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Acuity Brands, Inc. (NYSE:AYI) - A Lighting and Intelligent Spaces Leader Delivering Impressive Margins and Cash Flow
Published on September 24, 2024 | Ticker: AYI

Acuity Brands, Inc. (NYSE:AYI) is a market-leading industrial technology company that designs, manufactures, and brings to market innovative products and services in the lighting and intelligent spaces sectors. Through its two business segments, Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG), the company is delivering strong financial performance and executing on its strategic priorities.

In the fiscal year ended August 31, 2023, Acuity Brands reported annual net income of $346 million, annual revenue of $3.95 billion, annual operating cash flow of $578.1 million, and annual free cash flow of $511.4 million. The company's diverse portfolio and focus on driving margin expansion have enabled it to navigate the current market environment effectively.

During the third quarter of fiscal 2023, Acuity Brands generated net sales of $968.1 million, a 3.2% decrease compared to the prior-year period. This decline was primarily due to lower sales in the ABL segment, which was partially offset by 15% growth in the ISG segment. Despite the revenue decrease, the company was able to expand its adjusted operating profit margin by 100 basis points to 17.3% through its focus on product vitality, service levels, technology, and productivity.

Acuity Brands' ABL segment reported net sales of $898.5 million in the third quarter, a 4.5% decrease year-over-year. However, the segment's adjusted operating profit increased to $162.1 million, and the adjusted operating profit margin expanded by 100 basis points to 18%. This performance was driven by the company's efforts to improve profitability, including managing price and cost, and driving productivity improvements.

The ISG segment continued to deliver impressive results, with net sales increasing 15% to $75.7 million in the third quarter. Adjusted operating profit in the ISG segment was $17.3 million, up 35.2% from the prior-year period, and the adjusted operating profit margin expanded by 340 basis points to 22.9%. The integration of the recently acquired KE2 Therm business is now complete, and the company is seeing strong demand for its Distech Controls products.

Acuity Brands' focus on product vitality, service levels, and technology has been a key driver of its margin expansion. The company's Made-to-Order, Design Select, and Contractor Select product portfolios are creating value for customers and improving profitability. Additionally, the integration of the eldoLED and OPTOTRONIC technologies has provided the company with greater control over the electronics in its luminaires, leading to margin improvements.

The company's geographic diversification has also been a strength, with the company seeing positive trends across various regions and end-markets. While the independent sales network in the ABL segment was down due to challenging comparisons, the corporate accounts channel benefited from a large retail relight project. The company also sees opportunities in the infrastructure market, with strong quoting activity that it expects to translate into future growth.

Liquidity

Acuity Brands' liquidity position remains strong, with $699 million in cash and cash equivalents as of May 31, 2023. The company has been disciplined in its capital allocation, investing in organic growth initiatives, making strategic acquisitions, increasing its dividend, and repurchasing shares. During the first nine months of fiscal 2023, the company repurchased over 454,000 shares for $89 million.

Looking ahead, Acuity Brands has provided guidance for fiscal 2024, expecting net sales in the range of $3.7 billion to $4.0 billion and adjusted earnings per share between $14.75 and $15.50. The company remains cautiously optimistic about the future, with its diverse portfolio and focus on innovation positioning it well to navigate the current market environment and capitalize on growth opportunities.

Conclusion

In conclusion, Acuity Brands is a well-positioned industrial technology company that is delivering impressive financial performance and executing on its strategic priorities. The company's focus on product vitality, service levels, and technology has enabled it to expand margins and generate strong cash flow, which it is effectively deploying to drive long-term shareholder value.

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