Greetings, and welcome to the Atkore International Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. .

It is now my pleasure to introduce your host, Keith Whisenand, Vice President of Investor Relations for Atkore International. Please go ahead, sir. .

Thank you, and good morning, everyone. Welcome to the Atkore International Fiscal 2017 Second Quarter Financial Results Conference Call and Webcast. With me today are John Williamson, our President and CEO; and Jim Mallak, our Vice President and CFO. .

Earlier this morning, we released our financial results for the quarter ended March 31, 2017, along with a supplemental slide presentation. The presentation should be viewed in conjunction with the earnings release, both of which can be found on our website under the Investor Relations section on atkore.com. .

I would like to remind everyone that during this call, we will make projections or forward-looking statements regarding future events or future financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially.

Please refer to our 10-Q for the fiscal 2017 second quarter and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. .

Finally, when we refer to the information relating to a quarter or a year during this call, we are referring to the corresponding fiscal period. Any reference to a year is a full fiscal year, which runs October through September. .

With that, I'll turn it over to John. .

Thanks, Keith, and good morning, everyone. Similar to our last call, I'll open the discussion with a few key takeaways on our results and activities on the quarter and then will turn the call over to Jim, who will discuss our second quarter results in more detail, including commentary on segment performance.

We'll finish prepared comments with what we're seeing in the market and our guidance for the remainder of the year. .

Starting on Slide 2, there are a few key takeaways I'd like to touch on for the quarter. With focus on key fundamentals and despite choppiness in our markets and headwinds such as the solar end market, we were able to deliver EBITDA for the quarter above the midpoint of our guidance.

As we discussed during the Q1 call in February, nonresidential construction activity was soft in our channels. This sluggishness continued throughout most of Q2, which we believe has been driven in part by the uncertainty in the new administration's direction, as well as unusual weather in parts of the country.

However, we still have solid indications of a strong second half, most notably encouraging sentiment in our channel partners and leading indicators in our own business such as PVC conduit market strength as well as a strong backlog in our Unistrut Construction business. .

On a year-over-year basis, our volume performances in the Electrical Raceway and Mechanical Products & Solutions segments were both down. With these mid-year results, we are tightening our full-year guidance range for adjusted EBITDA to $235 million to $245 million and adjusted EPS to $1.55 and $1.65.

We believe we're well-positioned to take advantage of the expected U.S. market improvement with our focus on organic growth initiatives related to innovative product introductions, saving logistic and administrative costs for our customers and progress around ease of doing business with that core. .

For example, we recently announced that 3 new Atkore products were 2017 Product Of The Year category winners in Electrical Construction & Maintenance Magazine for our MC Luminary MultiZone, our Super Kwik-Couple Conduit and our Universal Super Fitting. These products exemplify the forward momentum we have generated around innovation.

This strategic initiative has identified a strong pipeline of more than 60 new product opportunities focusing on labor savings for our customers. .

We also continue to strengthen our ability to serve customers through initiatives that make it easier to do business with Atkore. During Q2, we introduced an enhanced agent portal that provides faster response times, improved order accuracy and communication through the entire order flow and value chain process. .

Additionally, we just launched an 18-month, $10 million project that establishes an integrated system for order management, advanced warehouse management, finished goods inventory management and accounts receivables.

When completed, this best-in-class system will help us better leverage our product portfolio with customers and drive even greater internal efficiencies. .

Productivity improvements like these previously mentioned always remain at the forefront of our business. We rely on a systematic approach to managing our business with the Atkore Business System, which focuses on strong interactions among our people, our strategy and our processes. .

As we've highlighted for you in the past, we continue to use standard work and processes to address raw material cost changes in relation to our sales pricing by passing through those increases, and we see upside the pricing once volumes increase with the spring and summer construction season. .

Additionally, we deploy Lean Daily Management to drive traction in other areas of our business, such as targeting conversion cost and freight reduction initiatives. .

It's been this type of capability building that has contributed to Atkore's strong balance sheet and cash flow profile, which has enabled us to pay down debt and also affords us the ability to focus on our mergers and acquisition strategy. M&A activity is heating up, with clear line of sight to closing as many as 6 in the remaining half of our year. .

To sum up the second quarter, our value creation strategy remains on track, with our performance reinforcing that Atkore's team culture and business system is positioned to deliver. .

