Acuity Brands, Inc. (AYI) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to the Acuity Brands Fiscal 2021 First Quarter Results Conference Call. After today's presentation, there will be a formal question-and-answer session. At that time, directions will be given on how to ask a question. Today's conference is being recorded at the request of the company. If you have any objections, you may disconnect at this time. Now I would like to introduce Mr. Pete Shannin, Vice President, Investor Relations and Corporate Development of Acuity Brands. Pete Shannin: Good morning. With me today to discuss our fiscal 2021 first quarter results are Neil Ashe, our Chairman, President and Chief Executive Officer; Karen Holcom, our Senior Vice President and Chief Financial Officer; and Ricky Reece, our Executive Vice President and President of Acuity Brands Lighting. We are webcasting today's conference call at acuitybrands.com. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the comparable GAAP financial measures can be found in our first quarter press release. I would like to remind everyone that during this call we may 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. Further, forward-looking statements speak only as of the day they are made, and we undertake no obligation to update publicly any of these statements concerning new information or future events. Please refer to our most recent 10-K and 10-Q 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. Now, let me turn this call over to Neil Ashe. Neil Ashe: Thanks, Pete. Good morning and Happy New Year. Thank you for joining us today to discuss Acuity Brands. As we transform our company, I'm pleased with our performance in the first quarter of fiscal 2021. We had strong financial results, and we made progress on our digital transformation. Our team was able to effectively serve our customers through our broad product portfolio and diverse paths to market. At the same time, our gross margins were in line with those in the fourth quarter, even on lower sequential sales, and we continue to generate a significant amount of free cash flow. I'm pleased and grateful for the outstanding way our team has continued to manage through the pandemic. We remain diligent about protecting the health and well-being of our associates and ensuring the continuity of our operations. Turning to first quarter highlights, we are committed to making the communities in which we operate better. We published our second annual EarthLIGHT report, highlighting the company's priorities, actions, and metrics for environmental, social, and governance matters. We continue to wisely deploy capital by repurchasing 2.6 million shares of the company's common stock for $255 million. We successfully reintroduced ourselves to the debt capital markets through the issuance of a $500 million, 10-year bond with a coupon of 2.15%. Proceeds were used largely to repay our existing term loan. Karen Holcom: Thank you, Neil, and good morning, everyone. I will add some additional insights to our financial performance for the first quarter of fiscal 2021. As you've probably noticed in our press release, we are modifying the way we have historically explained our change in net sales to provide a more relevant description of the way we analyze and manage our business today. By way of context, for the past decade, we have provided our best estimates of the impacts of volume and price mix on net sales. Our intent when we began providing this information was to reflect the impact of the conversion of our lighting products to LED. Today, our lighting business is fundamentally different. For example, our product life cycles are shorter, and our pace of innovation has increased. We frequently and successfully introduced new features and benefits of products rather than just direct product substitutions. Therefore, we believe our historical reference to price mix is no longer meaningful and is less descriptive of how we manage our business. Going forward, we believe the change in net sales is better described by the activity in our key sales channels. To help with this transition, I will provide the historical explanation to you this quarter so that you can bridge the gap. In the future, our explanations for changes in net sales will be aligned with our disaggregated revenue disclosure in the 10-Q. Should acquisitions have an impact in the future, we will provide that impact if it is meaningful. Net sales for the three months ended November 30, 2020, of $792 million, decreased 5% compared with the prior-year period due primarily to an estimated 4% decrease in the change in product prices and mix of products sold as well as an estimated 1% decrease in sales volume. Both fiscal 2021 first quarter price mix and volume were adversely affected by the negative impacts of the COVID-19 pandemic. Also recall that last year's first quarter benefited from price increases put in place to offset tariffs. Looking sequentially from the fourth quarter using the same calculations, price mix decreased 1%. Due to the changing dynamics of our product portfolio, it is not possible to precisely quantify or differentiate the individual components on a comparable basis of volume, price, and mix. And as noted previously, we will not be quantifying this in the future. Neil Ashe: Thanks, Karen. Our company is a unique combination of domain expertise in the industries that we serve and in the technology that will change them. Our core lighting business is a durable performer in all markets, including the