Acuity Brands (AYI) Misses Q1 EPS by 16c

Acuity Brands (NYSE: AYI) reported Q1 EPS of $2.00, $0.16 worse than the analyst estimate of $2.16. Revenue for the quarter came in at $821.2 million versus the consensus estimate of $894.94 million.

Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands, commented, “We were pleased to deliver record first quarter financial performance and we believe the Company continued to meaningfully outperform the overall growth rate of our end-markets while investing in areas with significant growth potential, including the expansion of our solid state luminaire and lighting controls portfolio as well as our building management and Internet of Things software platform. Initial industry data suggests that the overall lighting market grew very modestly during our first quarter. Nonetheless, we still grew our legacy sales volume 10 percent in the quarter. Our adjusted gross profit margin of 42.4 percent declined 100 basis points compared with the prior year. The decline was due primarily to weaker than expected net sales volume. Other less significant factors included higher manufacturing costs, primarily related to short-term production challenges related to new product introductions, a rise in quality costs, and expected increases in certain employee wages and benefits. Our adjusted operating profit margin of 16.8 percent declined 30 basis points compared with the prior year. Excluding the impact of acquisitions, our variable contribution margin as a percentage of net sales was approximately 20 percent, below our current annual target of a mid-to-upper 20 percent range, primarily due to the impact of less than anticipated net sales and the continued investment in additional headcount to support our Tier 3 and 4 solutions. All in all, we had a solid quarter given market conditions.”

Outlook

Mr. Nagel commented, “We believe the softness in demand over the last quarter or so was due to temporary circumstances that for the most part have passed; however, some softness could linger into the second quarter. Our December order activity continues to reflect growth albeit at a slower pace than we experienced over the previous several quarters. Long-term fundamental drivers of the markets we serve still seem to be intact and positive, while independent third-party forecasts and leading indicators continue to suggest positive growth rates for our fiscal 2017. Therefore, we have not meaningfully changed our previous expectations that the fiscal 2017 growth rate for lighting and energy management solutions in the North American market, which includes renovation and retrofit activity, will be in the mid-to-upper single digit range. Similar to prior years, the second fiscal quarter, typically our weakest quarter, is expected to once again be influenced by normal seasonality and the potential for year-end inventory rebalancing by certain customers. Additionally, we believe that overall demand in our end markets will continue to experience solid growth over the next several years, and we remain bullish regarding the Company’s prospects for continued future profitable growth. We expect to continue to outperform the growth rates of the markets we serve 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 our integrated, tiered solutions strategy.”

Recent changes in the U.S. political landscape have produced a great amount of rhetoric and debate regarding a wide range of policy options with respect to monetary, regulatory, tax, and trade, amongst others, that may be pursued by the new administration. Any policy changes implemented may have a positive or negative consequence on the Company’s financial performance depending on how the changes would influence many factors, including business and consumer sentiment. While management is proactively identifying and evaluating potential contingency options under various certain policy scenarios, it is to early to comment or speculate at this time on the potential ramification of these endless scenarios.

Mr. Nagel concluded, “We believe the lighting and lighting-related industry as well as building automation 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.”

For earnings history and earnings-related data on Acuity Brands (AYI) click here.

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