管理層發言
Good morning. My name is Mark and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's Third Quarter Fiscal Year 2024 Earnings Conference Call. All lines have been placed in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin, sir.
Thank you and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings 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. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA and any reference to EPS or adjusted EPS mean adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill.
Thanks, Matt and good morning, everyone. Starting on Slide 3, in the third quarter, organic volume was essentially flat year-over-year. We saw strength in our construction services business due to large mega projects and from solar due to increased production in our Hobart, Indiana facility. These gains were offset by broad pricing softness across most of the Electrical business. We did not see a noticeable summer construction uptick in demand as is generally the case. Pricing was softer than expected due to the slower end markets, particularly for our PVC conduit business, and a higher concentration of large projects where pricing tends to be more competitive. Overall, selling prices were also down 4% sequentially from the second quarter. Volume grew 8% sequentially and 4% year-to-date. The third quarter proved to be more challenging than we initially projected, while our net sales were within the range of the outlook we presented back in May.
Adjusted EBITDA and adjusted diluted EPS were both off the midpoint by 4%. Our lower-than-projected EBITDA was due to overall softer-than-expected market conditions. We believe the current market is flat to slightly lower than last year; however, this trend varies by major business. Another challenge we are facing is an increasing amount of imported steel conduit coming primarily from Mexico. There are currently provisions in place between both countries that are meant to limit the amount of steel conduit imports; however, the statistics reveal the amount of conduit shipped from Mexico into the United States far exceeds these negotiated limits. This reality has been acknowledged by others within the industry, prompting a call to action. These increased amounts of foreign steel conduit negatively impact our volume year-over-year while the overall market, inclusive of imports, has grown year-over-year.
We also continue to experience softness in the telecom and utility markets. Despite the challenges we are facing in the market, we are progressing well in our operations and are confident in our long-term opportunities. We are pleased to share that our production and shipments of solar torque tubes at our Hobart, Indiana facility improved meaningfully from the second quarter to the third quarter. We continue executing our capital deployment strategy during the quarter by repurchasing $125 million in shares, bringing our year-to-date total for share repurchased to more than $280 million. On that note, I want to remind everyone that as we near the end of our previously approved multiyear $1.3 billion share repurchase authorization, our Board of Directors authorized a new $500 million buyback program in May, which will be available upon the completion of our existing plan. This new authorization is consistent with our commitment to returning capital to shareholders and reflects the Board's continued confidence in the compelling value of Atkore shares.
In light of the challenging market environment, we are adjusting the midpoint of our fourth quarter EBITDA outlook; however, we remain confident in the long-term opportunities for our diversified product portfolio. Overall, our broad product portfolio provides essential elements for nearly all types of construction, especially those that support secular trends, including solar power, data centers, artificial intelligence, infrastructure digitization, grid hardening, and support for the energy transition. The breadth of our product portfolio enables Atkore to be resilient to changing end market demand while remaining a supplier of choice across our channel partners. With that, I'll turn the call over to David to talk through the results from this quarter.
Thank you, Bill and good morning, everyone. Moving to our consolidated results on Slide 4. In the third quarter, net sales were $822 million and our adjusted EBITDA was $206 million. We delivered a strong adjusted EBITDA margin of over 25%. Our tax rate in the quarter was just under 22%. As a reminder regarding the year-over-year comparison of our tax rate and adjusted diluted EPS, the change in our accounting treatment for the solar credits associated with the IRA in the third quarter of fiscal 2023 drove a tax benefit that lowered our effective tax rate to less than 9% as we recognized three quarters of the expected benefits in Q3 of 2023. During the third quarter last year, we changed the accounting treatment from what we had recorded in the first two quarters. This change reflected the benefit of the credit as a reduction of tax provision rather than a reduction in cost of sales. This lower tax rate also helped contribute $0.50 to our higher-than-expected adjusted EPS of $5.72 last year.
