ATLANTA — Acuity Brands, Inc. today announced that fiscal 2019 third-quarter net sales increased $3.6 million, or 0.4 percent, to $947.6 million from $944.0 million reported in the prior-year period. Operating profit for the third quarter of fiscal 2019 was $120.3 million, an increase of $12.9 million, or 12.0 percent, over the year-ago period. Net income for the third quarter of fiscal 2019 was $88.4 million, an increase of $15.4 million, or 21.1 percent, compared with the prior-year period. Fiscal 2019 third quarter diluted earnings per share (“EPS”) of $2.22 increased $0.42, or 23.3 percent, compared with $1.80 for the year-ago period. Fiscal 2019 third-quarter results reflect record third-quarter net sales, net income, and diluted EPS.
Adjusted diluted EPS for the third quarter of fiscal 2019 increased 6.8 percent to $2.53 compared with adjusted diluted EPS of $2.37 for the year-ago period. Adjusted operating profit for the third quarter of fiscal 2019 decreased $1.8 million, or 1.3 percent, to $135.5 million, compared with adjusted operating profit of $137.3 million for the year-ago period. Adjusted operating profit margin declined 20 basis points to 14.3 percent compared with the year-ago period. Adjusted results exclude the impact of amortization expense of acquired intangible assets, share-based payment expense, acquisition-related items, special charges for streamlining activities, and excess inventory adjustments related to the closure of a facility. 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. Generally Accepted Accounting Principles (“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 solid third quarter financial performance in what continues to be a challenging market environment, particularly with ongoing angst generated by trade policy issues. Third quarter reported diluted EPS of $2.22 rose over 23 percent compared with the year-ago period, while adjusted diluted EPS of $2.53 rose approximately 7 percent compared with the prior period, both records for our third quarter. In addition, our third quarter adjusted gross profit margin exceeded 40 percent for the first time in a year and improved sequentially for the third quarter in a row. Net sales growth through our independent sales network channel was largely offset by lower net sales in the retail sales channel compared with the year-ago period, which was primarily due to the impact of efforts this year to eliminate certain product categories that do not meet our expected profit margin profile. We believe our third quarter net sales growth was also muted by the impact of customers, primarily in the independent sales network channel, pulling forward orders into the first half of the year in advance of announced price increases.”
Nagel continued, “As announced in the fall of 2018 with the launch of our EarthLIGHT program, we believe environmental, social and governance (ESG) factors are important to the long-term success of Acuity Brands and our stakeholders. We have continued our focus on ESG initiatives throughout fiscal 2019 and are pleased to announce the launch of our updated webpage www.acuitybrands.com/about-us/sustainability highlighting some of our efforts to lighten our impact on the Earth and to benefit our business, associates, customers and communities. Also, we are excited to welcome aboard the associates of the recently acquired WhiteOptics, whose broad offering of advanced optical components used to reflect, diffuse and control light for LED lighting will further enhance the performance of our commercial and architectural products.”
Third Quarter Results
Net sales for the three months ended May 31, 2019 increased 0.4 percent compared with the prior-year period due primarily to a greater than 1 percent increase in sales volumes, partially offset by unfavorable foreign exchange rate changes and the adoption of Accounting Standards Codification 606,Revenue from Contracts with Customers (“ASC 606”). Changes in product prices and mix of products sold (“price/mix”) were flat compared with the prior year as higher pricing was offset by changes in the mix of products sold and customer mix within certain channels. Management estimated that the realization from recent price increases contributed low single-digit growth to overall net sales for the quarter. Acquired revenues from acquisitions net of lost revenues from divestitures were flat compared to the prior year period.
Fiscal 2019 third quarter results were impacted by the adoption of ASC 606, which resulted in a decrease to revenues, gross profit, and operating profit of $3.8 million, $1.6 million, and $1.6 million, respectively. Additionally, fiscal 2018 results were restated to reflect the impact of adopting Accounting Standards Update No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Table of Contents 29 Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). Upon adoption of ASU 2017-07, prior year’s third quarter reported operating profit and other expense both increased $1.5 million. The provisions of ASU 2017-07 had no impact to previously reported net income or earnings per share.
Gross profit for the third quarter of fiscal 2019 decreased $5.5 million, or 1.4 percent, to $383.6 million compared with $389.1 million in the prior-year period. Gross profit margin decreased 70 basis points to 40.5 percent for the three months ended May 31, 2019 compared with 41.2 percent in the prior-year period. The decline in gross profit margin was due primarily to a shift in sales among key customers within the retail sales channel as well as under-absorption of manufacturing costs as a result of inventory reduction efforts. Although current quarter gross profit reflected a mix shift towards certain customers in the retail sales channel that generate lower gross profit margins as compared with the Company’s historical consolidated gross profit margin profile, the decline was generally offset by proportionally lower selling, distribution, and administrative (“SD&A”) expenses as freight and commissions associated with such sales were lower. Adjusted gross profit margin for the quarter ended May 31, 2019 declined 110 basis points to 40.5 percent compared with 41.6 percent for the year-ago period.