current market. And we are executing on the transformation of this business. We are in the process of making it better, smarter and faster to transform the service levels to our customers and the vitality of our product portfolio. Distech and Atrius are attractive, valuable and strategically impactful technology assets that we believe we can build upon over time. We are demonstrating consistent cash generation, and we have the opportunity to use that cash to grow our current businesses and invest in new businesses, while managing our capital structure, including share repurchases. Operator: Our first question comes from the line of Tim Wojs with Baird. Your line is now open. Tim Wojs: Hi, good morning, everybody. Nice job and Happy New Year. Neil Ashe: Thanks, Tim. Happy New Year. Tim Wojs: Thanks. I guess maybe just first question I had is just kind of around maybe some broad commentary and maybe what you're seeing in the environment. I guess, first, if you think about specification, if you could maybe just kind of frame what your agents are kind of talking about in terms of backlog and project releases? And then secondly, when you think about some of your distributor and some of your home center customers, could you just characterize sales within those channels as well as how inventory looks? Neil Ashe: Sure. I'll start and then Ricky wanted to add a little bit of commentary. So first on the specification side, on the independent sales network, I'd say that since I've joined the company, I've been impressed by the consistency of the performance through that channel. So obviously, there was a pause at the beginning of the pandemic, and that pause will roll through the results over the course of the – and kind of the next quarter and such, but the consistent order performance and shipment performance of the agent network has been really impressive through this period. At the same time, as I mentioned in my comments, we've been able to flex where the business has been. So, whether that be through those channels by industry or through the retail sales network as those sales obviously have increased. So, that's the power of having this portfolio. And as we look forward, we believe that that portfolio works for us in the same way. Ricky, would you like to add to that? Richard Reece: Yes, just a couple of comments. Very pleased on the retail side, as Neil commented, up 3% there. That is where we most participate along with the distribution side in residential market, and we are seeing good opportunity and believe we're participating effectively in that market. The spec cycle is alive and well and as Neil highlighted, we do have a bit of a gap here as there was very little specification of projects being started during the summer. So that will impact us as Neil highlighted probably for another quarter or so, but the durability and opportunities in other areas of our go-to-market team and breadth of our portfolios helped to offset and mitigate some of that. As far as backlog, we still see a pretty strong backlog as we talk to our agents and there is a lot of it being held. We're cautiously optimistic with things looking better out there that will see those projects go forward and job sites opening up put aside the recent situation of certain parts of the country closing back down because of the spike in pandemic, but the backlog is comfortable and we're feeling good about that. Inventories, no real big issues that we're hearing with inventories. This is the year end for many of distributions. So, they manage their inventories pretty tightly. I mean you've had December or January year end, so not seeing a lot of excess inventory in the channel. So, inventories, I think we're in pretty good shape throughout the industry. Neil Ashe: And then, just one thing to add to that Tim. As we think about the performance we've had, if you look at -- if you look through and this is a pretty good quarter to highlight this. The direct sales network, which is really industrial and hall of fame. We obviously have a really strong product portfolio for whatever could happen on infrastructure investment over the course of the -- those projects have been a little bit stalled due to the pandemic, but we have the highest quality products to participate in that going forward. And then finally, on the enterprise sales account, as Karen mentioned in her comments, those are largely big-box retailers that have not allowed access to their stores because they've been so busy through the pandemic. So, that renovation cycle will obviously happens going forward, it's just not happening right now. Tim Wojs: Okay, that's really helpful. I appreciate all that. And then maybe just as you think forward about pricing and maybe cost inflation, we've seen yourselves and several of the other majors put out price increase letters. We've obviously seen some inflation in input costs. How should we think about price cost as you work your way through the year? I mean do you believe there is enough opportunity out there that pricing can offset any sort of cost inflation? Neil Ashe: Yes. I'll start and then, Rick, if you want to add to this. So obviously, and we indicated this, we've been working hard on productivity and the relationship between price cost to maintain the gross margin over the course of the last three quarters or so. As we're looking forward, we're going to continue those efforts around productivity, obviously, and then, as you pointed out, we also acknowledge that we're going to participate in the price