Acuity Beats Street Forecast; 3Q Profit of $82.2M, Aggressively Addressing Supply-Chain Issues

ATLANTA, June 29, 2017 (GLOBE NEWSWIRE) -- Acuity Brands, Inc. (AYI) (“Company”) today announced that fiscal 2017 third quarter net sales increased $40.1 million, or 5 percent, to $891.6 million from $851.5 million reported in the prior-year period.  Operating profit for the third quarter of fiscal 2017 was $131.5 million, an increase of $10.5 million, or 9 percent, over the year-ago period.  Net income for the third quarter of fiscal 2017 was $82.2 million, an increase of $8.2 million, or 11 percent, compared with the prior-year period.  Fiscal 2017 third quarter diluted earnings per share (“EPS”) of $1.90 increased $0.21, or 12 percent, compared with $1.69 for the year-ago period. 

Adjusted diluted EPS for the third quarter of fiscal 2017 increased over 4 percent to $2.15 compared with adjusted diluted EPS of $2.06 for the year-ago period.  Adjusted operating profit for the third quarter of fiscal 2017 increased $2.2 million, or 2 percent, to $148.3 million, or 16.6 percent of net sales, compared with the year-ago period adjusted operating profit of $146.1 million, or 17.2 percent of net sales.  Adjusted results exclude the impact of amortization expense for acquired intangible assets, share-based payment expense, acquisition-related items (including acquired profit in inventory and professional fees), and special charges for streamlining activities.  Management believes these items impacted the comparability of the Company's results and that adjusted financial measures enhance the reader’s overall understanding of the Company's current financial performance by making results comparable between periods.  A reconciliation of adjusted financial measures to the most directly comparable U.S. GAAP measure is provided in the tables at the end of this release.

Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands, commented, “Our third quarter net sales reflect continued solid performance even though initial industry data suggests that the growth rate of the Company’s key end markets in North America grew only in the low single-digit range.  We believe the market growth rate reflected continued softness in demand for certain short-cycled, smaller lighting projects.  Despite achieving record third quarter net sales and earnings, our profitability was negatively impacted by higher than normal supply chain costs, including increased quality expense and greater inbound freight charges. 

“During the quarter, we continued to invest in areas we believe have longer-term growth potential and made significant progress this quarter on a number of strategic fronts, the most important of which was the announcement of our newly branded Atrius™ Internet of Things (“IoT”) platform and software solutions.  Through Atrius, Acuity Brands continues to provide and expand its comprehensive set of IoT business solutions, leveraging intelligent luminaires, lighting and building management controls, software platform services, and solution development tools.  Atrius provides a robust, scalable, and secure software platform that enables an array of capabilities, including indoor positioning, asset tracking, space utilization, spatial analytics and energy management.  Lastly, we saw customers, including many of those formerly in pilot programs, move to accelerate the implementation of our Atrius-based intelligent solutions capabilities.  These anticipated deployments will provide our customers with unique capabilities to enhance the performance of their facilities while more than quadrupling our installed base of these solutions.” 

Third Quarter Results

The 5 percent year-over-year growth in fiscal 2017 third quarter net sales was due primarily to a 6 percent increase in volume, partially offset by an approximately 1 percent net unfavorable change in product prices and mix of products sold (“price/mix”) as well as a modest unfavorable impact from changes in foreign currency exchange rates.  Sales volume was higher across most key product categories and sales channels. The change in price/mix was due primarily to lower pricing on luminaires, partially as a result of lower LED component costs.  Robust adoption of LED-based products continued during the third quarter of fiscal 2017 and represented approximately two-thirds of the Company’s total net sales. 

 

Fiscal 2017 third quarter gross profit margin of 42.5 percent declined 190 basis points compared with prior-year’s record gross profit margin of 44.4 percent and 200 basis points lower than last year’s adjusted gross profit margin of 44.5 percent.  Gross profit margin was lower than the prior-year period due primarily to higher than normal supply chain costs, including increased quality expense and greater inbound freight charges, as well as unfavorable price/mix.  Selling, distribution & administrative (“SD&A”) expenses for the quarter ended May 31, 2017, were $246.9 million, or 27.7 percent of net sales, compared with $247.2 million, or 29.0 percent, for the year-ago period.  Fiscal 2017 third quarter adjusted SD&A expenses were $230.6 million, or 25.9 percent of net sales, compared with prior year’s $232.7 million, or 27.3 percent, a decline of 140 basis points.  The slight decrease in adjusted SDA expense was primarily due to lower incentive compensation expense, partially offset by higher freight and commission costs to support the increase in net sales and continued investment in additional headcount to support and drive the Company’s tiered solutions strategy. 

