Acuity Brands, Inc. (NYSE:AYI) reported Q1 FY2023 results this week, once again beating market expectations on both revenue and earnings per share (EPS). Q1 FY23 revenue was $997.9M, up +7.8% over the same Q in FY2022, with net sales growth year-over-year in both of Acuity’s business divisions – Lighting (ABL) up +7% at $947M and Spaces (ISG) up +22% at $57M.
CEO Neil Ashe commented that the company “expanded adjusted operating profit, substantially grew adjusted diluted earnings per share” – both are metrics that exclude non-recurring charges – which in Q1 FY2023 included the company taking $22M in charges. The charges followed the decision to exit Sunoptics (a 2013 acquisition), and the decision to exit its custom architectural lighting business Winona, with CEO Ashe noting that the businesses “were no longer strategically relevant and we do not expect them to meet our financial expectations in the future.” CFO Karen Holcom detailed the $22M in non-recurring charges as related to impairments, severance, accelerated amortization, and a loss on the sale of the Sunoptics business.
CFO Holcom had noted in the final earnings call of FY2022 that starting with Q1 FY2023,the company would be moving to use the more traditional performance framework of net sales and adjusted diluted EPS (excluding non-recurring impacts) as opposed to the performance framework of net sales and gross margin used in FY2022, which was selected to highlight their focus on product vitality and managing the price-cost relationship.
Acuity’s Q1 FY2023 adjusted diluted EPS was $3.29, up 15% over the prior year. CFO Holcom commented that the growth in adjusted diluted EPS resulted from higher operating profit, favorable FX and lower shares outstanding, as the company repurchased just under 0.5 million shares for $78M.
Looking at the remainder of FY2023 CEO Neil Ashe’s opening comments laid out two themes: 1) “uncertainty around the economy, inflation and interest rates” and their expected impact on the business and 2) “as component availability improves, lead times will improve and backlog levels will return to normal. We are beginning to see this in our business.” He reflected on Acuity’s ability to continue to adapt to changing requirements from their customers, noting “we have positioned ourselves not to predict the future perfectly, but rather to adapt to whatever comes our way.” During the earnings call Q&A, Ashe elaborated that on the second theme of returning to more normal lead times, there will probably be an impact (over the next several periods) on demand where customers may have bought ahead of some price increases or to ensure availability.
In her comments on Q1 FY2023 profits, CFO Holcom noted there was impact of strategic decisions around commissions for FY2023. Giving further color on these commission decisions during the analysts’ Q&A session, Holcom said there were several things going on related to investing in future business, including some investments and changes to the direct sales force (specifically Holophane) for the upcoming infrastructure dollars, and investments to “secure certain project business.” CEO Ashe also added during another question on the commissions that along with the Holophane program change to capture future infrastructure dollars, there have also been changes of agencies (New York and Atlanta cited as examples) which “add up to a net investment in commissions, but not a permanent change in the percentage of sales that we invest in commissions.”
Looking at the break out of net sales of ABL by sales channel Q1 FY2023 again shows the independent lighting agent network for Acuity with almost 70% of the Acuity’s sales.
| ABL Channel | Q1 FY2023 Net Sales | Change over Q1 FY2022 |
| Independent Sales Network | $673.7M | +5.8% |
| Direct Sales Network | $106.4M | +18.2% |
| Retail Sales | $49.9M | +6.4% |
| Corporate Accounts | $49.1M | +32.7%% |
| OEM and Other | $68.0M | -6.7% |
| Total ABL Net Sales | $947.1M | +7.2% |
While the Intelligent Spaces Group (ISG) currently delivers only about 5% of Acuity’s total net sales, it is expected to be a significant long-term accelerator to the overall Acuity strategy. CEO Ashe noted that ISG’s Distech product portfolio of controls and sensors is winning in the marketplaces and Acuity is focusing on building their market reach with a promising start in the UK (Distech is established largely in North America and France to date).
Referencing a visit to Acuity’s manufacturing facilities in Mexico during December, CEO Ashe commented that these facilities are a key to Acuity’s service being differentiated, and to the progress the company has made on improving service levels as component availability becomes more stable. He described the Mexico team as highly engaged and aligned with Acuity’s values, and the facilities as being strategically located, productive and very innovative.
CEO Ashe closed his initial comments by congratulating the team on the accomplishments detailed in Acuity’s 2022 Earthlight Report (published during Q1 FY2022) – it covers their progress on ESG (Environment, Social, Governance) initiatives. Acuity has announced a commitment to achieve net zero by 2040. CEO Ashe noted the work to establish new targets to further reduce carbon emissions is “both good for the environment and good for our business.”
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Acuity Q1 FY2023 Press Release: https://www.investors.acuitybrands.com/news-releases/news-release-details/acuity-brands-reports-fiscal-2023-first-quarter-results
Acuity Q1 FY2023 Presentation: https://www.investors.acuitybrands.com/static-files/dd8452b8-a198-4a65-b115-834e08959767
Acuity 2022 EarthLight Report (published Nov 2022): https://www.acuitybrands.com/-/media/abl/acuitybrands/files/earthlight/earthlight-report-2022-single-pages.pdf?forcebehavior=open