a freight liner and bring it in. So in the old days, we use to have, the reason we have 10 PVC facilities, for example, you could say, "Well, hey, you bought them, put them all together in one big facility." But freight is such a large thing that it actually makes sense to have a facility within 500 miles of every customer. So if you think about that, I don't want to be taking products from here in Florida and shipping them to Chicago, little alone trying to make them in Argentina or India and ship them overseas.

Got it. So let me ask you, like another part of your sort of growth, which is, you call it the conduits of growth, right, innovation, category expansion. We already talked about M&A. But how important has innovation and category expansion been to your outsized growth? And how important will it be moving forward?

Okay. It was definitely said, I think we mentioned one of the last earnings calls, but if I'll give you some specificity. Again, we have mature products. But we've taken with our investments and kind of our foresight, what was a low single digit, I think 2% maybe 3% new product vitality for growth up to the very high single digits. So we're not at 10% yet, but we're close. And again, those are products that are labor savings. And if anything, again, the biggest concern I have is, are there enough blue-collar workers to go spend all this stimulus and whatever. So the more we can help our customers' customers with new innovations, I think both will save them time. And then it creates pull-through. It's another value-add we can bring to our distributor partners are going, "Hey, contractor wants to buy from Atkore. How can we partner with you?" Streamline the process from BIM models to API that everything just flows naturally It's what all us do because I won't mention the name. But on the consumer side, when you go online and purchase products, you probably don't go to a dozen websites. That is where we envision Atkore coming and it's not happening yet today. It actually is, but not completely. But I think over the next couple of years, we're going to see that fruition. And again, as we mentioned earlier, there's a price premium, an extra 5%, 7% that could be there just to make that so simple for our distributor partners.

Just because you mentioned it a couple of times, Bill, like blue collar workers, are you able to get the people you need? Are you still in the hiring mode?

Well, we're still in the hiring mode. I think we've transitioned from, call it, our shop floor workers because of the automation, we have enough there, where David and I and the management team is how focus is more on the front office, not to go we've lost people. We have an exceptionally low attrition rate. But we're investing so much. So in the guidance that we just rose by $100 million hours, we've added roughly like 100 extra employees. So focused really on that, call it, the 2025 and the $18-plus, and really, in my mind, for David, I and the leadership team, I'm out beyond that. And so what's in 2027, what's in 2028. So just like you mentioned HDPE. For us, it really is now focused on what are those things we can start so that we do continue to have, whether it's the torque tubes, the HDPE, where are the investments there. I would say implicitly, we're not here to reconfirm guidance or anything else, but the management team is saying, what are we focused on? And it's not this quarter. It's 2025 and 2028. You can draw your own conclusions on our confidence.

Yes. Let me ask if the audience has any questions. Any questions from the audience? Anything? Okay. I will continue. Just in terms of capacity additions, you've focused, I think, on the renewable side, a little due to torque tubes talked about. But you're adding, I think, in Dallas, you've had a little bit of Philadelphia. So like what are you doing for your own capacity?

Yes. So I think overall, we have the capacity by driving lean productivity, but specific areas, as you mentioned, a perfect timing for us because we always saw the ability for the solar growth that we were adding to our tubes. Our customers came to those 2 to 3 years ago, had on top of that the inflation Reduction Act and all the tax incentives. But we're also adding regional distribution centers because, again, the more we can have large distribution centers close to our customer base, so we can package these products together and have them deliver the next day, the more we will drive both organic growth, the more we will drive quite frankly, price premium here. So there are investments like that we're doing. And then I would also say HDPE, we talked most about our inorganic, the several acquisitions, but we had partnered or planned in the meantime to actually order extrusion lines. Again, the kind of confidence where I think Atkore and we are, is the fact that we actually bought enough lines, so we didn't even know where we want to place them, but we knew with a year, 2-year lead time to go, we're going to have this M&A. We'll acquire somebody and we're going to have space. And therefore, again, with the market plan to double, we're investing now for those type of things.

Interesting. And so we've talked about renewables a few times, but maybe talk about how impactful renewables as an overall can be in your business. You're obviously increasing the capacity of torque tubes significantly. But give us a perspective on how big the business is now or how big it could be? And do you think it could be a meaningful contributor to our earnings over the next 1 to 2 years?

Yes. So renewables, if you look at our sustainability report, we put some numbers on how big our business is, and that's by and large the torque tube business, but call it, say, like $100 million. So it's not like it's completely where all of a sudden is going to have a 5% growth rate on the entire company. But I think if you could double that size of business, it's a pretty decent size growth over the next, say, 2 to 3 years. I think the other impact that we'll have that's a little bit harder to quantify would be when you have solar fields out there and they need to be connected and what have you, we will participate through distribution on how that obvious connected to the grid.

Got it. I think we do have an audience question.

