November 2, 2023
LSI's Lighting Segment Holds Steady Amid Company Sales Decline
Overall company sales dip 3%. Lighting sales flat year-over-year.
Ohio-based LSI Industries Inc. today unveiled its fiscal 2024 first-quarter results ended September 30, 2023. Despite a 3% year-over-year decline in net sales to $123.4 million, the company showcased resilience, particularly in its Lighting division.
The Lighting segment held its ground with sales remaining steady compared to the robust performance in the previous year. Lighting Segment net sales of $67.6 million were flat from prior year. Sequentially, the $67.6 million represents a 5.3% dip in revenue compared to the prior quarter that ended on June 30.
LSI explained that a record number of agency, distributor, and contractor partner personnel visited the company’s lighting locations for multi-day training on new products and specific vertical-market applications. Notably, the segment also completed the first phase of a significant EV battery plant project and secured an order for a second facility.
President and CEO James A. Clark emphasized, "We continue to invest in both product and non-product initiatives for the Lighting Segment." He highlighted the importance of in-person training and their comprehensive training platform in enhancing the value proposition of their products.
Innovation as a Growth Catalyst: LSI is leveraging innovation as a core component of its growth strategy. Clark noted, “Innovation has been an important part of our growth in sales and profitability the last several years and is a critical part of our future growth.” The company introduced innovative products such as the ‘Archer’ lighting system and ‘Forward Throw’ optics technology at the NACS trade show, reflecting their commitment to solving customer problems creatively.
Segment-Specific Developments and Outlook
Lighting Segment: Sales remained stable with an improved margin. The division saw strong project quotation levels and stable pricing entering the fiscal second quarter.
Display Solutions Segment: Although it experienced a modest sales decline, the segment showed improved profitability and margin expansion. New significant programs were secured, including an image refresh program for one of the world's largest oil companies.
Managing Challenges and Future Prospects: While acknowledging the challenges in predicting project timing, Clark stated, “Importantly, we’ve built our business to flex and adapt to these fluctuations, while ensuring we are well equipped to support the unique needs of every customer.”
LSI Q1 Financials: Positive Observations
Increased Operating Income: There's a notable 10% increase in operating income as reported, rising from $10.0 million in 2022 to $11.0 million in 2023.
Strong Adjusted Operating Income Growth: Operating income, as adjusted, grew by 17%, indicating strong underlying operational efficiency.
Significant Net Income Growth: Net income as reported grew by 28% year-over-year, and adjusted net income saw a 23% increase.
Earnings Per Share Improvement: Both reported and adjusted diluted earnings per share (EPS) showed healthy growth, 23% and 16% respectively.
Solid Balance Sheet: The company has a healthy balance sheet with a current assets to liability ratio of approximately 2 to 1, indicating good short-term financial health.
Reduction in Long-Term Debt: Long-term debt decreased significantly from $31.6 million to $25.1 million. This has been a notable occurrence for LSI Industries in recent years.
Improvement in Adjusted EBITDA Margin: Adjusted EBITDA as a percentage of sales improved from 10.5% to 12.2%.
Clark highlighted, “Profitable growth remains a central pillar of our value creation strategy.” He underlined the focus on expanding positions within high-value verticals, leading to margin expansion and higher quality earnings.
LSI Q1 Financials: Other Observations:
Decline in Net Sales: There’s a 3% decline in net sales, dropping from $127.0 million to $123.4 million.
Decrease in Display Solutions Segment Sales: The Display Solutions Segment experienced a 6% decrease in net sales.
Rise in Severance and Restructuring Costs: There is a noticeable increase in severance and restructuring costs, which could suggest ongoing organizational changes. For the three months ended September 30, 2022, the severance costs and restructuring costs were just $12,000. For the same period in 2023, these costs rose significantly to $353,000.
Overall, LSI Industries seems to be managing its finances well with significant improvements in profitability and debt management, despite the challenge of decreased net sales. The positive aspects, particularly in terms of operational efficiency and earnings growth, appear to outweigh the negative elements.
While industry trends seem to be pointing to tightening markets, LSI's start to 2024 indicates that it is navigating the uncertainty relatively well.