With that, I'll turn the call over to Jim, who will walk us through our second quarter financials in more detail. .

Thanks, John, and good morning to everyone. .

Continuing to our consolidated Q2 results on Slide 3. Total net sales were $373 million, up 6% year-over-year from $353 million. Increasing average selling prices, which reflect the pass-through of material cost inflation, and our focus on selling higher-value products favorably impacted revenues by 9% year-over-year.

As a reminder, the majority of our customers' transactions are priced to the current spot rates at the time of the order. As material input prices increase, we are generally able to pass through those increases and higher pricing during a 45- to 60-day time span. .

Net volume unfavorably impacted sales by 3%. This decline in volume was almost entirely due to the impact of the high solar comparison created by the expected expiration and subsequent extension of the federal tax credit in prior-year results.

Our other markets were flat on average, with strength in our international locations and construction services offsetting the small decline seen in the recovering nonresidential construction markets. .

As you think about some of the external metrics for our key input costs for the quarter, steel was up 50% year-over-year versus the second quarter of 2016 and up 16% sequentially versus the first quarter of 2017. Copper was up 26% versus the second quarter of 2016 and up 10% sequentially versus the first quarter of 2017.

And PVC resin was up 9% versus the second quarter of 2016 and down 4% sequentially versus the first quarter of 2017. We were successful in passing these increases on to our customers. And as we do so, net sales and cost of goods sold increase in equal amounts, unfavorably impacting the resulting margin percentages. .

Both gross and adjusted EBITDA margin measures show a year-over-year improvement of 30 to 40 basis points if the impact of commodity increases are removed from the net sales and cost of goods sold. .

Gross profit was $88 million for the second quarter, down 4% or $3.5 million compared to the same period in 2016.

The decline in gross profit was primarily due to lower volumes and price in our mechanical pipe product lines from the high solar comparison in 2016 but was also driven by an unfavorable impact from the noncash lower-of-cost-or-market adjustment to inventory.

These declines were partially offset by productivity savings in manufacturing, freight and warehousing costs, as well as our ability to move our pricing to cover material cost changes. .

Adjusted EBITDA, which we think is a better measure of the profitability of our core operations, was slightly down versus last year at $56 million. As we mentioned on last quarter's call, the year-over-year solar impact was approximately $5 million in both the first and second quarters of 2017. .

Our net income on a GAAP basis was $19 million, up $5 million versus the second quarter of 2016, and adjusted net income was $23 million, up $4 million versus the second quarter of 2016. We had 2 unusual and nonrecurring items in the quarter. .

First, the slow bureaucratic process to transfer title on the 2012 sale of our minority interest in our JV in Saudi Arabia was concluded in the quarter and recorded a gain on the transaction of $5.8 million. .

Second, we booked a contingent liability of $7.5 million on an unexpected scope ruling received in March from the Department of Commerce relating to the import of steel conduit fittings between November of 2014 and March 2017 by a business we acquired in 2014. .

Although we disagree with the ruling and we are appealing, these products represent a small percentage of our annual revenue and EBITDA, and that business has been declining over the past few years. If the ruling stands, the remaining 2017 impact of $500,000 is already built into our full-year guidance. .

Finally, adjusted EPS was $0.35 compared to $0.31 in the prior year. .

Next, I'll walk through our segment results in more detail. On Slide 4, you will see that net sales for our Electrical Raceway segment increased about 9% to $251 million. Higher average selling prices, driven by passing through material cost changes to customers, and higher value products had a favorable impact to revenue of 10%.

And although momentum is building in the industry compared to what we saw in the first quarter, volume was down 2% year-over-year. .

Adjusted EBITDA was $45 million, up $3 million or 6% as compared to last year. Adjusted EBITDA margin decreased 30 basis points, driven by the mathematical impact of net sales and cost of goods sold increasing in equal amounts as we passed material increases on to our customers. .

Moving on to our Mechanical Products & Solutions segment on Slide 5. Reported net sales in the quarter was about flat at $122 million. Total volume declined by 5%, driven almost entirely by a decline in our mechanical pipe products due to solar.

Higher average selling prices favorably impacted sales by 7% and were offset by foreign currency and lower freight billings of 2%. Adjusted EBITDA of $17 million declined by 23% as compared to the same period last year but was flat with the first quarter. .

