Acuity Brands Reports Record Results

ATLANTA — Acuity Brands, Inc. today announced record fourth quarter and full-year results for net sales, net income, and diluted earnings per share (“EPS”).  Fiscal 2017 fourth quarter net sales of $957.6 million increased $32.1 million, or 3.5 percent, compared with the year-ago period. Operating profit for the fourth quarter of fiscal 2017 was $152.7 million, an increase of $17.6 million, or 13 percent, over the year-ago period. Net income for the fourth quarter of fiscal 2017 was $90.5 million, an increase of 9 percent compared with the prior-year period. Fiscal 2017 fourth quarter diluted EPS of $2.15 increased 14 percent compared with $1.89 for the year-ago period.

Adjusted diluted EPS for the fourth quarter of fiscal 2017 increased over 15 percent to $2.55 compared with adjusted diluted EPS of $2.21 for the year-ago period. Adjusted operating profit for the fourth quarter of fiscal 2017 increased $19.8 million, or 13 percent, to $176.3 million compared with the year-ago period and adjusted operating profit margin increased 150 basis points over the prior-year period to a record 18.4 percent. Adjusted results for both periods exclude the impact of amortization expense for acquired intangible assets, share-based compensation expense, acquisition-related items (including acquired profit in inventory and professional fees), special charge for streamlining activities, and an impairment of an intangible asset. Management believes these items impacted the comparability of the Company’s results and that adjusted financial measures enhance the reader’s overall understanding of the Company’s current financial performance by making results comparable between periods. A reconciliation of adjusted financial measures to the most directly comparable U.S. GAAP measure is provided in the tables at the end of this release.

Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands, commented, “We are pleased to report record quarterly and full-year results while continuing to make meaningful investments in areas with significant future growth potential, including the recently introduced Atrius™ Internet of Things (“IoT”) platform and software solutions. We achieved a record adjusted operating profit margin of 18.4 percent, an increase of 150 basis points over prior year.  Our fourth quarter net sales growth of nearly 4 percent reflected continued solid performance as initial industry data suggests that the growth rate of the Company’s key end markets in North Americawas flat to slightly down, which was in line with prior quarter’s expectations. We estimate that sales in our Tier 3 & 4 categories, which encompass our holistic, integrated solutions, were up approximately 30 percent this past quarter and now represent 15 percent of our total sales. We believe our record fourth quarter and full-year results reflect our ability to provide customers with truly differentiated value from our industry-leading portfolio of innovative lighting and building management solutions along with superior service.”

Fiscal 2017 Fourth Quarter Results

The 3.5 percent year-over-year growth in fiscal 2017 fourth quarter net sales was primarily due to a 4.5 percent increase in volume, partially offset by a 1 percent net unfavorable change in product prices and mix of products sold (“price/mix”).  The change in price/mix was due primarily to lower pricing on luminaires, largely as a result of lower LED component costs. Sales volume was higher across most key product categories and sales channels. Strong market adoption of LED-based products continued during the fourth quarter of fiscal 2017 and represented over two-thirds of the Company’s total net sales.

Fiscal 2017 fourth quarter gross profit margin of 42.5 percent declined 100 basis points compared with prior year’s adjusted gross profit margin but was more than offset by a 250 basis points reduction in adjusted selling, distribution & administrative (“SD&A”) expenses.  As a result, fiscal 2017 fourth quarter adjusted operating profit margin increased 150 basis points over the prior-year period to a record 18.4 percent. Higher warranty expense and labor costs were primarily responsible for the lower gross profit margin while the decrease in adjusted SD&A expense was primarily due to a decline in incentive compensation expense that was partially offset by continued investment in additional headcount to support and drive the Company’s tiered solutions strategy.

The Company recorded pre-tax special charges of $9.6 million and $4.9 million during the fourth quarters of fiscal 2017 and 2016, respectively, for actions initiated to streamline the organization, including the integration of recent acquisitions. The fiscal 2017 fourth quarter special charge consisted primarily of severance and employee-related benefit costs for the elimination of certain operations and positions following a realignment of the Company’s operating structure, including positions within various SD&A departments.

