April 5, 2022

Another Solid Quarter from Acuity: Here are the Takeaways

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Today, Acuity Brands reported its Fiscal Year 2022 second quarter performance for the period ended February 28, 2022. For the fourth straight quarter, the company has reported double-digit percentage revenue growth compared to prior year.

Despite the strong second quarter performance, Acuity Brands stock was trading -7.8% in intraday trading around 10AM EDT. Here are takeaways from the published report and the earnings call led by Neil Ashe, Chief Executive Officer, and Karen Holcom, Senior Vice President and Chief Financial Officer.

FINANCIALS

Net sales were $909 million – an increase of $133 million, or 17%, compared to the same period in fiscal 2021.

Acuity Brands Lighting channel vs. Q2 2021:

Independent Sales Network (sales agents): Net sales grew 14% to $636.8 million
Direct Sales Network: $90.0 million, up 12.4% over the prior year
“Other” is the third largest of Acuity Brands Lighting’s five channels and grew 83% due primarily to the 2021 acquisition of OSRAM Digital Systems.
The “Other” category primarily includes "OEM Channel, International Sales, Daylighting business and our catalog business."

Gross profit of $379.3 million for the second quarter of fiscal 2022 increased $42.6 million, or 12.7%, over the prior year.

Stock buyback: Since May 2020 Acuity Brands has bought back approximately 13% of company shares at approximately $120 per share. Shares of Acuity Brands were down $14.43 during intraday trading at $170.65.

Intelligent Spaces Group (Atrius and Distech Controls): generated net sales of $50 million for the second quarter of fiscal 2022, an increase of $6.7 million, or 15.5% over the prior year.

Impact of rising interest rates: The company is paying close attention to rising rates, but no significant impact has yet been observed.

PRODUCT MENTIONS DURING EARNINGS CALL

Ashe explained that the company “has introduced around 220 new or significantly upgraded lighting and lighting controls products over the last two years.”
According to Ashe, Acuity Brands has had “a lot of success with the Contractor Select portfolio which is right product, right place, right time.”
Distech Eclipse controller products “continue to win in the building controls market against significant competition.”
Atrius platform continues to be developed including progress on Atrius Building Insights.
OSRAM Digital Systems acquisition is performing “exceptionally well” and “is a great example of adding a strategic asset to an important business…” The acquisition enables Acuity Brands to:
- Control the technology Acuity has in its luminaires.
- Expand OEM channel, so Acuity can participate in the broader market
- Integrate supply chain to scale more effectively

NEXT ’22:

In March, the company hosted its first in-person sales conference in three years – NEXT ‘22.
Ashe stated that “it was great to be back together with our independent sales network who have performed exceptionally through the ups and downs of the last two years.”
Ashe added, “we have the best agents in the industry…”
Agent feedback to the company is that “Acuity is delivering.”
EarthLIGHT, the company's environmental, social, and governance initiative was an important part of NEXT ’22.

END MARKETS

Distech saw “significant project wins in key verticals including education, commercial, infrastructure and in data centers.”
“Distech is now a key supplier to two of the largest cloud providers.”
In the context of corporate accounts (that aren’t sold through independent lighting agents), Holcom explained that customers paused renovation activity in 2021 and “that activity has now restarted…”
Holcom added, “We expect the current environment to continue for the foreseeable future with strong demand while access and cost of components will remain a challenge.”
Ashe stated that “Backlog has ticked up slightly, sequentially.”
The company does not have direct sales exposure to Russia or Ukraine, but the conflict does affect supply chain costs and availability.

PRICE INCREASES

Ashe explained, that Acuity Brands has been able to introduce six price increases and the reaction has been relatively accepting of those price increases.

Acuity Brands has intentionally not repriced the backlog. That creates a cumulative effect of price realization as the price increase realization rolls out throughout the year.

SUPPLY CHAIN

Ashe explained that the company “decision to prioritize shipments by investing in electrical components and transportation are resulting in higher sales and operating profits, albeit at slightly lower margins.”
Ashe stated, “Our investments in service have allowed us to prioritize delivering for our customers when others have been unable to.”
The company has increased its focus on strategic supplier relationships.
“Engineering teams continue their Herculean efforts to redesign products to the available components.”
Acuity is experiencing longer lead times on purchased finished goods. Products that used to arrive in 20 days are now taking closer to 50 days to arrive.
For the second straight earnings call Ashe made a Whac-A-Mole analogy, explaining that supply chain seems to present challenges that are different each time.
- “More demand than supply for global chips.”
- “Transportation has been a problem and that should, hopefully, get a little bit better…”
- Commodity prices have changed. Steel, aluminum, etc.