Turning to Slide 5 in our consolidated bridges; our volume in the quarter was essentially flat compared to the prior year, while net sales were at the midpoint of our guidance. Our third quarter results were below expectations. While we saw sequential growth in net sales during the quarter, we did not see a lift from the seasonal construction demand. Typically, our third quarter benefits from the seasonality, and we see sequential profit growth. The net impact from solar credits was a reduction in EPS of $0.37 year-over-year. As mentioned in my comments on the previous slide, our change in accounting a year ago added $0.50 to EPS. Moving to Slide 6; our year-to-date volume increased 4% compared to the prior year, with contributions across the portfolio. We continue to see growth in our overall PVC products category. Our metal framing products also contributed to growth as they benefit from data center expansion.
Our year-to-date performance has been impacted by continued softness in the telecom market. As Bill outlined earlier, our steel conduit business has met resistance from a significant increase in imported conduit. Our year-to-date volume has been negatively impacted by this surge in imports. That said, we remain confident in the long-term potential of our diversified portfolio. We expect that our portfolio of value-added products, along with our resilient business model, will continue to provide us with sustainable growth opportunities as our markets stabilize. Turning to Slide 7; both segments had strong EBITDA margin performance in the third quarter. Our Electrical segment achieved 30% margins. Price versus cost continues to be unfavorable on a year-over-year basis. Last quarter, we acknowledged that, in addition to PVC price compression, we also experienced year-over-year declines from our HCP business, which continued this quarter.
Our S&I segment EBITDA margins continued the trend of sequential improvement since the first quarter, achieving just under 14% in the third quarter. This improvement is due in part to better operational performance at our Hobart, Indiana facility. Turning to Slide 8; we continue to execute our capital deployment model, supported by robust cash flow generation. The strength of our balance sheet allows us to be flexible in the way we deploy capital to deliver value for our shareholders. With that, I'll turn it back to Bill to talk through some updates relating to our FY 2024 outlook as well as our views on FY 2025.
Thank you, David. Turning to Slide 9. While we achieved three consecutive quarters of adjusted EBITDA over $200 million in fiscal 2024, we currently believe that Q4 will be lower than this trend due to ongoing softness in the overall market, which has led to a more challenging pricing environment. As we look forward to the fourth quarter of fiscal 2024, we are amending the midpoint of our adjusted EBITDA outlook to $145 million. Our fourth quarter outlook reflects a continuation of or an acceleration of several factors that have impacted us, most notably, the pricing dynamics in PVC and import issues in steel conduit, in addition to the overall soft markets diminishing volume growth. As I've discussed at the start of the call, we expect the softness in the overall market to continue into the fourth quarter, which impacts both volume and price. Further, domestic manufacturers of steel conduit are likely to face continued pricing pressures due to elevated and increasing steel conduit imports.
Turning to Slide 10; we have updated our key bridging assumptions for the full year, which is reflective of the items mentioned earlier, which are likely to impact our fourth quarter performance. We are currently in our annual planning process. As we look beyond fiscal year 2024, we now believe that FY '25 will be our new earnings base. We expect to see EBITDA improvements from some of our growth initiatives related to solar, HDPE, water, construction, and our regional service centers. Some of these initiatives are still significantly below our original expectations and where we expect these businesses to operate in the midterm, but we do anticipate them to contribute positively year-over-year. For the remainder of the business, we expect to see continued productivity improvements and overall modest volume growth in the low single digits, with a possibility of higher growth as new switchgear capacity comes on board and further supported by the prospect of a lower interest rate environment.
The larger question that remains is what the pricing environment will be as we progress through FY '25. We expect the environment to remain challenged through the remainder of this year and into FY '25. Although there are many uncertainties at this time, we will have a more important perspective in November. Our initial EBITDA estimate for FY '25 would be around $650 million given the market environment. However, this estimate could go higher if construction activity in areas such as residential and utility starts to improve. We anticipate having strong free cash flow and will continue to be investor-centric in our capital deployment strategy. We remain focused on preserving our history of transparency and we'll continue to provide updates on key topics that impact our business. Before we go into Q&A, I also want to address the announcement we made relative to David's departure. Atkore has been extremely fortunate to have David's leadership over the past six years.