increases. So, our plan is to pretty aggressively manage that price cost forward. And as we look, I believe that we are probably best positioned to be able to do that. Ricky, do you want to highlight some of the reasons where that's coming from? Richard Reece: Yes. As you highlighted, Tim, we are seeing pretty significant increase in steel, aluminum as well, and we are pretty big user of steel and aluminum. We have in our 10-K, we use about 70,000 tons per year of steel and aluminum so that is impacting us. Polycarbonates is another area use that in our lenses with the demand for PPE and other uses for polycarbonates is causing the net supply demand to get out of whack. And then electronic components is the other area with working from home and everybody buying extra computers and monitors and so forth, there's been a lot of demand on that area that has impacted pricing. Having said that, the industry has, at least in my tenure, 15 years or so in the industry has been pretty disciplined and good about being able to recover these kind of commodity and electronic increases, the industry has reacted quickly and us as well and getting the word out the to offset these costs. And I believe we will. Our focus will be on the gross margin, we were flat sequentially this quarter, despite some of those pressures and as Neil highlighted, we're very focused on productivity in other areas to be able to offset any inflation, any cost issues we have. But price cost, the objective is to focus on the gross margin and maintain our gross margin and recover any increases that we're experiencing. Tim Wojs: Okay, great. Thanks. Thanks for the color and good luck on 2021, guys. I appreciate it. Neil Ashe: Thank you. Operator: Our next question comes from Chris Snyder with UBS. Your line is now open. Chris Snyder: Thank you for the question, guys. So first, following up on the previous commentary on the margin outlook and specifically the commodity impact. Obviously, as you guys have noted steel and aluminum has inflated pretty significantly here over the last couple of months. So I guess my question is what is the typical lag before we should expect to have this show up in the numbers? And how significant do you think this headwind could be just based on what we've seen to date? Neil Ashe: Yes. I'll start and Ricky, if you want to add anything to this. Chris, as Ricky indicated on our last comment, if you look at our performance on price cost over the course of the last three quarters and our performance on productivity, we've continued to deliver consistent gross margins through that period. That's been through ups and downs on commodity prices, ups and downs on volume and that's our expectation going forward. So we're aggressively managing this obviously looking forward. Ricky, you started to indicate the impact of some of those commodities and how we manage those. Do you want to repeat that or add to it? Richard Reece: Yes. Just to repeat, so you can do some of the math of 70,000 tons that we used steel and aluminum that's predominantly steel, so you can look at what steel that has gone up substantially up 25% or so year-over-year, and almost doubled since the trough in the summer. So that's how much we're using there and it is expected to mitigate a bit over time. And then the other area is how long does it take to get through our turn of inventories. It takes us a couple of months to turn inventory. And then of course we have still and work in process and so forth. So I'd say a quarter or so would be the lag between we would experience a cost increase before it would run through our cost to sales, which is why announcing the price increase. Now we have it come in effective in the middle of March. So it should become effective in time with when we'll start experience in some of these increases. Neil Ashe: So you really see that in our fourth quarter and, again, we will continue to manage price mix and productivity. Chris Snyder: Yes. And I appreciate all of that color. So it sounds like as the commodity pricing comes through, you guys think you can offset that with higher pricing. And I guess just following up on that, how has customer responses been to the price increases that you and some of the other bigger peers are trying to push through? Just given that historically this industry has seen a lot more price deflation and price inflation and we've seen pretty steady price deflation in a healthy construction market and now we're kind of looking into 2021, at least on the non-resi side in a very challenged market. So, I guess how is the response been to these price increases? And does that allow for any maybe risk around lower cost producers may be trying to undercut? Neil Ashe: So I'll just address that by saying, if you look at kind of where -- so first of all, it's early. So none of these are effective yet, even the first ones that were announced. Ours is that the middle two arguably low end of the amounts that people have identified, including smaller competitors that are largely agent sourced. So this price-cost relationship is consistent across all the industry participants. And remember, Chris, that we are a diversified developer and manufacturer. So we source both components and finished goods from Asia. So we're pretty balanced in our ability to respond to wherever the best opportunity is both on a sourcing perspective, as well as on a sales perspective. Chris Snyder: I appreciate all the color. Thank you. Operator: Our next question comes from John Walsh with Credit Suisse. Your line is