Turning to our balance sheet and cash flow on Slide 6. Cash and cash equivalents at the end of the quarter was $78 million. Year-to-date, CapEx totaled $8 million, net cash flow from operating activities was $25 million and net debt decreased $15 million to $415 million. .

Our leverage, which we define as net debt to the trailing 12-month adjusted EBITDA, was 1.8x. .

So we continue to maintain a very strong balance sheet with significant liquidity to fund our strategy of accretive M&A. .

Now I'll turn the call back to John for comments on the market and our outlook. .

Thanks, Jim. Moving to what we see in the market, the 3 big markets that drive our business are nonresidential construction, general industrial and residential construction. Nonres has the biggest influence and it impacts both of our segments.

Although the nonresidential construction activity improved from Q1, it did not accelerate at the end of Q2 in our channels, as many had predicted. However, strong feedback from our channel partners and customers and the strength we saw in our early cycle products like PVC conduit at the end of Q2 gives us confidence that the market is strengthening. .

That favorable sentiment seems to be backed up by data from both Dodge and the Architecture Billings Index, but across our various product lines, we're still seeing a relatively choppy picture. Keep in mind that Atkore revenue typically lags a nonres construction start by 6 to 9 months. .

Moving to the industrial market. They continue to be soft, but excluding the impact of the solar headwinds, we've seen improvements compared to the second half of 2016.

With early market growth indicators we're seeing, productivity improvements underway and effects from growth initiatives, our prior Q4 forecast remains unchanged, which points to everything adding up to a strong exit to the year.

However, although we're almost halfway through Q3 and momentum is building, we don't see significant support from market volume yet. We don't plan on giving quarterly guidance on a regular basis but we'll give more detail on our updated expectations for the third quarter. .

For the Electrical Raceway segment, we expect year-over-year volume to be up in the low single digits and revenue up in the high single digits. .

For our MP&S segment, we expect year-over-year volume to be about flat and revenue to be up in the mid-single digits. In total, we expect revenue to be up high single digits and adjusted EBITDA in the range of $55 million to $65 million. .

Moving to our view on the full year, we expect the construction markets will exit the year at low to mid-single-digit growth. But with slower pace through Q2 -- with the slower pace through Q2, the full year will be about flat. We expect to see continued improvements in the industrial markets. These inputs drive our full-year outlook on Slide 7. .

For the Electrical Raceway segment, we expect volume to be about flat for the year with momentum in the back half offsetting the soft year-to-date trend; adjusted EBITDA to be in the range of $182 million to $190 million.

For our MP&S segment, we expect volume to come in flat to slightly down for the year, as our growth initiatives and value-added applications come close to offsetting headwinds from solar. And we expect adjusted EBITDA to be between $80 million and $85 million for the segment. .

In total, we expect adjusted EBITDA in the range of $235 million to $245 million and our adjusted EPS range to be between $1.55 and $1.65. We now expect CapEx to be in the range of $25 million to $28 million for the year. And a few key points to make on our full-year guidance. .

First, none of these numbers include M&A, and we have a very active pipeline backed by a very strong balance sheet to support that effort. .

Second, when comparing 2017 to 2016, keep in mind that you need to adjust the view of 2016 results to remove the effect of the 53rd week. And the tailwinds we saw from a very favorable solar market in the first part of 2016, which added as much as $15 million in EBITDA, will not repeat in 2017. .

Third, we have a strong culture and process around countermeasures, driving out costs in the face of market challenges as required. .

And fourth, we continue to strengthen our talent by investing in technical and product management capabilities to support our focus on growth through innovative product introductions and progress around ease of doing business with Atkore. .

In summary, on Slide 8, I am pleased with the progress we made in the second quarter despite slower-than-expected external market activity.

We focus on making improvements in the business through new product introductions, progress around ease of doing business with Atkore and continued manufacturing productivity initiatives, all of which will pay off well into the future. .

Overall, our team, our culture and the Atkore business system continues to position Atkore to take advantage of expected market improvements by the end of the fiscal year and beyond. I want to acknowledge our employees, who focus each and every day on delivering greater value for our customers and our shareholders. .

Operator, please open the lines for questions. .

[Operator Instructions] Our first question comes from Andrew Kaplowitz with Citigroup. .

This is [ Seth Gursky ] on for Andy Kaplowitz. You talked about nonres -- Electrical Raceway markets coming in about flat for the second quarter last quarter, and they came in a little bit weaker, at about negative 2%.