Under his leadership, Atkore has created a balanced capital deployment model, enabling acquisitions, internal investments, stock repurchases, and quarterly dividends to drive value creation for our shareholders. David will be missed both as a colleague and an Atkore teammate, and we truly wish him the best in his next chapter. Thank you, David. Looking ahead, Atkore has a strong model for organizational leadership succession planning, which enables a smooth transition. We're fortunate to have two incredibly strong leaders in John Deitzer and James Albe, who will assume the role of Chief Financial Officer and Chief Accounting Officer, respectively, as of August 9. We look forward to all that is to come with this new phase in Atkore's leadership. John and James are working closely with David to ensure a seamless transition, and we are fortunate to have a deep and talented financial team that will help support John and James as they get up and running in their new roles. With that, we'll turn the call over to the operator to open the line for your questions.
分析師問答
Your first question comes from the line of Andy Kaplowitz with Citi Group.
So obviously, you revised higher the amount of price versus cost normalization to $325 million this year versus the initial $250 million. But could you give us your latest thoughts on what the overall price cost normalization could end up being versus that initial estimate you gave us of $585 million? And then I think you said, Bill, $650 million is your initial estimate of EBITDA for '25. When we think about the exit rate in Q4 of $1.45, can you give us some color on what would be the puts and takes versus that run rate in '25? Anything to quantify would be helpful.
Sorry, Andy. Obviously, two very important questions. I think when you look at the $325 million this year, I will remind everyone that a portion of that does include HDPE, which would not have been in our original estimate of the $585 million. So if you assume somewhere around $35-plus million or so of that price cost is in the $325 million, we would have been just under $300 million this year. So you add that to the $250 million last year, you're at 550 or so against the $585 million. Given where we are right now, what we saw last quarter and what's built into our Q4 forecast, you would expect next year to be in the 200 to 250 type of range. And then you will see some benefits from our initiatives coming up. Obviously, you'll see some from solar year-over-year, our global mega projects, so on and so forth Andy. Very modest kind of volume built into that $650 million number which is what Bill mentioned. So hopefully, that helps out.
It does. And then Bill, maybe you could elaborate a little more on what changed in the environment between last quarter and this quarter. I think last quarter, you talked about a weaker start to the construction season, but it seems like conditions on the ground got a fair amount worse. Did you see more project delays than you thought? Did your customers start destocking? And then you do have pretty severe decrementals in Q4 versus Q3. Is that just all price? Is there something else going on?
Yes, Andy. I agree with everything you've mentioned. It's important to remember that we serve a wide range of markets, and we're proud of that. Data centers are performing well and progressing as David mentioned, especially as we look at next year's solar initiatives. However, markets like commercial construction and utilities are currently weak. We hope to see a rebound in the second half of the year, supported by long-term trends. For now, most of our markets are subdued. We highlighted key markets in our presentation, showing which ones are currently underperforming. For instance, in the PVC sector, utility and residential construction are facing challenges, and there is a slowdown in new developments, particularly in multifamily housing. The key markets that usually drive our business are relatively quiet right now. There are job delays, and the impact of the Federal Reserve cutting interest rates could possibly improve conditions as we move into next year.
Many public companies and distributors in our industry are experiencing similar challenges, and some may even be faring worse than we are. This current downturn is resulting in more price competition than anticipated. Despite this, we can't control our competitors' actions as they respond to market pressures. David pointed out the weaker market conditions in our earnings report. Looking ahead to the next quarter, I prefer to address these issues proactively and set realistic forecasts that we aim to meet or exceed, while staying focused on our core fundamentals, which I firmly believe in.
So just one more quick one for me. You mentioned increased import pressure in steel conduit. Can you give us a little more perspective on how much of an impact that is happening on the business? We know metal conduit is 20% of your business, but since you called it out, is it having an even bigger impact on your business than that? And I think you are seeing increased competition within core PVC but is it really the steel stuff that hits you more this quarter?
Yes, Andy, you did. I assume every company has this, and I'm trying to be transparent. As we transition from our fiscal Q3 to Q4, I don't want to rank our challenges, but I would say this is among the top two. To elaborate, there is often an import component for nearly every product. For instance, there may be a small percentage, like around 1%, coming from Canada. Steel conduit has seen an increase over the past decade, growing from 3% to 5%, and now approximately 20%. There remains a strong preference for products made in the U.S.A. due to quality, and our electrical contractors appreciate our brands and support for American-made items. However, this situation has reached a point where either I or my domestic competitors can't sustain a 15% price drop for that product. These are rough estimates tied to the job. When we reconsider this aspect of our business, we realize that while you may overlook a 5% market share, you can't ignore competitors who come in and underbid the market.