now open. John Walsh: Hi, good morning and Happy New Year. Neil Ashe: Thanks, John. Happy New Year. John Walsh: Good performance in the quarter. I'll echo the earlier comments. Wanted to come back to this price-cost question one last time, maybe ask it a different way. So you announced the 8% price increase broadly in line with the industry will just kind of put the number out there. As you look forward, can you hold the 42% gross profit margin as the higher commodity cost you identified come through? It sounds like you think you can, but I just want to make sure I'm actually understanding exactly what you mean by you're going to continue to focus on the gross profit margin. Neil Ashe: Yes, that's exactly what we mean. So as we said in the last quarter and we're focused this quarter, we wanted to maintain margins in the 41%, 42% range. So as you highlighted, Ricky went through some of the components, but you can do the math and identify that those are an interesting portion of our cost of goods sold. But they're not the majority of our cost of goods sold. And I'll clarify that it's up to 8%, not 8% across the board. And we are, as you pointed out, into the mid-range of the competitors. So it appears that everyone is pretty rational about this right now and it's our intention to manage to margin. John Walsh: Great. And then in your press release, you talked about prioritizing and using the strong cash for growth investments and share repurchases. Just wondered if we could get a little bit more on how you're thinking about share repurchases. You've obviously bought back a bunch of stock, but are you thinking about targeting a certain percentage of float reduction and absolute dollar amount you think that's appropriate or maybe even a little bit of commentary on where you think the leverage of this business should be as you look forward? Neil Ashe: Yes, that's a really good question. So obviously, we've been aggressive over the last period as there was what we believe to be unnecessary dislocation in the stock price. So we took advantage of that to repurchase at levels that average a little close to 80% of our current price. So we were pretty aggressive. Our expectation is that we will continue to use share repurchase as we go forward, maybe not to the magnitude that we did, unless there is another dislocation. Then of course we will, but to opportunistically create -- to create value for, we believe, create value for our shareholders. On a leverage basis, as we reintroduced ourselves to the capital markets, obviously, that's we've been unambiguous about our desire to build a larger, more dynamic company and to use acquisitions to do that. And we view that balance as such. We talked a lot when we reintroduced ourselves to the capital markets about we wanted A, for them to remember who we were, B, be familiar with the credit and C, we talk to them about maintaining our investment grade. So that effectively puts more -- unless we change our mind, puts a limit on the amount of leverage. And so we'll use the -- we think our organic cash flow is a strategic asset. We believe that we can use that to most importantly grow our business. And then, as we see opportunities like we did over the course of the last five or six months, we can be aggressive with our share repurchase to create value for the shareholders. John Walsh: Great. I'll pass it on. Thank you. Operator: Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is now open. Unidentified Analyst: Hi, good morning. This is Grace on for Brian. Some questions. So with respect to end market and return to stability. Can you give us some sense of what you're seeing by end-markets that gives you some confidence for that new in 2021? And I have a follow-up. Neil Ashe: Yes. I'll take that and then if Karen or Ricky want to add anything to it. Obviously, great, it's important to recognize that our product portfolio allows us to serve different end use markets. So we've been specific in each of the last quarters of where we've seen strength. So that was warehouse and logistics, this part, education, et cetera. So as you look forward, if there is infrastructure investment, we will obviously benefit through that. If there is continued industrial investment, we will benefit from that. If people decide that they need different office configurations as people start to return to work and there's renovation and offices, I haven't seen a renovation projects that did not change the lights. So we will participate in those. So where we position ourselves, both from a product perspective, from an investment perspective, from a capacity perspective is to be flexible to adapt to these industry segments as they start to open up. So I don't pretend that we have a crystal ball. So, I'm not sure exactly which one is going to come when, but we have -- so therefore, we put ourselves in a position to be flexible. And we've got the right product portfolio for each of those different segments and the ability to respond as they respond. So that's what makes us cautiously optimistic that as those end-user markets start to improve, which is inevitably they will, we are in good position to realize our unfair share of that. Unidentified Analyst: Okay, thanks for the color. As a follow-up, I just wonder if you can quantify how would you characterize stability in end markets. Is that return to just flat year-on-year growth or like you said you're no longer declining? Or are you referring to like low-single digit or mid-single digit growth? I'm just wondering if you