With one quarter remaining in FY2023, Acuity Brands (NYSE: AYI) no longer sees overall annual revenue growth in the cards, and does not expect to meet the low end of the guidance range for annual FY2023 revenue given at the end of FY2022 ($4.1B to $4.3B). Last week’s Q3 FY2023 presentation included guidance for AYI Net Sales Range for full year FY2023 of $3.9B to $4.0B, a result that would be flat to slightly down from FY2022’s $4.01B finish. The original Earnings per Share guidance (Adjusted Diluted EPS) remains in place at $13.00 to $14.50.
Acuity’s Q3 FY2023 net sales totalled $1.0B, down -5.7% ($60.3M) over Q3 FY2022. Profitability improved during Q3 FY2023 with adjusted an operating profit margin of $163M, up +100 bps over the prior year quarter, and EPS up +7%. Strong cash flow from operations was generated in Q3 FY2023. Acuity operates two business divisions: ABL (Acuity Brands Lighting) which represents roughly 95% of the company’s net sales, and ISG (Intelligent Spaces Group). For Q3 FY2023, ABL reported net sales of $940.7M, down -6.7% of the prior year Q3, while ISG reported net sales of $66M, up +12.9% over the prior year Q3.
Capital was allocated in Q3 FY2023 for share repurchase ($95M) and for a new acquisition to expand the portfolio and customer reach for Acuity’s ISG division. The acquisition was KE2 Therm, a provider of intelligent refrigeration control solutions; it was announced and completed during the quarter using cash on hand. The Q3 FY2023 operating results include KE2 Therm although the company’s 10-Q filing noted they are not material to Acuity Brand Inc.’s financial condition, results of operations, or cash flow.
In his prepared comments opening the Q3 FY2023 Earnings call, Chairman, President and CEO Neil Ashe discussed ABL’s recent launch of “Design Select” for the specification community. Design Select consists of 3,000 configurable products and is intended to “elevate our service for the specification community” – products from Acuity’s brands including Aculux, Gotham, Lithonia Lighting, nLight and SensorSwitch. CEO Ashe noted that ABL Lighting and Lighting Control products are now delineated in three clear categories: Contractor Select (roughly 300 products available in stock at retailers and electrical distributors), Design Select (3,000 products for specifiers with “dependable service”) and the remainder “Made to Order”. Answering an analyst’s follow-up question on this categorization strategy, CEO Ashe commented: “the import of creating those different buckets is ultimately that we’re trying to make the lighting and lighting control business more predictable, repeatable and scalable.”
| ABL Q3 FY2023 Sales by Channel | Q3 FY2023 Net Sales | Change over Q3 FY2022 |
| Independent Sales Network | $686.0M | -5.5% |
| Direct Sales Network | $103.9M | +8.1% |
| Retail Sales | $48.0M | +7.4% |
| Corporate Accounts | $44.4M | -25% |
| OEM and Other | $58.4M | -29% |
| Total ABL Net Sales | $940.7M | -6.8% |
Responding to a request for color commentary on the current ABL market channels and segments, CEO Ashe noted that while the corporate accounts side is down based on timing of renovations, the OEM channel probably has some continued driver destocking going on, the C&I order rate is “relatively stable” and the direct sales channel is “consistent.” He added that the retail channel has had “continued strong performance.”
CFO Karen Holcom’s remarks outlined the success Acuity has had in bringing inventory down by 22 days from its peak in February 2022, and also bringing inventory dollars down by over $36M sequentially from the second quarter of fiscal 2023. She reinforced the message that the lower volumes experienced are “consistent with lead-time normalization trends and the impact of the wider macro environment.” CEO Ashe closed the call noting: “we had a solid quarter. We delivered margin and cash flow despite a decline in sales. We allocated capital effectively, and we continue to improve our underlying businesses.”
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Acuity Brands Q3 FY2023 Press Release: https://www.investors.acuitybrands.com/news-releases/news-release-details/acuity-brands-reports-fiscal-2023-third-quarter-results
Acuity Brands Q3 FY2023 Supplemental Presentation: https://www.investors.acuitybrands.com/static-files/cba1de1d-f1ed-4e45-ae41-cc5d3f7f4e94