So can you talk about your confidence in terms of getting to the updated guidance of negative 2% to 2% for the year? Are things getting pushed out more than you expected? And when do you think we can start to see an inflection in nonres markets?.

Yes. It's the most critical question, of course. What gives us confidence is our touchpoints in the market and a couple leading indicators that underpin the broader, longer range indicators.

And speaking with reps and -- those are our agents and distributors and then contractors specifically, you really -- you get a good picture of what they feel the summer construction season is going to be. This is -- this ties to bidding activity.

This ties to the specificity around bidding activity -- are people looking for budgetary quotes or are they talking more about when it's going to be delivered and where it's going to be delivered? And we think it's pointing in the right direction. .

Basically, we also see in our own business things that go in a little bit earlier in the cycle, such as PVC conduit or certain sizes of steel conduit that go in a little bit earlier in the construction cycle that seem to be doing very well.

And we think it's a good indicator and has in the past been a good indicator of how our other product lines will fill out over the construction season. .

Now I think the right question is, we kind of used those same methods last quarter and we were wrong. We just didn't have the momentum that we saw. It's a little bit -- a little bit of a mystery to us. We think that there's some lack of momentum to some extent as the new administration finds its momentum and its direction.

And we did see unusual weather in certain parts of the country that are usually stronger earlier in the spring, later in the winter, which is the warmer climates, such as California and parts of the South, getting a lot of rain and flooded construction sites. .

We did see -- and this being proven out by our construction business, which is a small specialty architecture subcontractor under the Unistrut Construction name, we did see in the second quarter push-outs of projects that were underway. And some of these were larger data center type. Some of these were health care facilities.

Just a little bit of push-out. .

And so I think where we missed, we missed in just what I would call the momentum. We think the activity is there. It just didn't come together. We do believe that, and we see this in other businesses we talk to, we do believe it'll come together for a strong construction season. .

Got it. That's very helpful. And then, on the margin side, I think you guys talked about 30 to 40 basis points of margin improvement excluding the commodity impacts, which is definitely good to see. And it sounds like you're still taking a lot of actions from a productivity standpoint to drive further margin improvement.

So can you talk about the opportunity for margin improvement excluding the commodity impact as we go forward in 2017 and into 2018? How much more upside do you think you have from productivity initiatives?.

Yes, I think productivity -- we target every year in the $12 million to $15 million range. And we are on track for that in this year.

And that would be, I think, the best way to see that would be a combination of manufacturing productivity, SG&A productivity and a little bit of -- we put into that number some of our innovation that drives some margin and products. .

When we talk about the road to get us to our 20% margin, we firmly believe that 50 bps a year of margin improvement will come from productivity. Now that assumes a constant sales price, and as that fluctuates, that changes. But I think John's right, is that we're in the low to mid-teens per year on annual productivity improvements. .

Yes. And just some clarity around the first part of your question and statement. We are passing 100% of the margin -- of the material, the raw material inflation on to customers in pricing. And then the impact to margin is just the math of the numerator and denominator going up the same amount.

If you exclude the impact of that pass-through, which is 100% of our inflation, we're getting it all passed through. If you exclude that impact, we're 30 to 40 basis points up in margin improvement based on just improvements to the business. .

Our next question comes from Julian Mitchell with Crédit Suisse. .

This is actually Lee Sandquist on for Julian. The color was great in terms of how demand trended versus expectations at the end of Q2.

Any insight into how demand has progressed through April?.

Yes, at a clip that is improving with what you should -- what you would expect in this type of the construction season.

We find that in general the -- and you saw this in the quarter numbers, our Electrical Raceway business is as expected and doing very well, and then the Mechanical Products & Solutions, which is a combination of a number of businesses, including a much stronger industrial component, is pretty choppy. .

So on aggregate, good signs. We're seeing most of what we're expecting to see with a little bit of choppiness that's gotten us out of the box. A little slower in April than we'd like to. But feeling pretty good, especially about the Electrical Raceway business. .

Understood. And moving to capital allocation.

Can you provide a little bit more color on the M&A pipeline? Are the 6 deals you're close to signing of similar size? And if so, is the goal to bring in more than one target?.