can quantify. Neil Ashe: Yes. Obviously, we don't provide revenue guidance and so you guys can interpret where construction is and obviously, as well as we can. So that could give us a good idea. I think the issue is not and I think this is where everyone's minds are in this. The issue is not that things are -- whether or not things are going to come back. The issue is one of timing. And I think I would use this opportunity to highlight something that we commented on in this call, and we get commented on in the last call also, which is that our performance has been pretty disparate across different geographic regions of the country. So in this quarter alone, our sales regions range from up 15% to down 13% in different regions. And that's driven largely by the impacts of the pandemic and the activity that does or does not happen in those areas as a result. And so that's just a window into the inconsistency in the geographic market out there. So, there isn't any problem with the segments that we target. There is no problem with our product portfolio. There is no problem with our ability to serve it. So we're positioned for when some sort of normalcy returns and those numbers should not be that wildly disparate in the future. Unidentified Analyst: Thanks. I'll pass it on. Operator: Our next question comes from Christopher Glynn with Oppenheimer. Your line is now open. Christopher Glynn: Hi, thanks. Good morning, everybody. Just got curious, some of the comments and cautious optimism to the markets gaining some stability in 2021. Does that suggest the sequential seasonality into the current quarter might be kind of muted relative to the normal pattern? Neil Ashe: I don't think so, Chris. As we think about, Ricky had mentioned earlier the specification cycle that took a pause at the beginning of the pandemic needs to work its way through the -- needs to wait, work its way through construction numbers, ours included. So I think that any sequential improvement that would obscure that seasonality will probably be counterbalanced by that. Christopher Glynn: Okay. And then anything encouraging or anything indicating out there, any materiality, the opportunity to the germicidal initiatives? Neil Ashe: I'm smiling as I look at Ricky. We have this debate on a regular basis, and I will say that the people who run the business are at a certain level of growth, and I'm at a different level of growth. So we are balancing that. I think that we've seen a real and significant interest from large entities that recognize that they need to use this technology as a permanent part of their risk mitigation strategy going forward. So I am increasingly confident that this is a long-term product portfolio opportunity, not a point in time product portfolio opportunity. None of us can quantify how much that is yet. So good news is it appears to be a permanent or potentially permanent part of the product mix. And then let's good news is it's hard to quantify exactly how much that's going to be. Ricky, is that -- that's really? Richard Reece: Fair enough, I think it is; the interest is certainly out there. We just hit the market with the product. So it's a little too early to see what the level of demand is, but very encouraged about the breadth of our product offering. We've got capabilities that broader we think than anyone else in the market and it's very optimistic area of a very hard to predict right now, the timing of when people will start ordering. Christopher Glynn: Okay. Appreciate the color. Last one from me, working capital has been a nice source kind of back to the beginning year fiscal 2019 that the cash flow has been really terrific. Obviously, that can't go on forever, but just curious what you might comment in terms of A&I conversion or free cash flow outlook for fiscal 2021? Neil Ashe: Karen? Karen Holcom: Yes. So Chris, I think we would still expect to see our consistent cash generation of around $100 million or so a quarter, targeting around $400 million as we consistently have done. We have opportunities we've made improvements in inventory, but there is still room to go. Neil Ashe: Hopefully, there'll be sales growth that will require some investment in working capital. So obviously, we've been a little bit of a beneficiary of the shrinking balance sheet. But as Karen highlighted in her comments, CapEx is largely stable at about 1.5% and our days have improved. So we'll try and maintain that improved today's performance. Christopher Glynn: Thanks a lot, everyone. Good luck. Neil Ashe: Thanks. Operator: Thank you for participating in today's Q&A. I would like to turn the call back over to Mr. Neil Ashe for closing remarks. Neil Ashe: Thank you. We appreciate you spending some time with us. We feel like we're delivering consistent and improving performance throughout this pandemic. We've demonstrated the ability to deliver at or better than the market and to maintain our margins and to turn those revenues into cash. And so as we mentioned in the call, we are confident in our product portfolio, we're confident in our ability to serve the market as it currently stands and hopefully, as it begins to rebound at some point in the calendar year. So, thank you for the interest you've shown in us. And we look forward to talking to you, again, this time next quarter. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Wells Fargo Sets New Price Target for Acuity Brands
- Joseph O'Dea of Wells Fargo has set a new price target for Acuity Brands at $260, indicating a potential upside of 7.21%.
