Back to top

Image: Shutterstock

Acuity Brands' (AYI) Stock Down Despite Q3 Earnings Beat

Read MoreHide Full Article

Acuity Brands, Inc. (AYI - Free Report) reported impressive results for third-quarter fiscal 2021. Both the top and bottom lines surpassed the Zacks Consensus Estimate as well as improved impressively on a year-over-year basis. Strength in go-to-market channels, product portfolio and robust economy allowed the company to effectively serve customers.

However, its shares declined 5.8% on Jul 1 after it reported fiscal third-quarter results. Investors’ sentiments might have been impacted by tepid view for the retail channel. During the earnings call, the company noted that an ongoing customer inventory rebalancing could impact fourth-quarter performance as well. Acuity Brands also noted that it has been witnessing shortage of electrical components due to the global supply chain.

Neil Ashe, Chief Executive Officer of Acuity Brands said, "The breakout of our newly formed business segments shows that both segments contributed to that improvement. We continue to allocate capital effectively with the acquisition of ams OSRAM's North American Digital Systems business which will contribute to innovation and long-term growth."

Delving Deeper

The company reported adjusted earnings of $2.77 per share, comfortably surpassing the Zacks Consensus Estimate of $2.25 by 23.1%. The said metric also improved 42.8% from the year-ago reported figure of $1.94 per share.

Acuity Brands Inc Price, Consensus and EPS Surprise

Acuity Brands Inc Price, Consensus and EPS Surprise

Acuity Brands Inc price-consensus-eps-surprise-chart | Acuity Brands Inc Quote

Net sales of $899.7 million topped the consensus mark of $843 million by 6.7%. Also, the reported figure increased 15.9% from $776.2 million in the prior-year quarter. The upside was mainly backed by improved focus on the go-to-market strategy and enhanced customer service. Also, improved economic backdrop contributed to the growth.

Segment Details

Acuity Brands currently operates in two reportable segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).

ABL’s net sales grew 14.6% year over year to $850 million. Net sales in the Independent Sales Network and Direct Sales Network were up 14.3% and 39.3% year over year, respectively. Sales in the Corporate Accounts channel increased 12.5% from the prior year as retailers began to address previously deferred nonessential renovations. However, Retail sales declined 25.9% from the prior-year quarter, primarily due to an ongoing customer inventory rebalancing.

Adjusted operating profit in the segment increased 25.3% from the prior year. Adjusted operating profit margin was up 140 basis points (bps) year over year.

ISG generated net sales of $55.4 million, marking an increase of 46.9% year over year. Adjusted operating profit was also up a notable 122% from third-quarter fiscal 2020. Adjusted operating profit margin was up 670 bps year over year.

Operating Highlights

Gross margin improved 80 bps on a year-over-year basis to 43% despite higher input and freight costs. The improvement can be attributed to an increase in sales volumes, and product and productivity improvements.

Adjusted selling, distribution and administrative expenses — at a percentage of net sales — were 27.8% compared with 28.7% in the prior-year quarter, improving 90 bps on a year-over-year basis. Adjusted operating profit margin came in at 15.2%, up 170 bps year over year. The improvement was driven by higher gross margin and its ability to successfully leverage fixed cost.

Financials

As of May 31, 2021, Acuity Brands had cash and cash equivalents of $593.5 million compared with $560.7 million at fiscal 2020-end. In the first nine months of fiscal 2021, cash provided by operating activities totaled $316.2 million, reflecting a decrease from $378.3 million in the prior-year period.

Outlook

The company expects to yield a gross margin of 42% in the fourth quarter.

Moreover, Acuity Brands believes that the Lighting and Lighting Controls business will grow at total construction plus over the long term. The growth is expected to be in mid-single digits in the long run. Also, it expects ISG to grow in mid teens in the long run.

Zacks Rank

Acuity Brands — which shares space with Orion Energy Systems, Inc. (OESX - Free Report) , Energy Focus, Inc. (EFOI - Free Report) and LSI Industries Inc. (LYTS - Free Report) in the same industry — currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks' Top Picks to Cash in on Artificial Intelligence

In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.

See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>