Your next question comes from the line of David Tarantino with KeyBanc Capital Markets.
Maybe just to start out to put a little bit of finer point on the price normalization. Can you give us some color on kind of the incremental $50 million of headwind in the outlook? Just kind of how you would think the breakdown is by the incremental headwinds? Like how much is kind of the import headwind versus incremental PVC and HDPE pressures?
Yes. I'll try to provide some insight, and then David can add more detail or ask additional questions. I believe it's somewhat of a split. If I were to estimate, I would lean slightly more towards metal conduit, which Andy just inquired about. This is a trend I mentioned to Andy, indicating it’s not that these factors came out of nowhere, but rather it’s a reaction we observed last quarter. Customers recognize this shift. So, metal conduit probably takes the lead, followed by PVC and HDPE. I also want to highlight that while some products are down 5% year-over-year, others are up by 5%. So, there is a kind of long-term normalization occurring, and many of our products experience minor fluctuations. Additionally, as David pointed out in his comments from last quarter, volumes are expected to increase next year, as many anticipate.
Okay, great. And then, maybe could you give us an update on the ramp of the solar torque 2 facility? How has it progressed versus expectations from last quarter? I know it's early but maybe could you frame how you're thinking about this into next year?
Yes. It's positive. I'll start with the challenge first. The main challenge, which isn't new, is that we anticipated being in this position nine months ago. However, we are ramping up at a double-digit percentage. Our customers are still engaged, although some may be facing difficulties with utility connections for solar and similar issues. Nonetheless, there are plenty of opportunities available, and we are focused on those, allowing us to continue growing. I'm very proud of the team, even though we should have reached this stage earlier. At this point, we are ramping up in all aspects as expected. Regarding your follow-up question, our CFO has noted that as we look to next year, we might face pricing pressures. However, we have many growth initiatives in place and I should mention that we expect at least $50 million, if not more, in additional EBITDA for next year. We are on track thanks to the team's efforts. There is still pressure to continue improving that figure, but looking at our quarter-over-quarter performance for the past few quarters, things are going well.
Your next question comes from the line of Alex Rygiel with B. Riley.
You referenced a softness in the telecom and utility market. I suspect that was year-over-year but my question is, how are these markets performing sequentially?
Really flat. Lastly, Alex. I mean, minor little bits of increasing in quotes which I think maybe is a precursor for a better volume kind of going into maybe next quarter, next year. But as we sit here today, I would say not a meaningful sequential increase.
And then I don't know, Alex. David, just answered for us, that's what's most important but just to triangulate it without obviously, any other companies, there are distributors and so forth. They mentioned the weakness in this market. If you looked at Dodge, they're predicting utility to be down 6% this year. So yes. I don't think anyone is going to question the long-term secular trend of electrical and heavy utilities and solar and everything else that just right. Right now and as we go into next fiscal year, it's a little bit more challenging than what we probably expected a year ago.
Can you discuss the inventory available both on hand and in the channel, and whether some of the price weakness is due to excessive inventory? Is it primarily driven by demand related to competition and imports?
I'll start by saying that I want to focus on utilities. Two of our largest customers are utilities, and they are experiencing challenges related to grid connections and weather conditions, which has caused delays for contractors and, consequently, distributors. Overall, if we look back a few years to a time before COVID, the inventory levels seem to be in line with expectations. However, with the current pricing pressures, distributors are cautious about purchasing inventory that could lose value, as they don't make enough profit to absorb those losses. Therefore, they are likely reducing their inventory levels. I wouldn't characterize it as excessive inventory at this time, but if we consider current stock levels over the next week, it seems that both we and our competitors are delivering well enough that high inventory isn't necessary.
And Alex, I would say that going into the quarter, I think everyone felt like their inventory levels were somewhat normal under their sense. But I just feel like their activity going out the door is less than expected and therefore, I do think that they have a little bit more inventory than they did. So I think they felt like they were kind of in the middle of that right now and they're probably wanting to leak a little bit of that out, if that makes sense.
Your next question comes from the line of Deane Dray with RBC.
I also add my congrats to David. That sounds like a fabulous opportunity. And then congrats to John and James.