- Acuity Brands reported earnings of $4.15 per share for the quarter ending in May 2024, surpassing the Zacks Consensus Estimate.
- The company's stock performance has shown significant volatility, with a substantial market capitalization of approximately $7.47 billion.
Joseph O'Dea of Wells Fargo set a new price target for Acuity Brands (NYSE:AYI) at $260 on June 28, 2024, suggesting a potential upside of 7.21% from its current trading price of $242.51. This adjustment came alongside a downgrade in the company's stock rating to Equal Weight from Overweight, as reported by TheFly. Acuity Brands, a leading name in the lighting and building management solutions sector, has been under the investor's radar for its performance and market position against competitors.
The recent earnings report for the quarter ending in May 2024 has been a focal point for assessing Acuity Brands' financial health and operational efficiency. The company reported earnings of $4.15 per share, surpassing the Zacks Consensus Estimate of $4.10 per share and marking an improvement from the $3.75 per share recorded a year ago. This performance indicates a solid execution of strategies leading to operating margin expansion and earnings per share growth.
The reported earnings highlight not only the company's ability to exceed Wall Street expectations but also its year-over-year growth. Such financial achievements are crucial for investors and analysts when evaluating the company's stock potential and future growth prospects. The positive earnings report could be a contributing factor to Wells Fargo's decision to set a higher price target for AYI, despite the downgrade in its stock rating.
Acuity Brands' stock performance has shown significant volatility over the past year, with prices ranging from a low of $155.34 to a high of $272.74. The company's market capitalization of approximately $7.47 billion, coupled with a trading volume of 677,836 shares, reflects its substantial presence in the market. The recent increase in stock price by 1.14% to $242.51, as observed in the trading session, underscores the market's positive reaction to the company's financial results and operational achievements.
The fiscal 2024 third-quarter results, showcasing operating margin expansion, EPS growth, and strong operating cash flow, underline Acuity Brands' effective strategies and operational efficiency. These factors are essential for investors considering the company's stock, especially in light of the new price target set by Wells Fargo. The detailed financial metrics and performance against Wall Street estimates provide a clearer picture of Acuity Brands' standing in the competitive landscape, making it a noteworthy consideration for potential investors.
Acuity Brands, Inc. Earnings Preview: Fiscal Q3 2024
- Acuity Brands is set to release its fiscal third-quarter 2024 earnings on Thursday, June 27, before the market opens, continuing its streak of surpassing Wall Street's expectations.
- Analysts expect a significant 12% increase in EPS to $4.20 and a modest revenue growth of 1.6% to $1.02 billion.
- The company's strong valuation metrics, including a P/E ratio of 19.41 and robust liquidity with a current ratio of 2.59, highlight its financial health and market confidence.
