ATLANTA—Acuity Brands, Inc. (NYSE:AYI) today announced that fiscal 2017 third quarter net sales increased $40.1 million, or 5 percent, to $891.6 million from $851.5 million reported in the prior-year period. Operating profit for the third quarter of fiscal 2017 was $131.5 million, an increase of $10.5 million, or 9 percent, over the year-ago period. Net income for the third quarter of fiscal 2017 was $82.2 million, an increase of $8.2 million, or 11 percent, compared with the prior-year period. Fiscal 2017 third quarter diluted earnings per share (“EPS”) of $1.90 increased $0.21, or 12 percent, compared with $1.69 for the year-ago period.
Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands, commented, “Our third quarter net sales reflect continued solid performance even though initial industry data suggests that the growth rate of the Company's key end markets in North America grew only in the low single-digit range. We believe the market growth rate reflected continued softness in demand for certain short-cycled, smaller lighting projects. Despite achieving record third quarter net sales and earnings, our profitability was negatively impacted by higher than normal supply chain costs, including increased quality expense and greater inbound freight charges.
“During the quarter, we continued to invest in areas we believe have longer-term growth potential and made significant progress this quarter on a number of strategic fronts, the most important of which was the announcement of our newly branded Atrius™ Internet of Things (“IoT”) platform and software solutions. Through Atrius, Acuity Brands continues to provide and expand its comprehensive set of IoT business solutions, leveraging intelligent luminaires, lighting and building management controls, software platform services, and solution development tools. Atrius provides a robust, scalable, and secure software platform that enables an array of capabilities, including indoor positioning, asset tracking, space utilization, spatial analytics and energy management. Lastly, we saw customers, including many of those formerly in pilot programs, move to accelerate the implementation of our Atrius-based intelligent solutions capabilities. These anticipated deployments will provide our customers with unique capabilities to enhance the performance of their facilities while more than quadrupling our installed base of these solutions.”
Third Quarter Results
The 5 percent year-over-year growth in fiscal 2017 third quarter net sales was due primarily to a 6 percent increase in volume, partially offset by an approximately 1 percent net unfavorable change in product prices and mix of products sold (“price/mix”) as well as a modest unfavorable impact from changes in foreign currency exchange rates. Sales volume was higher across most key product categories and sales channels. The change in price/mix was due primarily to lower pricing on luminaires, partially as a result of lower LED component costs. Robust adoption of LED-based products continued during the third quarter of fiscal 2017 and represented approximately two-thirds of the Company's total net sales.
Fiscal 2017 third quarter gross profit margin of 42.5 percent declined 190 basis points compared with prior-year's record gross profit margin of 44.4 percent and 200 basis points lower than last year's adjusted gross profit margin of 44.5 percent. Gross profit margin was lower than the prior-year period due primarily to higher than normal supply chain costs, including increased quality expense and greater inbound freight charges, as well as unfavorable price/mix. Selling, distribution & administrative (“SD&A”) expenses for the quarter ended May 31, 2017, were $246.9 million, or 27.7 percent of net sales, compared with $247.2 million, or 29.0 percent, for the year-ago period. Fiscal 2017 third quarter adjusted SD&A expenses were $230.6 million, or 25.9 percent of net sales, compared with prior year's $232.7 million, or 27.3 percent, a decline of 140 basis points. The slight decrease in adjusted SDA expense was primarily due to lower incentive compensation expense, partially offset by higher freight and commission costs to support the increase in net sales and continued investment in additional headcount to support and drive the Company's tiered solutions strategy.
The Company recorded a pre-tax special charge of $0.5 million and $9.7 million during the third quarters of fiscal 2017 and 2016, respectively, for actions initiated to streamline the organization, including the integration of recent acquisitions. These streamlining activities include the consolidation of selected production activities and realignment of certain responsibilities, primarily within various SD&A departments.
Net sales for the first nine months of fiscal 2017 increased 8 percent to $2,547.5 million compared with $2,365.9 million for the prior-year period. Reported results for the first nine months of fiscal 2017 included operating profit of $366.1 million, net income of $231.2 million, and diluted EPS of $5.29.
Net miscellaneous income for the nine months ended May 31, 2017, included a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate, which occurred in the first quarter of the fiscal year.
Cash and cash equivalents at the end of the third quarter of fiscal 2017 totaled $189.7 million, a decrease of $223.5 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.
Nagel commented, “While forecasts suggest that softness in demand in the North American lighting market that began in the third calendar quarter of 2016 will continue through the remainder of the calendar year, we still see encouraging signs that support third-party forecasts for improvement in growth rates in calendar year 2018. We are aggressively addressing our recent supply chain issues and accelerating programs to reduce product costs to maintain our competitiveness and drive improved profitability. We expect to continue to outperform the growth rates of the markets that the Company serves 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 the Company's integrated, tiered solutions strategy. Based on various leading indicators, our focused investments in key strategic areas, and aggressive management of supply chain costs, we remain bullish regarding the Company's prospects for continued future profitable growth.”
Nagel concluded, “We believe the lighting and lighting-related industry as well as building management systems 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.”
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