October 1, 2024
Acuity Brands 2024: Profits Jump $79.9 Million Despite Sales Dip
Company expects moderate revenue growth in 2025, and comments on potential acquisition activity
Acuity Brands, Inc. (NYSE: AYI), North America’s largest lighting company, reported its full-year results for fiscal 2024, ending on August 31, 2024. Despite a 2.8% decline in net sales, totaling $3.84 billion, the company achieved notable profitability, with full-year diluted earnings per share (EPS) rising by 25% to $13.44 and adjusted diluted EPS up 11% at $15.56. Operating profit for the year reached $553.3 million, an increase of $79.9 million or 16.9% over the prior year.
For the fourth quarter, Acuity Brands posted a 2% increase in net sales, reaching $1.03 billion, marking the first quarter in over a year to see a sales increase compared to the same period of the prior year. Diluted EPS for the quarter rose sharply by 43% to $3.77, with adjusted diluted EPS up 8% at $4.30. Operating profit for the quarter also surged, totaling $157 million, a 43.1% increase year-over-year.
"We believe that through our product vitality efforts and through our service, we are delivering more valuable products and services to the industry, and we and we will get paid for that."
"So we have a strategic pricing strategy which allows us to focus on continuing to deliver that value to the to the lighting industry, so they will continue to reap the benefits of that. At the same time we can continue to earn higher margins."
— Neil Ashe, CEO, Acuity Brands
The 4-week rise of Acuity Brands’ stock price
In the weeks following the fiscal year-end, Acuity Brands' stock has experienced significant momentum. Opening at $251.60 on Tuesday, September 3, the stock closed the month at $275.39, representing a 9.5% gain, outperforming the S&P 500's 2.5% rise in the same period.
During intraday trading after this morning’s earnings release, the stock price has climbed further, with shares trading at $288.18, indicating a 4.6% intraday increase, reflecting even more investor confidence in Acuity's performance and outlook.
Segment performance
In fiscal 2024, Acuity Brands Lighting and Lighting Controls (ABL) remained the company's largest segment, generating $3.6 billion in net sales, which accounted for approximately 93% of the company’s total sales. Despite a 4% decrease compared to the prior year, ABL's operating profit increased by 14.4% to $582.8 million. The Intelligent Spaces Group (ISG) contributed $291.9 million in net sales, representing about 7% of the company’s overall revenue, and showed strong growth with a 15.5% increase in sales compared to the previous year
During this morning's earnings call, CEO Neil Ashe and CFO Karen Holcom shared several key takeaways, including the following:
Product Mentions
Ashe highlighted the Holophane Holobay™ series LED round high bay lighting as a significant leap in industrial lighting technology, calling it the "biggest technology improvement in over a decade in industrial high bays." Additionally, Ashe mentioned Acuity Brands products that were recognized in the Illuminating Engineering Society’s 2024 IES Progress Report, including products from a-light, Lithonia Lighting, and Gotham.
The Intelligent Spaces Group (ISG), mainly comprising Distech and Atrius controls brands, was recognized for its involvement in the Paris Summer Olympics. Their Eclipse solutions played a key role in regulating water and energy consumption across multiple facilities, demonstrating their impact on managing resources efficiently at large-scale events.
Independent Sales Agents Important to Growth
Ashe highlighted the critical role of the company's independent sales agent network, noting that it serves as a core channel for the lighting business. Ashe stated, "We have about 80 agents in North America. They have about on average, 50 full time employees. So we have 4,000 sales and sales support professionals throughout North America selling our products.”
He emphasized the partnership's strength, saying, “We are generally number one in each market in which we compete, and they are generally number one in each market they compete.” Recent travels with Sach Sankpal, recently appointed President of Acuity Brands Lighting and Controls, revealed positive feedback from distributors who "want more of it faster," reinforcing the value of the agent network.
Ashe also discussed travels to the Chicago market (where KSA Lighting & Controls is the agent), mentioning the decrease in office space availability and a slowdown in warehouse activities. Despite these changes, he expressed optimism, noting, “The consumption, focusing on warehouse for a second, has to turn because they're going to reach a low point in capacity. So these things will work themselves out.”