Acuity Brands, Inc. (NYSE:AYI) is gearing up to release its fiscal third-quarter 2024 earnings report on Thursday, June 27, before the market opens. This event is highly anticipated by investors and analysts alike, given the company's track record of surpassing Wall Street's expectations. Acuity Brands, a leading name in the lighting and building management solutions sector, has consistently outperformed earnings estimates for the last 16 quarters. This trend underscores the company's operational efficiency and its ability to navigate the complexities of the market.
For the quarter ending in May 2024, analysts have set the bar high, with an earnings per share (EPS) expectation of $4.20. This figure represents a significant 12% increase from the $3.75 per share reported in the same quarter of the previous year. Moreover, revenue is projected to hit $1.02 billion, marking a modest growth of 1.6% from the $1 billion reported in the year-ago period. These projections reflect analysts' confidence in Acuity Brands' ability to maintain its growth trajectory amidst the challenges in the market.
The company's financial health is further highlighted by its valuation metrics. Acuity Brands boasts a price-to-earnings (P/E) ratio of approximately 19.41, indicating investors' willingness to pay a premium for its earnings. Additionally, its price-to-sales (P/S) and enterprise value-to-sales (EV/Sales) ratios stand at about 1.90, suggesting a strong market valuation of its sales. The enterprise value to operating cash flow (EV/OCF) ratio of nearly 12.97 further emphasizes the market's positive outlook on the company's cash flow generation capabilities.
Moreover, Acuity Brands' debt-to-equity (D/E) ratio of approximately 0.24 demonstrates a prudent financing strategy, balancing debt and equity to fund its operations while maintaining financial flexibility. The current ratio of about 2.59 indicates the company's robust liquidity position, ensuring it can meet its short-term obligations without difficulty.
As Acuity Brands prepares to unveil its earnings, the stability in the consensus EPS estimate over the past 60 days signals analysts' agreement on the company's financial prospects. This consensus is crucial as it influences investor sentiment and can impact the stock's performance in the short term. With its strong financial indicators and a history of earnings outperformance, Acuity Brands is closely watched by the market as it approaches its upcoming earnings announcement.
Acuity Brands, Inc. Reports Mixed Fiscal Q2 Earnings, Faces Stock Decline
Acuity Brands, Inc. Fiscal Second-Quarter Earnings Report
On Wednesday, April 3, 2024, Acuity Brands, Inc. (AYI:NYSE) reported its fiscal second-quarter earnings, revealing a mixed financial performance that caught the attention of investors and market analysts. The company announced earnings per share (EPS) of $2.84, falling short of the anticipated $3.11. Additionally, AYI's revenue for the quarter was $905.9 million, slightly below the expected $907.75 million. This news led to a 1.6% decline in AYI's stock value early Wednesday, as reported by Market Watch. Despite this, the company managed to surpass profit expectations but faced challenges in meeting sales estimates.
AYI, a leader in the lighting and lighting controls industry, experienced a 4% decrease in net sales compared to the same period in the previous year, totaling $906 million for the quarter ended February 29, 2024. However, the company demonstrated resilience by achieving a 6% increase in operating profit, reaching $118 million, and an adjusted operating profit of $140 million, also up by 6% over the prior year. This growth in profitability, despite the sales decline, underscores AYI's effective cost management and operational efficiency.
The company's financial health was further highlighted by an 11% increase in diluted EPS, rising to $2.84, and an adjusted diluted EPS of $3.38, reflecting the same 11% growth compared to the previous year. AYI also reported a strong year-to-date cash flow from operations of $293 million, indicating robust financial health and the ability to generate significant cash flow despite market challenges.
Neil Ashe, Chairman, President, and Chief Executive Officer of Acuity Brands, emphasized the quarter as a period of solid execution for the company. He pointed out the increase in adjusted operating profit, adjusted operating profit margin, and adjusted diluted earnings per share, alongside the generation of strong free cash flow. This statement reflects the company's focus on maintaining profitability and cash flow generation, even in the face of sales headwinds.
