Lighting Design & Specification

January 23, 2018

Acuity Brands, Inc.’s fiscal 2018 first quarter net sales of $842.8 million (all figures in U.S. dollars), a decrease of $8.4 million (1%) compared with the year-ago period. Operating profit for the first quarter of fiscal 2018 was $118.6 million, a year-over-year decrease of $US8 million (6.3%). Net income for the first quarter of fiscal 2018 was $71.5 million, a year-over-year decrease of 12.5%. However, the company remains positive regarding its prospects for future profitable growth.

“Our fiscal 2018 first quarter net sales results were below our expectations,” says Chairman, President and CEO Vernon J. Nagel, Chairman, “but once again better than market level performance as initial industry data suggests that the growth rate of the company’s key end markets in North America was down low-single digits, which was in line with previous expectations. The year-over-year decline in our net sales of 1% was due primarily to lower sales in the home centre/showroom channel and certain international sales channels, including the U.K. and Mexico. We believe the decline in the home centre/showroom channel was primarily due to changes in the in-house branding strategies being deployed by certain customers for select products in certain categories, while the decline in sales in certain international markets was due to weaker demand resulting from economic and or political headwinds. Excluding these specific sales channels, net sales increased 2%.

“Our profitability measures for the first quarter were solid but were impacted by continued tepid market conditions and the decline in revenue in the aforementioned sales channels,” continues Nagel. “During the first quarter, we continued to expand our industry leadership position in providing IoT-enabled business solutions with our Atrius platform now deployed across nearly 160 million square feet of indoor spaces, leveraging more than 1.6 million networked sensors. We have accelerated deployments and increased active pilots with several of the largest U.S.-based and certain European-based retailers as well as other key vertical applications, including certain airports.”

The 1% year-over-year decline in fiscal 2018 first quarter net sales was primarily due to a 1% decrease in sales volume and a 1% net unfavourable change in product prices and mix of products sold (“price/mix”), partially offset by a 1% favourable impact from changes in foreign exchange rates. The change in price/mix was due primarily to lower pricing on luminaires, reflecting the decline in certain LED component costs as well as increased competition in more basic, lesser-featured products. Sales of LED-based products during the first quarter of fiscal 2018 and 2017 accounted for approximately two-thirds of total net sales.

Gross profit for the first quarter of fiscal 2018 decreased $9.4 million, or 2.6%, to $350.2 million compared with $359.6 million in the prior-year period. The decline in gross profit was due primarily to lower sales, unfavourable price/mix, and higher input costs for certain commodity-related items, such as steel, which were partially offset by lower costs for certain LED components and productivity improvements. Fiscal 2018 first quarter adjusted gross profit margin of 41.6% declined 80 basis points compared with prior year’s adjusted gross profit margin. Selling, distribution, and administrative (“SD&A”) expenses for the first quarter of fiscal 2018 were $231.4 million compared with $231.8 million in the prior-year period, reflecting lower commission expense largely offset by higher salaried employee costs, amortization expense, and share-based payment expense. Adjusted SD&A expenses for the first quarter of fiscal 2018 were down modestly compared with the prior-year period, but up 10 basis points to 25.7% of net sales compared with the prior-year period.

“We remain positive regarding the company’s prospects for future profitable growth despite recent market softness, which has impacted our short-term performance,” says Nagel. “While various leading indicators continue to generally reflect favourable conditions for our end markets, we are cautious regarding a meaningful rebound in our end markets over the next quarter or so as a result of various factors, including labour shortages in the construction industry and uncertainty related to both infrastructure spending as well as federal regulatory and trade policies. However, we believe the recent passage of the U.S. Tax Cuts and Jobs Act may have a favourable impact on future demand for many end markets we serve as positive business sentiment may lead to further investments in facilities and infrastructure in the U.S. At this time, we continue to expect the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises approximately 97% of the company’s revenues, will be up low single-digits for fiscal 2018, reflecting an expected rebound in the second half of the year. We expect the pricing environment to continue to be challenging in certain portions of the market, particularly for more basic, lesser-featured products sold through certain sales channels. We do not foresee a meaningful rebound in demand in the near term in certain international markets that we serve. In addition, we expect certain headwinds in the home centre/showroom channel to continue in the near term, giving way to growth in the second half of calendar 2018 as we bring new solutions to key customers and expand our access to market in this important sales channel. 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.”

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