On potential M&A activity
Acuity Brands indicated a strong interest in potential mergers and acquisitions, supported by a significant increase in cash reserves. At the end of fiscal 2024, cash and cash equivalents totaled $845.8 million, more than doubling from $397.9 million in fiscal 2023. Baird's Tim Woj stated “you guys have built quite a cash pile” and inquired about capital allocation.
Ashe emphasized the company's focus on growth through acquisitions, stating, "We believe we have a strong pipeline of opportunity of small and medium-sized acquisitions to grow both of our businesses. Our priority is around ISG, and we believe that both our organic and inorganic efforts will continue to be directed towards developing and acquiring disruptive technologies that have the opportunity to bring data together in new and interesting ways that deliver end user outcomes."
Looking Ahead to 2025
Ashe expressed confidence in the market outlook for 2025: "Our view is consistent with most of the data that we've seen, which is that calendar year 2025 is expected to be pretty strong."
Acuity Brands executives outlined an optimistic fiscal 2025 outlook, projecting net sales between $3.9 billion and $4.1 billion. Holcom expects the ABL segment to achieve low to mid-single-digit sales growth, primarily weighted toward the latter half of the fiscal year, while ISG is anticipated to see sales growth in the low to mid-teens. Adjusted diluted earnings per share are projected to be in the range of $16 to $17.50.
In terms of the lighting business, Ashe expressed confidence in achieving sustained growth, estimating annual mid-single-digit growth over the long term. Additionally, he indicated the potential for an increase in adjusted operating profit margin by 50 to 100 basis points per year in the lighting segment.
Expanding Vertical Markets
Ashe emphasized Acuity Brands' strategic move into new verticals, with a particular mention of the refueling market: “We literally had no business, zero in refueling. As of 12 months ago, we created a new canopy product portfolio that meets the needs of gas stations and convenience stores and QSR restaurants. We signed up the largest agent, independent agent in the network, and we are going to prosecute that opportunity.” The agent reference related to the on-boarding of Red Leonard Associates in June as a lighting agent partner in the petro market.
Ashe also discussed Acuity's strategic expansion of the horticultural vertical: "In the horticulture vertical, we built a product portfolio to service the horticulture environment through organic and inorganic product development." Acuity's acquisition of Arize horticulture lighting from lighting rival Current demonstrates their commitment to expanding their presence in this market, indicating both organic growth initiatives and inorganic investments.
The third area of vertical market growth briefly mentioned was additional investments in the Intelligent Spaces Group (ISG).
Exposure to East Coast port strike and Conyers chemical fire
Acuity Brands reports limited exposure to the East Coast port strike, with most of its products arriving through West Coast ports. During the Q&A session, Joe O'Dea of Wells Fargo inquired about the potential impact on the company's operations. Holcom responded that while a few products are shipped from the East Coast, their current inventory position should prevent disruptions for customers. Although there could be secondary effects as volumes shift to the West Coast, Holcom stated that they do not anticipate any material impact and are monitoring the situation.
Separately, a Sunday chemical fire at the BioLab facility in Conyers, Georgia, has caused local evacuations and raised concerns as Acuity Brands operates a 700,000-square-foot warehouse and distribution center one mile away. The fire prompted ongoing air quality monitoring across metro Atlanta due to chlorine-filled smoke. There was no mention of the fire by Acuity executives during the earnings call.
With a portfolio of six North American distribution centers, the impact on Acuity’s operations from the Conyers fire may be minimal or isolated to Southeast U.S. markets served by the Conyers distribution center. The company did not respond to our Monday afternoon inquiry about the situation before press time.
Looking ahead to 2025, while many large lighting players are bracing for declines, with anything better than a 5% revenue drop often being seen as a positive outcome, Acuity Brands' emphasis on vertical markets and driving operational efficiencies positions it well to not only weather the challenges but also potentially increase its market share.