Yes, we have -- we will, as definitively as I can say, will -- in M&A, we will close some deals in the third quarter. And there's also very strong, very strong activity that's closer to completion that makes it looks like we can have a pretty good rest of the year. .

close to our core, accretive, strategic. And actually we'll be really happy to get these assets. Towards the end of the year, there's some bigger things we're working on. I would say, in general, the stuff we're closer on is more toward the midpoint and smaller than the average in the pipeline.

But all really exciting and accretive strategic opportunities for us. .

We've had a target of $100 million to $150 million a year in acquisitions. And I think the aggregate of the -- what's in the pipeline that will close this year match up to that target. .

Our next question comes from Rich Kwas with Wells Fargo. .

Wanted to ask about the construction piece. So John, you talked about some projects may be pushed, some slower activity. How would you segment the brand new activity versus the maintenance piece of your business? I know roughly 30% of your business is tied to kind of MROish type stuff.

It sounds like -- I think you made a reference industrial was okay, not great, but wanted to see if we could get some additional color around that?.

Yes. So starting first with what we call MRO, maintenance, repair -- or MR&R, maintenance, repair and renovation, versus new, generally what we've been seeing is that's a good strong 1/4 to 1/3 of our business just always and driven a lot by LED lighting upgrades.

We've seen a lot of pull through of electrical activity in general and certainly of Electrical Raceway products. So the premise being that LED pays for the renovation and then a lot of other work gets pulled through at the same time. And that's been proven out to be pretty strong for the electrical industry. .

I think we may have seen that in some other companies reporting recently, but that renovation, or that LED-driven renovation seemed to ebb a little bit. And we still think it's very strong and it's growing and it's still pulling through work, but it ebbs a little bit, and we didn't get as much of that in the second quarter as we expected. .

On the new starts, I think the long term -- the longer term, the Architecture Billings Index, the Forward Momentum Indexes talk pretty favorably for new projects. But those are the things that are starting a little bit later or progressing a little bit slower than we thought. And it's anybody's guess. I've heard 100 different theories on why that is.

The fact is that is just a little slower. .

So maintenance, repair, renovations seem to have taken a little bit of a slowdown in the second quarter. But what we're hearing is that there's a lot of bidding activity around that and that, that's still a strong sector for many quarters. And we expect MR&R to be pretty strong.

Long term, certainly well into like the next 6 quarters, we see the new stuff being really strong, just coming together a little bit slower and, at this time, progressing a little bit slower once it's been started. .

This is a follow-up on that. On the fixtures, some of the other companies have talked about a flattish market for LED fixture growth this year.

Do you have that embedded into your outlook? I realize you're on a September year-end, but what kind of conservatism have you factored in on the lighting piece as relates to MRR?.

Yes, we expect it to be -- it's been pretty heady years for LED over the last couple years. But we think there -- where our products tie in really well would be just in the pull through, the general pull through. So you're doing a lot of LED renovation and you're just doing a lot of other electrical work at the same time.

And then specifically, our MC Luminary Cable product lines, MC Luminary and then the Multi -- the Luminary MultiZone really tied very, very strongly to LED fixtures. And what we're expecting there is that -- we're expecting, if not quite what we saw last year, close to what we saw last year in growth on that portion of the market. .

Okay. And then lastly, on just the project push, you talked about the next 6 quarters looking really strong, not getting off to quite as good a start as you expected. Is there a labor issue out there that you're hearing from contractors and whatnot? I mean, some other companies have talked about labor as being a limiting factor.

Are you hearing something similar or is there -- is it just kind of weather, permitting, that sort of stuff, administration? How would you characterize it?.

Yes, labor is in the top 5 of reasons people will cite. I'll be honest with you, Rich. When I try to kind of drive down to a specific project that was delayed a specific amount of time for not having labor, it gets a little bit sketchy.

But thematically, that's something that contractors do talk about, is the availability of qualified electricians basically. So I think it's real hard for me to quantify. .

[Operator Instructions] Our next question comes from Deane Dray with RBC Capital Markets. .

This is [ Jeff Reeve ] on for Deane Dray. I was hoping you could talk a little bit more about the nonresi weakness that you're seeing.

Are there any specific verticals that you're finding are a little more challenging or maybe a little more encouraging in the near term?.

Yes, there are a couple that are a little bit more challenging, is probably the best place to start that. I think industrial -- or infrastructure in general and manufacturing continue to be a little bit of drags. I think a lot of people thought with the administration change that infrastructure would pick up.

