Acuity Brands, Inc. reported fiscal 2022 Q2 results on April 5, 2022, beating expectations for both EPS ($2.57 vs $2.37 estimate) and revenue ($909.1M vs $886.42M estimate). The period reported covers December 2021 through Feb 2022 which is historically a sequentially lower topline revenue period for the company based on seasonality (Q1 fiscal 2022 topline revenue was $926M).
Chairman, President and CEO Neil Ashe noted on the April 5th earnings webcast Acuity’s strong performance under challenging conditions. Net sales for Q2 grew 17% compared to Q2 2021, and gross profit was consistent with Q1 2022 at 41.7%. Acuity divides their business into two segments: Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG). For Q2 2022, Lighting and Controls (ABL) net sales were $863M (17% growth YoY) while Intelligent Spaces Group net sales were $50M (16% growth YoY).
While Acuity reported better than expected Q2 2022 results, there was a same day sell off that caused share price decline. Why?
Both this Q2 earnings webcast and last quarter’s webcast Q&A included a question from analysts looking for updated forward guidance. CEO Neil Ashe restated that the company would not be including quarter-to-quarter updates on the FY2022 Financial Framework provided in October 2021 as part of the Q4 2021 Earnings Presentation. Clearly there is an expectation on the part of the market analysts based on prior practice for updated forward guidance during quarterly earnings calls. In response to the analyst’s question on the “removal” of the guidance slide in the outlook section of the Q2 2022 earnings release, Ashe noted Acuity’s change in approach to guidance for fiscal 2022: “So it’s really hard to introduce something new to the world…so just to reframe…what we had intended to do at the beginning of the year was to provide a financial framework which we did not engender to update through the year…our focus during the year is going to be on telling you what we’re doing, why we’re doing and how we’re doing that, and delivering the best results that we can.” The Q2 earnings released today were in line with that FY2022 Financial Framework provided at the beginning of the fiscal year.
CEO Ashe stressed the importance of Acuity’s independent sales network, adding that Acuity has the best agents in the business, and that it was great to be with them recently during the Next22 sales conference in March – the first in-person sales conference in three years.
Acuity continues to focus on three main areas: strategic supplier relationships, empowering teams to prioritize access and speed over cost of available components to ensure continuity of supply, and pursuing product vitality through engineering teams redesigning products to the available components (while introducing new and upgraded lighting and lighting control products).
CFO Karen Holcom noted that Acuity’s Q2 net sales of $909M were driven by a continuing focus on service levels and product vitality, a continued recovery in the end markets, price increases, and acquisitions. Holcom also reported that sales in the retail channel declined ~2% in Q2 2022, pointing to longer lead-times (delayed in transit, held up in port) on inventory. Inventory days are up compared to the end of FY2021 as Acuity manages inventory to support growth and protect against inconsistent component availability.
Both Ashe and Holcom expect strong demand as well as supply chain challenges to continue in the coming quarters. Ashe described the constantly varying supply chain issues as whack-a-mole, a phrase he also used in the Q1 2022 earnings webcast. CFO Holcom noted that Acuity has no direct sales exposure either in Russia or Ukraine. Both Ashe and Holcom indicated that the Russia-Ukraine conflict was adding to existing supply chain pressures, both in commodity costs (aluminum, oil) and in transportation costs and delays.
CEO Ashe closed the Q2 fiscal 2022 earnings call with a note that “demand remains strong; supply chain remains tight and challenging. And we’ll continue to work hard to deliver on the results you’ve seen going forward.” His final word was a thank you to the Acuity team and to Acuity’s independent sales network – a lighting leader who recognizes the importance of our industry’s often poorly understood, but vital, link within our sales channel.
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Acuity Brands, Inc. Second Quarter 2022 Results Presentation