Acuity Brands, Inc. (NYSE:AYI) reported Q2 FY2023 results this week, growing net sales while increasing operating profit and adjusted earnings per share(EPS). Q2 FY2023 revenue was $943.6M, up +3.8% over the same Q in FY2022, with net sales growth year-over-year in both of Acuity’s business divisions: Lighting (ABL) up +3% at $891M and Spaces (ISG) up +16% at $58M. Adjusted operating profit for Q2 FY2023 was $132M, an increase of $9.5M, or 7.7%, compared to the prior year Q2. Adjusted EPS was $3.06 in Q2 FY2023, up +19% from $2.57 in Q2 FY2022, generated by strong cash flow generation and share repurchase during the quarter.
CEO Neil Ashe held to his consistent messaging on maintaining the strategy of ongoing increased product vitality and service levels to differentiate Acuity Brands in the market, controlling what Acuity can control while adapting to changing market conditions and customer requirements. He highlighted the recent Acuity Brands Lighting (ABL) annual sales conference in Atlanta, NEXT 23, where the independent sales agent network is brought together to share the ABL strategic vision and be introduced to new products: “stated simply, we have the best agency network in the industry…while our agents are independent, they are exclusive to us for key controls, and do not represent the other majors. They are generally the largest in their market and we are their most important partner. Our partnership works very well.”
Senior Vice President and CFO Karen Holcom noted that the Q2 FY2023 increase in net sales was largely due to price for both business segments. She attributed the improved adjusted operating profit margin to the company’s successful management of price and cost. On the company’s cash flow performance in Q2 FY2023, CFO Holcom pointed to their success in bringing down the inventory days – now at 16 days- from its peak in February of 2022 (an investment to support growth and insulate against inconsistent supply availability). Inventory was reduced sequentially from Q1 FY2023 by $50M. Another factor in cash flow improvement was share repurchases in Q2 FY2023 of $46M, for a total of $124M in the first half of fiscal 2023.
The Intelligent Spaces Group (ISG) continues to deliver roughly 5% of Acuity’s total net sales, but is expected to be a significant long-term accelerator to the overall Acuity strategy. Q2 FY2023 net sales for ISG were $58.2M, a 16.4% increase over Q2 of the prior year. CEO Ashe noted that ISG’s Distech product portfolio of controls and sensors is winning in the marketplaces because the technology is open protocol, allowing the Distech controller to connect to most new or existing systems in a built space. He also attributes Distech’s success to going to market through independent system integrators, a network on which Acuity is continually working.
Looking to the rest of fiscal 2023 in his comments on the Q2 earnings call, CEO Ashe referred to “meaningful changes in the economic climate”, including a slowing of the order rate for project business during the quarter: “we believe that the slower order rate is driven by the lead time compression…and now the changing C&I lending environment. At the same time, our Contractor Select business continued to be strong.” He noted that census data suggests that Asian imports are down over 30%, while Acuity is growing their business for everyday products.
Acuity continues to hold to its original 2023 Outlook(given at year-end FY2022): Full-year FY2023 net sales in the range of $4.1B to $4.3B, ABL net sales growth in the low-to-mid single digits, ISG net sales growth in the low-to-mid teens, and adjusted diluted EPS in the range of $13.00 to $14.50.
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Acuity Q2 FY2023 Press Release: https://www.investors.acuitybrands.com/news-releases/news-release-details/acuity-brands-reports-fiscal-2023-second-quarter-results
Acuity Q2 FY2023 Presentation: https://www.investors.acuitybrands.com/static-files/df6e3790-9112-4b8d-b33f-090e9b092c97