Thanks, Steve.
David, thank you.
I want to circle back on the situation on the Mexican steel conduit. I guess that constitutes dumping. And just to make sure I heard the number correctly, Bill, you said it now represents 20% of the market. Is that the right number? And if the...
That's correct.
But if the tariffs were enforced, what would that number be?
Let me keep it simple. It’s around 20%. There are factors to consider, such as whether it’s from Mexico or another country. Essentially, when NAFTA transitioned to USMCA, they reduced the 25% tariff and agreed not to allow surges. Since that change from the baseline years 2015 to 2017, we’ve seen growth of about 50% annually. If a current or future administration were to revert to what USMCA mandates or impose a tariff, that 20% could decrease significantly. This makes it challenging to forecast pricing for next year. We don’t have that accounted for in the $650 million we mentioned. By November, we should have a clearer picture regarding the administration, interest rates, and other related factors, making it somewhat challenging to predict right now.
I understand. However, I recognize there are many variables involved with PVC and the steel situation. Initially, we anticipated price normalization by the end of 2024, but that now seems to be shifting based on current information. Where do you believe the most optimistic scenario for price normalization might occur? I understand it's a valid question, specifically regarding Mexico. Based on what you know now, where do you think normalization might take place?
Here's how I would respond, Deane. The first thing to note is that David and I have stated for years that we operate in an environment with a backlog of two weeks or less and prices that fluctuate daily. In my prepared remarks, I mentioned that we consider next year to be the baseline. While it's possible for pricing to vary, I believe as we look ahead, organic growth and productivity—which is actually performing better than expected even with some inflation—are strong. Our net productivity is solid, and we have growth initiatives, including those mentioned earlier regarding Hobart, that are being implemented in our global mega projects. I see next year as the baseline for us. While I won't focus on pricing, I think it will be minimal enough that other factors will drive our progress, allowing us to get back to growing earnings, which will positively reflect on our stock and align with our company's fundamentals.
I appreciate that. Just one last question. Do you have any comments on the recent discussions about pricing in PVC? I'm hesitant to use the term collusion, but I'm trying to understand if there's any truth to these claims. Could you provide some insights on that?
Yes, I want to clarify that the information spreading around is coming from a short seller. In response to your question, I'm very proud of our internal pricing methods, including our weekly calls, scatter diagrams, and apps that help us monitor pricing. I firmly believe that the report you mentioned lacks substantiation in the conclusions it draws.
Your next question comes from the line of Chris Moore with CJS Securities.
Congratulations as well to David. Most have been answered, but maybe just one more on pricing. Certainly, it seems like on a relative basis since the pandemic began, pricing on PVC has increased more than any other product. Obviously, it's come down significantly. When you look at relative price risk for fiscal '25, is it still fair to think that PVC pricing still represents kind of the biggest pricing risk moving forward?
Yes. I'll give you a little bit more color but the answer is yes, Chris. And again, if you go back to COVID time, with supply-demand constraints which drives our business, this has been a constant theme since Atkore existed. All of our products that I can think of all went up in margin. So did both our competitors and other industries, maybe not as much. But then with PVC, if you go back around COVID, you also had a hurricane hit and that my timing could be a little off here but 4 or 6 months later, you had the freeze in Texas that we just had an abnormal thing that therefore allowed more opportunity for someone to say, hey, drop your price, pick it 30%, 5%, try to fill my factory, then if you're up 10%, there isn't as much opportunity for somebody to try to drop their price. So, a long way to reason. That's the dramatic thing that's happened in PVC. But yes, I do think it's PVC and then we'll see how conduit plays out. But at least in this quarter, I think we appropriately scope that. And to Deane's earlier question or the words in Deane's mouth, administration's focus on the future and just enforcing a contract that's already been there that, quite frankly, some of our very large corporate competitor CEOs have called out in their earnings.
And Chris, one other thing to remember during the COVID times is that, in addition to the supply chain disruption, there was also very strong demand. I believe we don't discuss enough about the final aspect of pricing. If we were experiencing that level of demand now, I doubt we would be discussing pricing the way we are today. Therefore, the reason we anticipate more uncertainty in the PVC market for next year is likely due to these factors, which will impact pricing.