SD&A expenses for the third quarter of fiscal 2019 were $263.4 million compared with $271.8 million in the prior-year period, a decrease of $8.4 million, or 3.1 percent. The decrease in SD&A expenses was due primarily to a decrease in outbound freight and lower professional fees related to acquisitions. The decline in outbound freight was partially due to the customer shift within the retail sales channel as previously noted. SD&A expenses for the third quarter of fiscal 2019 were 27.8 percent of net sales compared with 28.8 percent for the prior-year period. Adjusted SD&A expenses for the fiscal quarter ended May 31, 2019 were $248.1 million, or 26.2 percent of net sales, compared with $255.4 million, or 27.1 percent of net sales, in the prior-year period.
The effective income tax rate was 20.9 percent and 26.4 percent for the three months ended May 31, 2019 and 2018, respectively. The decline in the current fiscal year tax rate reflected a lower federal statutory rate and the recognition of certain research and development cost tax credits, including claims for prior periods, during the current period. Management currently estimates that the Company’s blended consolidated effective income tax rate, before any discrete items, will approximate between 22 percent to 24 percent for fiscal 2019 and 2020.
Year-to-Date Results
Net sales for the first nine months of fiscal 2019 increased over 4 percent to $2.73 billion compared with $2.62 billion for the prior-year period. The Company reported $332.6 million of operating profit, or 12.2 percent of net sales, for the first nine months of fiscal 2019 compared with $317.1 million, or 12.1 percent of net sales, for the prior-year period. Net income for the first nine months of fiscal 2019 was $234.3 million compared with $241.4 million for the year-ago period. Diluted EPS for the first nine months of fiscal 2019 was $5.87 compared with $5.85 for the prior-year period.
Adjusted operating profit for the first nine months of fiscal 2019 increased $3.9 million, or 1.0 percent, to $382.0 million, or 14.0 percent of net sales. Adjusted net income for the first nine months of fiscal 2019 was $272.4 million compared with $255.5 million for the prior-year period, an increase of 6.6 percent. Adjusted diluted EPS for the first nine months of fiscal 2019 increased $0.64, or 10.3 percent, to $6.83 compared with adjusted diluted EPS of $6.19 for the year-ago period. Adjusted results exclude amortization expense of acquired intangible assets, share-based payment expense, manufacturing inefficiencies and excess inventory adjustments related to the closure of a facility, acquisition-related items, special charges for streamlining activities, and a net income tax benefit for discrete items associated with the Tax Cuts and Jobs Act of 2017 (“TCJA”). A reconciliation of adjusted financial measures to the most directly comparable GAAP measure is provided in the tables at the end of this release.
Net cash provided by operating activities totaled $312.0 million for the first nine months of fiscal 2019 compared with $299.7 million for the year-ago period. Cash and cash equivalents at the end of the third quarter of fiscal 2019 totaled $333.7 million, an increase of $204.6 million since the beginning of the fiscal year. During the first nine months of fiscal 2019, the Company repurchased 0.4 million shares of its common stock under its previously authorized stock repurchase program at a total cost of $48.7 million and paid dividends to shareholders totaling $15.6 million.
Outlook
Nagel commented, “We remain cautiously optimistic about overall market conditions for the remainder of calendar year 2019 and do not believe that the demand outlook has meaningfully changed from our outlook provided last quarter. Third-party forecasts and several leading indicators continue to suggest that the North American lighting market, our primary market, should grow in the low-single digit range in calendar 2019, although some leading indicators of future market demand, such as the Architectural Billings Index and the Dodge Momentum Index, have recently softened. Our wide and varied base of customers generally remains positive about calendar year 2019 growth prospects as many customers continue to have healthy backlogs, though they continue to be concerned about the timing of releases and the potential impact that tariffs and higher prices may have on overall demand.”
Nagel continued, “We believe our fiscal fourth quarter net sales could be down modestly compared with prior year’s net sales, which benefitted from the significant initial stocking of product in the stores of a new customer in the retail sales channel. Also, fourth quarter net sales may be negatively impacted by our efforts to enhance our margin profile as we expect to continue our program of reviewing portions of our product portfolio and services offerings with the objective of eliminating those items and activities that do not meet our return objectives. Lastly, we believe our fourth quarter adjusted operating profit margin will exceed prior-year’s fourth quarter margin as well as improve on a sequential basis from the third quarter.”
Nagel concluded, “Our focus for fiscal 2020 and beyond is to garner top-line growth driven primarily by outperforming the growth rates of the markets we serve through execution of our previously announced growth strategies, improvement in the mix of products and solutions sold as we execute our tiered solutions strategy, and leveraging our fixed cost infrastructure to achieve targeted incremental margins to improve our overall profitability. We continue to believe the lighting and lighting-related industry as well as building management systems have the potential to experience solid growth over the next decade, particularly as owners and users of lighting equipment and buildings continue to see the potential to transform those investments into strategic assets by deploying our distinctive solutions. We believe we are uniquely positioned to fully participate in this exciting industry.”
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