And I think there was a lot of bidding and quoting activity around that. But that just hasn't come together that well. So there's no push on infrastructure. .

You know, surprisingly, things such as office and commercial, lodging and even retail seem to be doing pretty well. And I think to some degree that speaks to a more general confidence in the economy that certainly was in place in late November but I think maybe tempering a little bit as Washington finds its footing. .

All right. A follow-up.

There was no infrastructure spending from Washington built into your guidance or outlook?.

No, there's no -- if I could call it stimulus or kind of a boost to it. There isn't. It's -- we don't expect to get a boost from that. .

Okay. And then just lastly, I believe at the end of your fiscal fourth quarter you kind of set out your views for nonresi, industrial and residential.

I think it was low to mid-single digits nonresi; sluggish to flat in industrial; and then up low to mid-single digits in residential? Are you still kind of feeling the same way now that we're halfway through the year?.

Yes, we are. Certainly Q2 was slower than we thought. And so we've adjusted the full year based on that. But for the rest of this year, we feel pretty strong about it. I think we're a little less confident in some of the upside we were seeing.

But I think that the numbers, as we said earlier, our fourth quarter will be a pretty good year year-over-year and sequentially as well. .

Our next question comes from John Inch with Deutsche Bank. .

So I just want to -- I have to say I'm a little bit confused on kind of the guidance cut here. I just wanted to -- I want to pinpoint this down. So are you saying that -- because you just made a comment, John, about the second quarter is now adjusted for the year or something.

Are you saying that you were more optimistic that nonresidential markets were going to improve? Or is that non-residential markets are getting worse? What exactly is baking in -- the context is also -- what kind of cushion do you have for the rest of the year? Like, what if we have a wet summer? Are you going to have to cut again? Or what's baked into the outlook?.

Yes. Again, great question. And just to provide some clarity on that, we're confident that the second half is going to be sequentially over the first half and year-over-year a good half. And most of that -- we're feeling very strong with regard to our Electrical Raceway, which is what is driven mostly by nonres construction in our business. .

Our miss, if you really look at it, tends to be way more around our Mechanical Products & Solutions. And it's well documented with regard to our solar headwinds. We actually see in the second half of the year some headwinds on solar that we didn't expect.

In other words, we expected the really big stuff and the more profitable stuff to subside, which it did, almost exactly the way we told you, but what we're seeing in the second half is that, that base level we thought solar would settle down to has been actually slower. .

So for Mechanical Products & Solutions, because of a little more solar headwind than we thought and because -- although industrial markets are improving, they're not improving as much as we thought, we think that the Mechanical Products & Solutions business is just not as strong as we thought it was going to be. So that's the biggest change there. .

With regard to the Electrical Raceway and nonres construction, I think what you're seeing where we tighten our guidance is more around not seeing that upside and taking out a little bit of the upside optimism we had around residential construction.

So although it's sequentially and year-over-year a better half, clearly better half, a mid-single-digit growth rate better half, we're tempering some of the upside based on what we're seeing in construction delays, in LED lighting driving a slower renovation component. So I think hopefully that kind of explains that a little bit. .

No, actually, that's helpful. That makes a lot more sense, or at least in my head anyway. So basically, solar, you were hoping -- I'm assuming this is like a growth issue.

You were hoping -- because you can obviously see what your comparisons are, right? You were hoping solar product and mix and maybe a little bit of volume was going to be a little bit better in the coming 2 quarters.

Is that kind of fair?.

That's right. That's right. We knew we weren't going to get the -- we were correct on the impact in the first and second quarter, but we expected a little bit of a rebound, based on what we were being told by customers. We're selling products to solar installations but not at the rate we thought we would. .

John, where these MP&S margins this quarter, were they a surprise to you?.

I think they were a surprise -- not -- I wouldn't call it a surprise to us. Of course we see this stuff develop in real-time. You know, I think if you went back to 1 quarter ago and what we were talking about with you, I'm surprised that so many small things went the wrong way in the quarter on the margins.

Nothing radically, with the rebound in solar being the biggest part of it. So I would say, yes, I was surprised that so many of them went to the unfavorable. Usually you get a balance of favorable and unfavorable. So going back 90 days, yes, slightly surprised. .

