January 8, 2025
Acuity Brands Starts 2025 with “Solid” Performance
Executives comment on potential tariffs, new 2025 guidance and sales agent sentiments
Acuity Brands, North America’s largest lighting company, reported its Q1 FY2025 financial results today, January 8, 2025, after moving the announcement up by one day in observance of the National Day of Mourning for Former President Jimmy Carter.
The company reported modest revenue growth for the period ending Nov. 30, 2024, despite challenges in a couple of market channels. It also updated its fiscal 2025 outlook following the recent acquisition of QSC, a strategic move to expand its technology-driven building solutions portfolio.
Acuity posted net sales of $951.6 million in Q1 FY2025, a 1.8% year-over-year increase from $934.7 million in Q1 FY2024. The rise was driven by growth across its two core segments: Acuity Brands Lighting (ABL) and Acuity Intelligent Spaces Group (ISG).
CEO Neil Ashe kicked off this morning’s earning call stating, “Our fiscal 2025 first quarter performance was solid. We delivered sales growth, expanded our adjusted operating profit and adjusted operating profit margin, and increased our adjusted diluted earnings per share.”
Gross profit for the quarter improved to $449.3 million, a 4.9% increase from the prior year, with gross margins expanding to 47.2% from 45.8%. This improvement was attributed to effective cost management and operational efficiencies.
However, net sales were down 7.8% sequentially from Q4 FY2024, reflecting the usual seasonal dip that Acuity experiences in its first fiscal quarter. Historically, this dip ranges between 7% and 11%. This trend will undoubtedly shift in future quarters due to the significant $100+ million “non-organic” revenue boost expected from QSC each quarter.
Acuity Brands Lighting & Lighting Controls (ABL), Acuity’s largest segment, reported net sales of $886 million, a 1.1% year-over-year increase. Growth in the independent sales network (up 3%) and direct sales channel (up 10.1%) offset steep declines in the retail (down 19.2%) and corporate accounts (down 21.2%) channels.
Operating profit for ABL was $143.3 million, with an operating margin of 16.2%, down slightly from 16.4% in Q1 FY2024 due to increased labor and overhead costs.
Intelligent Spaces Group Sees Double-Digit Growth
ISG delivered net sales of $73.5 million, up 14.5% year-over-year, fueled by demand for Distech products and global expansion efforts. Operating profit surged 103.8% to $10.8 million, with operating margins increasing by 640 basis points to 14.7%. During the quarter, ISG added systems integrator partners in the UK, Asia, and Australia, further expanding its international presence.
QSC Acquisition and Updated 2025 Guidance
The $1.1 billion (net) acquisition of QSC, completed on January 1, 2025, marks a transformative step for Acuity’s Intelligent Spaces strategy. QSC specializes in audio, video, and control solutions, adding an estimated $500 million in annual revenue. CEO Neil Ashe described the acquisition as a means to create fully integrated, data-driven environments: “Imagine a future where a space intelligently adjusts to its occupants, enhancing both comfort and energy efficiency.”
The company revised its FY2025 guidance to account for the acquisition. Net sales are now expected to reach between $4.3 billion and $4.5 billion, with adjusted diluted EPS projected at $16.50 to $18. The core business is expected to perform as consistent with prior guidance.
Product Mentions
During the earnings call, Ashe highlighted two new Contractor Select products: the TruWrap luminaire and REBL LED High Bay both featuring switchable technology to provide greater flexibility for distributors and contractors. Acuity also celebrated multiple industry awards, including recognitions for its Hydrel Flame and several Eureka luminaires.
Tariff Concerns
In fiscal year 2024, 53% of Acuity Brands sales derived from products manufactured in one of the company’s seven Mexico factories.
Ashe provided clarity on Acuity Brands’ stance regarding potential tariff impacts that may be looming with a new U.S. President being sworn in later this month. He explained that while tariffs have been a topic of discussion, they have yet to materialize in a way that necessitates immediate action. Ashe highlighted the company’s proactive communication with customers, stating, “The expectation from our customers is that we will react accordingly when that happens.”
He further noted that since no tariffs have been implemented, there is “nothing to talk about” at present. However, he reassured stakeholders that Acuity is fully prepared to respond swiftly and adjust its strategies if tariffs are imposed.
Strong Profits Explained
During the earnings call, analysts highlighted Acuity Brands’ strong gross margin performance, which reached 47.2%, a significant improvement from prior years. CFO Karen Holcom credited this to the company’s focused strategy on product vitality, service enhancements and operational productivity. Holcom emphasized the continued impact of higher-margin Intelligent Spaces products on overall profitability, as well as “delivering higher value products with less material content” as Acuity did with the recent Holophane Holobay™ launch.
Looking ahead, Holcom reiterated the company's goal of sustaining margin improvements, projecting operating margin growth of 50 to 100 basis points over the medium term. She noted that while investments in technology and product development would continue, they are designed to further drive efficiencies and enhance profitability. “We believe there’s still room for gross margins to improve as we remain committed to delivering high-value, lower-cost solutions,” Holcom stated.
Independent Sales Agent Sentiment
Ashe highlighted the critical role played by Acuity’s independent sales agency network in driving the company’s growth. He noted that the network has continued to perform well, even amid varying market conditions. Ashe stressed the importance of the relationships and trust built within this channel, which remains a cornerstone of Acuity’s sales strategy.
Looking ahead, he expressed optimism about the network’s outlook, sharing that feedback indicates confidence in improving market conditions as the year progresses. Ashe described the sentiment among agents as generally positive, with many expecting a steady recovery in demand.
Dips in Retail and Corporate Accounts Channels
Ashe addressed the sales declines in Acuity’s retail and corporate accounts channels, describing them as “point in time” issues rather than long-term trends. Retail sales fell 19.2% year-over-year, which Ashe attributed to broader market dynamics and inconsistent performance from key retail partners over the past year. He noted that while retail results were weaker this quarter, they are expected to stabilize as the business catches up over time.
Similarly, corporate account sales, which decreased by 21.2%, were characterized by Ashe as inherently variable due to the nature of customer decision cycles. He explained that this channel often experiences significant fluctuations depending on the timing of large customer orders, which can lead to uneven quarterly performance.
Cash Flow and Capital Allocation
Acuity generated $132.2 million in cash flow from operating activities during the quarter, a 30.4% year-over-year decline due to increased working capital requirements. The company ended the quarter with $935.6 million in cash, bolstered by $600 million in new debt to finance the QSC acquisition.
Capital allocation priorities remain unchanged, with continued investments in growth, dividends, and share repurchases. In Q1, Acuity repurchased 17,000 shares for $5.4 million and paid $4.5 million in dividends.
Moving forward:
Acuity Brands demonstrated resilience and steady performance in Q1 FY2025, leveraging its robust product portfolio to navigate a challenging market environment. With the integration of QSC and an expanded global footprint for ISG, the company is well-positioned to drive future growth in lighting and technology-driven solutions.
Ashe summarized, “We have the best lighting company in North America. It's performing. We have a clear algorithm for growth and the opportunity to continue to increase margins.”