Net miscellaneous expense of $2.2 million, or $0.03 diluted EPS, reported for the fourth quarter of fiscal 2017 was comprised primarily of losses associated with changes in foreign currency exchange rates. The Company reported net miscellaneous income of $0.1 million in the prior-year fourth quarter.

Fiscal 2017 Full-Year Results

Net sales for fiscal 2017 increased $213.8 million, or 6.5 percent, to $3,505.1 million. Results for fiscal 2017 include operating profit of $518.8 million, net income of $321.7 million, and diluted EPS of $7.43.

Adjusted operating profit for fiscal 2017 increased $36.5 million, or 7 percent, to $591.7 million compared with prior year’s adjusted operating profit of $555.2 million. Adjusted operating profit margin for both fiscal 2017 and 2016 was 16.9 percent. Fiscal 2017 adjusted net income increased $22.2 million, or 7 percent, to  $365.9 million compared with $343.7 million for the prior-year period. Adjusted diluted EPS for fiscal 2017 increased $0.61, or 8 percent, to $8.45 compared with adjusted diluted EPS of $7.84 for the year-ago period. Adjusted results exclude amortization expense for acquired intangible assets, share-based compensation expense, acquisition-related items (including acquired profit in inventory, professional fees, and certain contract termination costs), special charge for streamlining activities, and an impairment of an intangible asset. Additionally, fiscal 2017 adjusted results exclude a gain associated with the sale of an investment in an unconsolidated affiliate. The total impact of these items on diluted EPS for fiscal 2017 and 2016 was $1.02 and $1.21, respectively. A reconciliation of adjusted financial measures to the most directly comparable U.S. GAAP measure is provided in the tables at the end of this release.

Net cash provided by operating activities totaled $316.2 million for the full year compared with $345.7 million for the year-ago period, representing a year-over-year decrease of 9 percent. Cash and cash equivalents at the end of the fourth quarter of fiscal 2017 totaled $311.1 million, a decrease of $102.1 million since the beginning of the fiscal year. During fiscal 2017, the Company completed the buyback of 2 million shares of Acuity Brands common stock under its previously authorized stock repurchase program at a total cost of $357.9 million.

Outlook

Nagel commented, “We remain bullish regarding the Company’s prospects for continued future profitable growth. While various leading indicators continue to generally reflect favorable conditions for our end markets, we are cautious regarding a meaningful rebound in our end-markets over the next few quarters as a result of various factors, including labor shortages in the construction industry and uncertainty related to both infrastructure spending as well as federal tax and trade policies.  We expect to see some volatility in demand among certain sales channels and geographies, including possible short-term volatility due to the recent hurricanes that hit Florida, Texas, and Puerto Rico. At this time, we expect the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises over 97 percent of the Company’s revenues, will be up low single-digits for fiscal 2018, reflecting an expected rebound in the second half of the year. We expect to continue to outperform the growth rates of the markets we serve by executing our strategies focused on growth opportunities for new construction and renovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutions as part of our integrated, tiered solutions strategy.”

Management estimates a fiscal 2018 annual tax rate of approximately 35.5 percent before any discrete items, assuming the tax rates in the Company’s taxing jurisdictions remain generally consistent throughout the year. Additionally, management expects fiscal 2018 capital expenditures will approximate 2 percent of net sales.

Nagel concluded, “We believe the lighting and lighting-related industry as well as building management solutions will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the Internet of Things. We believe we are uniquely positioned to fully participate in this exciting industry.”

The independent registered public accounting firm’s audit report with respect to the Company’s fiscal year-end financial statements will not be issued until the Company completes its annual report on Form 10-K, including its evaluation of the effectiveness of internal controls over financial reporting. Accordingly, the financial results reported in this earnings release are preliminary pending completion of the audit.