Yes, David and I don't have the number in front of me but just to echo that. And again, everybody, these are public stuff but to go single-family homes; it's an average market if you look at some of the information but no sub developments are being built. And I'm winning a number here but you get back to 1.2 million a year, starts versus 900,000 starts. All this stuff, people unfortunately look at how they are doing on volume, what did they estimate, who are their bosses and stuff above them. And you start getting the Fed dropping rates, the residential picking up some ifs there that why we didn't pay these into a forecast for next year. But pricing could easily go up. But at this stage, I want to still stay around what we just said at the $650 million stage.
And Chris, one other aspect in Bill referenced this a little bit as opening comments. So when you look at the market right now, kind of the overall construction market, it is made up of large projects becoming a larger piece of the overall activity. And when that happens, two things happen. One, typically, the larger projects are a little bit more price competitive to begin with. But when there's not all these other opportunities kind of broad construction activity, it gives you less opportunity to do your pricing by location and so on and so forth. So I think that element right now, we're feeling that in Q3 and going into Q4.
Extremely helpful, guys. Maybe just a last one for me. So $650 million is obviously a target; could come up, could come down. Any kind of EBITDA margin range that accompanies that?
David, do you want to...
I think basically the way that we try to approach the $650 million is we feel like that's kind of the minimum base, Chris, going into next year. So I think that's our viewpoint as we sit right now. I do believe that going into November, we'll know a lot more. The team here will do a lot more going into November with the uncertainties exist right now.
Yes. But I think to the margin thing, we focus more on year-over-year and quarter collections that we answered earlier versus trying to do a margin depending on. Obviously, margins somewhat depend on as could help us on what our revenue is and things like steel costs. Again, I want to emphasize cost is the least factor of things of market demand, competitor actions and our value prop but like steel costs are dropping, so one could think our revenue could be down if we make even the same price per ton. But again, Chris, the specifics will get into...
Broadly speaking, not too far out.
No, I'm not sure anything, correct?
S&I is starting to improve and reach the mid-teens again, which I believe is definitely beneficial for the enterprise.
Your final question comes from the line of Chris Dankert with Loop Capital.
Congratulations, David, and thank you for your assistance. First, can you provide any insights on the current utilization rate for the Hobart ramp? You mentioned hoping to reach it sooner, but are we at about 50% utilization now, with plans for it to fully ramp up by 2025?
Yes. No, it's higher than that, Chris, without getting into a precise number. And then you got two things going. So, definitely north of 50%. But plus remind some we give you a wide range here but I like to use the 70%. So yes but I don't want to lock because Chris, there's a little bit with almost like my answer to the Mexico with Deane and so forth is we get in this thing called OEE. Do you account the fact that preventive maintenance in that number? Do you account that we're not working, just starting a third shift, but we're not working four shifts year round on the clock weekends or how quick we change over and so forth. So we're ramping up. It's definitely above your 50% number. But as we go into next year, there's still growth, again, not locking numbers but could we grow 20%, 30%? And the answer is absolutely, that volume.
Got it. That's extremely helpful. And then just finally for me, I guess, any update on kind of program funding timing? I know New York and California have finally got some stuff stood up. Any anecdotal commentary there or kind of how that could impact HDPE volumes into next year?
Yes, that's a great question, Chris. All the questions are valuable, but I can't imagine we wouldn't have addressed that in the discussions. I'm feeling cautiously optimistic about 2025. I'm inclined to think that this is more likely to occur in the calendar year rather than the fiscal year. To your point, two states have approved it, while others are in various stages. Whether it's the fiber optic manufacturers or one of our large competitors in that area, they are all indicating we should expect progress by the end of this calendar year. Our guidance reflects this cautious optimism, and we're anticipating profit increases next year. However, I want to emphasize that it will definitely be a gradual improvement through 2025 and into 2026.
This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.
We shared today our perspective on several challenges that are currently impacting us and that may continue to impact us in the midterm. Despite these challenges, we have conviction in our people, our strategy, and our processes which are the three fundamentals of our business system and enable us to remain resilient and focused on the future. With that, thank you for your support and interest in our company. We look forward to speaking with you during the fourth quarter call in November. This concludes the call for today.
This concludes this conference call. You may now disconnect.