I didn't mean to suggest you would just open the books at the end of the quarter and were surprised. I mean -- no, that makes sense. Effectively, it's a little bit of Murphy's Law, it sounds like, in terms of what you're saying, death by a thousand cuts or whatever. .

Why are you cutting your CapEx? I don't think you gave a reason for that. It seems like a pretty big cut. .

Yes. Just as we're taking a look at the timing of getting the projects in. I mean, the projects are still in the queue. It's just a matter of having engineering and the timing of when the projects are going to fall now. So it's more a retiming of the CapEx than it is a true cut. What we're cutting probably is going to roll over into 2018. .

Okay.

So it's a bigger spend year for CapEx, then?.

Yes. I was just going to say, we have the philosophy here, especially on CapEx, that we're spending it for the future. So cutting CapEx is in no way part of our countermeasures at all. A, it just doesn't do anything in that end. And B, if it pays off for the future, we're willing to spend it.

It's really -- one of the criteria for launching a CapEx project is that the team has the bandwidth, we have the right team available and we're going to execute it well. So it's not unusual to trim it a little bit or to adjust it a little bit at the midway point. .

Are there -- I mean, just going back to my point about what if we do end up with a wet construction season, you mentioned countermeasures. Are there things you can pull to try and boost your profitability? Like do you have -- what kind of flex do you have? I'm assuming not a lot, but maybe I'm wrong in that. .

Yes, I think -- so I'll answer that in that we've taken a little bit of that into consideration in our forecast and the trimming of the forecast. The second quarter we had typically a little bit of our implied hedge in the second half. So we had to trim that back a little bit. So if it's a little bit wetter, we should be able to absorb that. .

We're pretty good -- we have 25 factories in the U.S. They're all close to where customers are. And we have to ship this stuff around the country, so it makes sense to have these. We're pretty good at adjusting quickly with regards to our labor, to the situations, but that only does so much. That more takes out variable cost proportional to our volume. .

We have a little bit of -- I think you're right. We have some leeway there. We think that, that's built into our risk and opportunity that makes up the numbers we guide you on.

But we wouldn't be -- if it was a really bad summer, construction summer, for whatever reason, there's -- at some point, there's not enough cost we can take out in the short term. The good news is we have long-term productivity and long-term even restructuring projects that we're working on that are the right things for many quarters and many years.

So we feel if we do that right in the long term, we never have to depend on just short-term activity to make a quarter. .

Yes, good answer. One last one for me. I think, John, you mentioned uncertainty over the Trump administration. I think you're the only company that has called out uncertainty over the Trump administration. Most companies are talking about rising confidence based on kind of a pro-government -- or pro-business agenda.

Is there any -- was that sort of a talking point, or are the customers really saying there's some element of uncertainty? Because I just find that intriguing. .

Yes, I did actually read it in somebody else's call transcript as well. And really what we're seeing... .

Hillary Clinton's? Just kidding. .

Is she a CEO? It was -- no, what we were saying, though, just to clarify what we were saying is, we did not call out the Trump administration. We just said that there seems to be a lack of momentum in Washington, and we're waiting for the administration to get its footing. There was a lot of talk about infrastructure build.

There's a lot of talk about security on the southern border. There's a lot of talk about, let's call it stimulus, that I think people got a little bit ahead of themselves in counting their eggs on. And we're just saying that that's slower to develop.

We think, over a longer period of time, that we like a lot of what the administration is talking about and it will be favorable to us. We just are cautioning that we can't count that into our 2017 market right now. .

Our next question comes from Steve Tusa with JPMorgan. .

So on the implied 3Q adjusted margin, I think it's kind of in the 13% to 15% range.

Can you maybe just walk through kind of what's embedded in there? I think that's versus the 17% last year? Just kind of the walk?.

Yes. So at the highest level, it's the strong solar -- well, it's a portion of solar that's not going to repeat. It's the volume in general industrial is going to be lower than the last third quarter. We're seeing a little bit of... .

We're also going to have, now that we've had increasing sales prices on the passthrough, that just by the way the math works, we're going to lose almost 200 bps of margin on the one-for-one passthrough of our material cost increases. .

Right. And that’s going to end up about -- Steve, that's going to be at 15%, roughly. .

Right, right, okay. And then I guess the guidance implies around $75 million in EBITDA for 4Q. And that's up pretty nicely year-over-year. Maybe just do the same kind of the walk to that number. I think you have one fewer week in that quarter. So just curious as to kind of the bridge.

