ATLANTA — Acuity Brands, Inc. announced fiscal 2018 first quarter net sales of $842.8 million, a decrease of $8.4 million, or 1 percent, compared with the year-ago period. Operating profit for the first quarter of fiscal 2018 was $118.6 million, a decrease of $8.0 million, or 6.3 percent, over the year-ago period. Net income for the first quarter of fiscal 2018 was $71.5 million, a decrease of 12.5 percent compared with the prior-year period. Fiscal 2018 first quarter diluted earnings per share (“EPS”) of $1.70 decreased 8.6 percent compared with $1.86 for the year-ago period. Prior year’s first quarter results included a $7.2 million gain, or $0.10 diluted EPS impact, associated with the sale of an investment in an unconsolidated affiliate.
Adjusted diluted EPS for the first quarter of fiscal 2018 decreased 3 percent to $1.94 compared with adjusted diluted EPS of $2.00 for the year-ago period. Adjusted operating profit for the first quarter of fiscal 2018 decreased $9.3 million, or 6.5 percent, to $133.9 million, or 15.9 percent of net sales, compared with the year-ago period adjusted operating profit of $143.2 million, or 16.8 percent of net sales. Adjusted results exclude the impact of amortization expense for acquired intangible assets, share-based payment expense, special charges for streamlining activities, manufacturing inefficiencies related to the closing of a facility, and a gain on the sale of an investment in an unconsolidated affiliate. 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 linked to this release.
Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands, commented, “Our fiscal 2018 first quarter net sales results were below our expectations, but once again better than market level performance as initial industry data suggests that the growth rate of the Company’s key end markets in North America was down low-single digits, which was in line with previous expectations. The year-over-year decline in our net sales of one percent was due primarily to lower sales in the home center/showroom channel and certain international sales channels, including the U.K and Mexico. We believe the decline in the home center/showroom channel was primarily due to changes in the in-house branding strategies being deployed by certain customers for select products in certain categories, while the decline in sales in certain international markets was due to weaker demand resulting from economic and or political headwinds. Excluding these specific sales channels, net sales increased 2 percent.”
Nagel continued, “Our profitability measures for the first quarter were solid but were impacted by continued tepid market conditions and the decline in revenue in the aforementioned sales channels. During the first quarter, we continued to expand our industry leadership position in providing IoT-enabled business solutions with our Atrius platform now deployed across nearly 160 million square feet of indoor spaces, leveraging more than 1.6 million networked sensors. We have accelerated deployments and increased active pilots with several of the largest U.S.-based and certain European-based retailers as well as other key vertical applications, including certain airports.”
The 1 percent year-over-year decline in fiscal 2018 first quarter net sales was primarily due to a 1 percent decrease in sales volume and a 1 percent net unfavorable change in product prices and mix of products sold (“price/mix”), partially offset by a 1 percent favorable impact from changes in foreign exchange rates. The change in price/mix was due primarily to lower pricing on luminaires, reflecting the decline in certain LED component costs as well as increased competition in more basic, lesser-featured products. Sales of LED-based products during the first quarter of fiscal 2018 and 2017 accounted for approximately two-thirds of total net sales.
Gross profit for the first quarter of fiscal 2018 decreased $9.4 million, or 2.6 percent, to $350.2 million compared with $359.6 million in the prior-year period. The decline in gross profit was due primarily to lower sales, unfavorable price/mix, and higher input costs for certain commodity-related items, such as steel, which were partially offset by lower costs for certain LED components and productivity improvements. Fiscal 2018 first quarter adjusted gross profit margin of 41.6 percent declined 80 basis points compared with prior year’s adjusted gross profit margin. Selling, distribution, and administrative (“SD&A”) expenses for the first quarter of fiscal 2018 were $231.4 million compared with $231.8 million in the prior-year period, reflecting lower commission expense largely offset by higher salaried employee costs, amortization expense, and share-based payment expense. Adjusted SD&A expenses for the first quarter of fiscal 2018 were down modestly compared with the prior-year period, but up 10 basis points to 25.7 percent of net sales compared with the prior-year period.
The Company reported net miscellaneous income of $0.4 million and $7.9 million for the three months ended November 30, 2017 and 2016, respectively. Net miscellaneous income for the first quarter of the prior year included a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate.
Net cash provided by operating activities totaled $139.8 million for the first quarter of fiscal 2018 compared with $55.8 million for the year-ago period. Cash and cash equivalents at the end of the first quarter of fiscal 2018 totaled $428.6 million, an increase of $117.5 million since the beginning of the fiscal year.
Outlook
Nagel commented, “We remain positive regarding the Company’s prospects for future profitable growth despite recent market softness, which has impacted our short-term performance. 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 quarter or so as a result of various factors, including labor shortages in the construction industry and uncertainty related to both infrastructure spending as well as federal regulatory and trade policies. However, we believe the recent passage of the U.S. Tax Cuts and Jobs Act may have a favorable impact on future demand for many end markets we serve as positive business sentiment may lead to further investments in facilities and infrastructure in the U.S. At this time, we continue to expect the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises approximately 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 the pricing environment to continue to be challenging in certain portions of the market, particularly for more basic, lesser-featured products sold through certain sales channels. We do not foresee a meaningful rebound in demand in the near term in certain international markets that we serve. In addition, we expect certain headwinds in the home center/showroom channel to continue in the near term, giving way to growth in the second half of calendar 2018 as we bring new solutions to key customers and expand our access to market in this important sales channel. 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 under-penetrated 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 expects the Tax Cuts and Jobs Act that was passed on December 22, 2017, to favorably impact the Company’s net income, diluted EPS, and cash flows in future periods, due primarily to the reduction in the federal corporate tax rate from 35 percent to 21 percent effective for periods beginning January 1, 2018. Additionally, positive business sentiment and other favorable aspects of the new tax law could incentivize additional investments in facilities and infrastructure in the U.S. that may increase future demand in the end-markets that the Company serves. Management currently estimates that the Company’s blended consolidated effective income tax rate (“tax rate”) for full-year fiscal 2018 will approximate 26 to 28 percent before discrete items, compared with nearly 35 percent for the prior year. Management also anticipates that the tax rate for the second quarter of fiscal 2018 will be significantly lower than the estimated full-year blended tax rate to cumulatively adjust for the 35.5 percent tax rate recorded for the first quarter of fiscal 2018. Additionally, management currently estimates the second quarter tax expense to be reduced by approximately $30 million for discrete items, primarily due to a non-cash income tax benefit from the re-measurement of the Company’s net U.S. deferred tax liabilities, partially offset by an unfavorable impact related to the taxation of the Company’s accumulated un-remitted foreign earnings. Management currently estimates that the fiscal 2019 tax rate will approximate 23 to 25 percent before discrete items. The aforementioned tax-related estimates may differ from actual results, possibly materially, due to changes in interpretations of the Act and assumptions made by the Company, as well as guidance that may be issued and actions the Company may take as a result of the Act.
Nagel concluded, “We believe the lighting and lighting-related industry as well as building automation systems have the potential to 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.”
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