It's Jeff Gates from Gates Capital Management. I know you stepped up the CapEx a lot in the last couple of years. And I'm just trying to understand how you evaluate the returns on that CapEx spending versus an acquisition?

It's a very good question. I mean, as you saw, we're up to almost $200 million this year. Most of that increase versus where we were, say, in the $50 million, $60 million kind of pre-COVID maybe a little bit bigger now it's the bigger business, was more productivity, a little bit of growth, a little bit of new products. A large piece of that increase is this organic growth, the new plant that we talked about, the Dallas, increasing these lines and what have you. So when we look at that, we're looking at, again, return on our cost of capital, 300 to 500 plus basis points. And then what is the year's payback and how comfortable are we on these investments? I would say maybe a little bit more of a challenge for us is we have a lot of opportunities. We're very fortunate in the fact that we have a lot of competing opportunities for that capital.  And it just so happens right now we're in this growth era. And I do think we'll capitalize on that not only this year but a little bit into next year, too. I don't know, Bill, if you have anything.

Yes, I was going to say so the returns, I think David had with 3, 4 years.

3 years.

But then also the other thing I'd say is we're spending a lot on digital right now. Again, if you look at what you have on the consumer side, it's just not in the infrastructure, like us selling to distributors. So how we can streamline that process, the order flows through API and shipped over night, and you can track it. We actually did just implement where somebody just like your experience with a lot of other products, consumer that you can actually watch on your phone, the truck come down to your delivery site.  So it's those types of things. The more we can make it easy for our electrical contractors and our distributor partners, I think the better the whole society will be.

Other questions from the audience?

I'm trying to build a financial model on your company, and I'm running into a little bit of a problem. And Andy, perhaps you can help me here, too. Is like how do you value a company with, say, 22%, 23% operating margin and this kind of free cash flow and this kind of earnings multiple? So I don't know something is wrong here on, I don't know, multiple or share price or -- I don't know?

Look, I think it's kind of why I ask all these questions around pricing, right, because it's like I think what the market has consistently got wrong, but believe that you would give back more of your pricing that you're giving, faster than you're getting it. And it's simple as that. So in order to have a very low multiple, you have to believe that earnings are going down, not up, right, which is obviously, you're talking about raising the guidance here. But like that's kind of the quintessential question, is there's plenty of people that say to me, well, eventually, because David said it a couple of times, like it is volume dependent. So if volumes were to fall off significantly, then maybe pricing resiliency isn't quite as good as it could be. And maybe that's what the market is afraid of. Is that fair?

I think it's that. I think there are some people who have varying opinions of non-res construction where, I would say, the electrification, all these other mega trends may be a little bit different. I will also say it isn't as easy. If you look at a model of a traditional industrial company or traditional commodity company, we're kind of in between. And so that does make it a little bit more difficult and just give me a growth rate incremental and then you kind of move on your way. So sometimes our EBITDA and our revenue due, I would say, model differently at times depending on what commodities are doing up and down, and that confuses I think, some people when they make the model.

Yes. And my only thing to that really to go, that's why we put the 18 into Andy's point plus EPS, just to put a line in the sand out there 2 years ago to help with modeling. Now you have to believe us that we'll deliver that but hopefully you get a feel of confidence here for what that's worth. And the other thing I would say is for whatever you have model now, just realize for 2 years, we have deployed well over $1 billion, a lot larger than that on both the stock buyback but on these acquisitions that are just starting and things that we've announced and things we haven't announced. So like our own aspiration is we built another Atkore within Atkore within the next 2 to 3 years. So that's why I, lack of a better word sleep well at night.

So just as a follow-up, is like what kind of range can one expect if you say like volume declines, perhaps? I think half year ago, everybody spoke about a recession, but not anymore. But if there would be a recession and volumes would decline. What kind of rate and would you expect to the bottom side of that part?

I really don't know because we just don't see it because we see these 9 months of backlog plus all the stimulus money and all this. So it's really hard for me to get my head around. I will say a lot of it depends on -- in most cases, we have 2 or 3 competitors by-product. So how would they react and what have you. It's a little hard to predict. But I would say, generally speaking, we're in really good industries at this point.

We're already over time. So I'm going to ask you this quick question because I'm asking all the companies this question, so you can give me a quick answer. So what are the top 2 or 3 innovations and structural changes affecting your company or more mega trends affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current disc...

Yes. So I would say, as we discussed, our need of the electric electrification as a whole. I mean there's so many stimulus. But the hardening of the grid so therefore, bearing electrical lines and then the fiber optics run to everybody home is 2. And then one that's more accord that longer term is just this industry still is not at the point that you as a consumer have where you press a button and 400 a.m. the next day, your whole suite of products show up. If we continue down that path over the next 2 to 3 years, it's just a competitive sustainable advantage, and no one else is even focused on.

And the industry is not there yet?

No, not at all. Okay. So our industry still uses faxes for orders.

Even in the medical industry. All right. Thank you very much.