Maybe some of that raw material related stuff comes back and kind of snaps back in the fourth quarter.

What are you assuming there from a bridge perspective?.

the choppiness is going to smooth out and start delivering in the fourth quarter. .

Yes, biggest component is volume. We do see a little bit of margin expansion by new products that we're releasing over the rest of the year, and we have some good momentum on that. We have a number of productivity improvements. We target between 12%, 15%, even a little bit more than that on productivity every year.

We're on pace for that but we actually see an uptick in that in the second half of the year. And we -- I think those are the big things. That will end up about 16.5% to 17% margin. .

Okay. And then just one last quick one. I know you guys have some LED-related products. Anything on the lighting side of the nonres industry that's kind of surprising you recently? There've been a few companies that have highlighted a pretty significant slowing there.

I know it's not a huge piece of your business, but anything from the contractors you're hearing on the lighting side?.

Yes, I think generally people think there's a lot of LED renovation left to go, I mean like a really lot, so quarters and quarters and quarters. The slow in the second quarter, the slowing in the second quarter was a little bit of a surprise -- a little bit of a surprise to us.

It does have a little bit less of an impact on us than it would other people in the space. I think we're renovating 2 or 3 of our factories to LED right now. So we think there's still some going on. At some time -- at some point, it will slow. And last year was very, very heavy.

But what we're hearing out there is that, that second quarter was a little bit of an anomaly and they expect it to bounce back pretty strongly in the third and fourth quarter. .

Our next question comes from DeForest Hinman with Walthausen and Company. .

I apologize. I got on the call late and this question may have already been asked. I apologize again. .

On that $7.5 million of anti-dumping duties, it seems like it maybe came about as part of the Trump administration. I just checked quick, and I think in the Q and the K it wasn't listed as a risk factor, but $7.5 million is a pretty material amount of money.

Are there other products that were imported from China that have had some amount of protesting or pending litigation on anti-dumping? Is there potential for further accruals for anti-dumping duties on any other products?.

Yes, we don't believe so. And we've done a pretty extensive look at it. Keep in mind that the $7.5 million relates to a business that -- it's 3 years' worth of business to a business that -- for a business that the volumes have gone way down on, as we have priced that product different in the market, as we have moved to different designs on products.

So that $7.5 million is a 3-year catch-up in duties against the absolute worst situation we think can occur. So the good news is it's fully applied for. .

We did mention that we thought the impact, and we feel very strongly about this answer, the impact to our 2017 P&L going forward with the new duties is only $0.5 million. And that just shows you proportionally how much less of that product we're shipping today than we were in 2014.

So that's the most important thing, is that the impact going forward is very, very small. .

We think, to some degree, we have a very good case on appeal for these, but the exact right thing to do was to take the accrual for the full $7.5 million, make sure going forward there are no surprises, and we feel we've done this with this action. .

Okay. And once again, I apologize if this was asked.

On the deals that we're looking at, I think you mentioned a pipeline, can you give us a little bit more color on multiples that you're seeing out there? And is there any increased willingness to sell, or is it relatively the same as it's been?.

Yes, I think there's a lot of activity. We have seen multiples go up. And I'll say we're not really wed to a specific multiple as much as we're wed to the concept of buying at one multiple and, after fully integrating and full synergies, bringing it down, call it 1x or 2x.

So a 9, bringing it postsynergies to 7, or 10 to 8 or something like that, as an example. .

So not really tied to a specific multiple. We would do really -- we would do a deal if we just had that opportunity to improve the business and make it accretive to our shareholders. .

The activity is -- I think it's pretty hot. I'm not sure why there's more people willing to talk. Maybe it's the multiples that are out there. But there's a lot of activity going on. We're certainly getting our share of it.

Again, those acquisitions that we would make in the second half of this year, and there's a pipeline that extends past that, would be on the medium to small size of those in our pipeline. But there's all sizes in our pipeline. .

At this time, I would like to turn the call back over to management for closing comments. .

Great. We want to thank everybody for their interest in Atkore. We continue to invest in the business. We continue to build our capabilities for the future. And in that respect, we're very happy with what we've done. .

Basically just want to acknowledge all of our employees again and thank, all our investors and analysts and look forward to updating you in the quarter. .

That concludes our call. .

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