The Company recorded a pre-tax special charge of $0.5 million and $9.7 million during the third quarters of fiscal 2017 and 2016, respectively, for actions initiated to streamline the organization, including the integration of recent acquisitions.  These streamlining activities include the consolidation of selected production activities and realignment of certain responsibilities, primarily within various SD&A departments.    

Year-to-Date Results

Net sales for the first nine months of fiscal 2017 increased 8 percent to $2,547.5 million compared with $2,365.9 million for the prior-year period.  Reported results for the first nine months of fiscal 2017 included operating profit of $366.1 million, net income of $231.2 million, and diluted EPS of $5.29. 

Adjusted operating profit for the first nine months of fiscal 2017 increased $16.3 million, or 4 percent, to $415.4 million, or 16.3 percent of net sales, compared with prior year’s adjusted operating profit of $399.1 million, or 16.9 percent of net sales.  Adjusted net income for the first nine months of fiscal 2017 was $258.6 million compared with $246.5 million for the prior-year period, an increase of 5 percent.  Adjusted diluted EPS for the first nine months of fiscal 2017 increased $0.29, or 5 percent, to $5.92 compared with adjusted diluted EPS of $5.63 for the year-ago period.  Adjusted results exclude amortization expense for acquired intangible assets, share-based payment expense, acquisition-related items (including profit in inventory, professional fees, and certain contract termination costs), special charges for streamlining activities, manufacturing inefficiencies related to the closing of a facility, and a gain on the sale of an investment in an unconsolidated affiliate.  The total impact of these items on diluted EPS for the first nine months of fiscal 2017 and 2016 was $0.63 and $0.88, respectively.  A reconciliation of adjusted financial measures to the most directly comparable U.S. GAAP measure is provided in the tables at the end of this release.

Net miscellaneous income for the nine months ended May 31, 2017, included a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate, which occurred in the first quarter of the fiscal year.

Cash and cash equivalents at the end of the third quarter of fiscal 2017 totaled $189.7 million, a decrease of $223.5 million since the beginning of the fiscal year.  During fiscal 2017, the Company completed the buyback of 2 million shares of Acuity Brands common stock under its previously authorized stock repurchase program at a total cost of $357.9 million. 

Stock Repurchase Authorization 

Earlier this week, the Board of Directors of Acuity Brands authorized the repurchase of up to 2 million shares, or approximately 5 percent, of the Company’s outstanding common stock.  Mr. Nagel said, “Last month, we completed the repurchase of 2 million shares under our previous buyback program, and this new authorization provides management with the ongoing flexibility to repurchase shares in the future, as appropriate.  We believe that repurchasing our shares represents a wise use of our cash flow, especially during periods of high stock price volatility, and also allows us to offset dilution resulting from our share-based compensation and benefit programs.  Additionally, we believe that repurchases of the Company’s stock supports Acuity Brands’ objective to maximize long-term stockholder value, while continuing to fund investments to better serve our customers, grow our businesses, and improve our operating and financial performance.”

Under the current authorization, the Company may acquire shares through open market transactions, subject to market conditions and other factors.  The Company may also enter into Rule 10b5-1 plans to facilitate open market repurchases.  A Rule 10b5-1 plan would generally permit the Company to repurchase shares at times when it might otherwise be prevented from doing so under certain securities laws provided the plan is adopted when the Company is not in possession of material non-public information.  Shares repurchased under the authorization may be retired or used for general corporate purposes, which may include transactions related to the Company’s share-based compensation and employee benefit plans.

Outlook

Mr. Nagel commented, “While forecasts suggest that softness in demand in the North American lighting market that began in the third calendar quarter of 2016 will continue through the remainder of the calendar year, we still see encouraging signs that support third-party forecasts for improvement in growth rates in calendar year 2018.  Current quoting activity remains favorable, and both short and long-term fundamental drivers of the markets that the Company serves remain positive.  We are aggressively addressing our recent supply chain issues and accelerating programs to reduce product costs to maintain our competitiveness and drive improved profitability.  We expect to continue to outperform the growth rates of the markets that the Company serves by executing our strategies focused on growth opportunities for new construction and renovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutions as part of the Company’s integrated, tiered solutions strategy.  Based on various leading indicators, our focused investments in key strategic areas, and aggressive management of supply chain costs, we remain bullish regarding the Company’s prospects for continued future profitable growth.”

Mr. Nagel concluded, “We believe the lighting and lighting-related industry as well as building management systems will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the Internet of Things.  We believe we are uniquely positioned to fully participate in this exciting industry.”