Acuity Shares Slipped 5% on Earnings Miss Despite Sales Growth
Acuity Brands, Inc.’s fourth quarter profit jumped 37.9 percent to $83 million, or $1.89 diluted earnings per share, but still paled in comparison with analysts’ estimates of $103 million, or $2.11 a share, compiled by Bloomberg.
An earnings miss sent the shares of the Georgia-based LED lighting company down to $242.99 as of Wednesday, Oct. 5 market close, a 4.9 percent drop from $255.00 on Tuesday. The stock has climbed 37.8 percent this past year.
Despite a drop in its share price, Acuity delivered solid revenue growth in fiscal year 2016 ended Aug. 31 with net sales increased to $3,291 million, up 21.6 percent from $2,707 million in the previous year. Fourth quarter revenue rose 21.8 percent to $926 million from $760 million a year earlier.
“The overall growth rate was obviously still pretty good, but they came up short on the revenue line which is explainable in terms of some of the manufacturing inefficiencies and challenges,” said Timothy Wojs, a senior research analyst at Robert W Baird & Co. who covers the stock and the building products space.
During the fourth quarter, Acuity streamlined its supply chain and revamped its manufacturing facility, resulting in labor shortages, delays in production and shipment, and cancelled orders, Acuity CEO Vernon Nagel noted in the press release.
The company incurred a pre-tax special charge of $4.9 million in the quarter, which management said was “associated with efforts to streamline the organization and integrate acquisitions.” This special charge, plus increase in sales, distribution and administrative expense, shrank operating margin by just 0.12 percent compared to fourth quarter 2015 to 14.6 percent.
Those manufacturing inefficiencies are “more of a hiccup than a long-term issue,” Wojs said. Product delivery has been improving, according to the interviews conducted by his research team with some of Acuity’s customers.
Management remained “bullish” on the company’s future growth given its dominant position in the North American lighting and energy management industry. Acuity currently has the largest U.S. market share of its competitors at about 20 percent, according to Wojs. Cooper Lighting, a subsidiary of Eaton Corp., is the number two player with 15 percent share while Philips Lighting, which belongs to the larger Philips group, has 10 to 15 percent share.
Unlike its peers, Acuity doesn’t make legacy lighting assets such as light bulbs that could become antiquated over time. Rather than producing the components in-house, Acuity focuses on the design and assembly of products, making it easy for the company to “take advantage of new technologies faster than others,” Wojs said.
The lighting equipment industry used to be just a light fixtures break-and-repair business. Employing the Internet of Things (IoT) technology, smart lighting today improves convenience and reduces energy costs, according to a Deloitte report published in April.
This past year, Acuity has made a series of acquisitions to expand into next generation lighting. In January, the company acquired GeoMetri to advance its indoor mapping technology and in July, bought DGLogik for its IoT software solutions.
While Acuity has a strong balance sheet with $58 million of net cash (long-term debt minus cash) as of fiscal year 2016, Wojs thinks the company is not getting enough credit from the stock market for the cash balance that they could deploy.
“If they could go out and make accretive acquisitions, that would actually help growth, the numbers and the stock,” Wojs said.