AYI's financial metrics provide a comprehensive view of its market valuation and financial stability. With a price-to-earnings (P/E) ratio of approximately 21.63, investors show their willingness to pay for AYI's earnings, reflecting confidence in the company's future growth prospects. The price-to-sales (P/S) ratio of about 2.12 and an enterprise value-to-sales (EV/Sales) ratio close to 2.12 indicate the market's valuation of the company's sales, taking into account its debt and cash levels. Additionally, the enterprise value-to-operating cash flow (EV/OCF) ratio of approximately 17.68 highlights the company's valuation in comparison to its operating cash flow, showcasing its efficiency in generating cash from its operations. The debt-to-equity (D/E) ratio of around 0.27 demonstrates a balanced approach to financing, while the current ratio of about 2.59 signifies AYI's strong liquidity position, ensuring its ability to cover short-term liabilities with short-term assets.
Acuity Brands Reports Better Than Expected Q1 Results
Acuity Brands (NYSE:AYI) reported its Q1 results, with EPS of $3.29 coming in better than the Street estimate of $3.02. Revenue was $997.9 million, compared to the Street estimate of $984.6 million.
Gross margin was flat year-over-year and sequentially vs. expectations for slight pressure. The company had indicated peak capitalized freight costs and metals working through inventory layers, but pricing was a bit stronger than expected and plant performance was solid.
Analysts at Oppenheimer expect gross margin headroom potential/likelihood in H2 on improving supply chain and electronic components procurement, which should support improved factory planning/level-loading, alongside improved cost position in inventory layers.
Acuity Brands Reports Better Than Expected Q4 Results
Acuity Brands, Inc. (NYSE:AYI) reported its Q4 results, with EPS of $3.95 coming in better than the Street estimate of $3.61. Revenue was $1.11 billion, compared to the Street estimate of $1.08 billion.
Contractor Select continues to outgrow the broader portfolio, launched a few years ago to revitalize (cost, form factors, quality, manufacturability) the most important everyday lighting and control products as a key foundational portfolio layer into channels.
The company also notes product vitality ranging 20–30% of sales (NPIs, improvements to existing), dramatically improved vs. a few years back; combined with more differentiated service level competitive separation (supplier of year awards from two largest industry buying groups) and industry-best channel positions, notes improved balance to drive volume/price/mix runways.
Acuity Brands’ Review by Oppenheimer
Oppenheimer analysts provided a company update on Acuity Brands, Inc. (NYSE:AYI), reiterating their outperform rating and $210 price target on the company’s shares.
The company has built abnormal levels of backlog/inventory and delivered exceptionally well in Q3, alleviating some past due as components inventory and timing converged favorably. Notwithstanding the step-out level of Q3 sales, the backlog was relatively unchanged.
Despite some supply chain frictions improving and nice Q3 WIP inventory converting to finished goods and out the door, shortages continue hanging around.
Considering the relative scale of the company’s Q3 sales and slower summer construction indicators, the analysts see Q3 performance as above trend. The analysts are now basing Q4 estimates less relative to that and viewing H1 as more trend-informative (Q1/Q2 each delivered revenue/EPS beats followed by upward estimate revisions). For Q4, the analysts adjusted their EPS estimate to $3.52 from $3.70.
Acuity Brands’ Review by Oppenheimer
Oppenheimer analysts provided a company update on Acuity Brands, Inc. (NYSE:AYI), reiterating their outperform rating and $210 price target on the company’s shares.
The company has built abnormal levels of backlog/inventory and delivered exceptionally well in Q3, alleviating some past due as components inventory and timing converged favorably. Notwithstanding the step-out level of Q3 sales, the backlog was relatively unchanged.
Despite some supply chain frictions improving and nice Q3 WIP inventory converting to finished goods and out the door, shortages continue hanging around.
Considering the relative scale of the company’s Q3 sales and slower summer construction indicators, the analysts see Q3 performance as above trend. The analysts are now basing Q4 estimates less relative to that and viewing H1 as more trend-informative (Q1/Q2 each delivered revenue/EPS beats followed by upward estimate revisions). For Q4, the analysts adjusted their EPS estimate to $3.52 from $3.70.
