ATLANTA — Acuity Brands, Inc. today announced fiscal 2019 first quarter net sales of $932.6 million, an increase of $89.8 million, or 10.7 percent, compared with the year-ago period. Operating profit for the first quarter of fiscal 2019 was $116.4 million, a decrease of $3.8 million, or 3.2 percent, over the year-ago period. Net income for the first quarter of fiscal 2019 was $79.6 million, an increase of 11.3 percent compared with the prior-year period. The increase in net income resulted primarily from a lower provision for income taxes. Fiscal 2019 first quarter diluted earnings per share (“EPS”) of $1.98 increased 16.5 percent compared with $1.70 for the year-ago period reflecting both an increase in net income and lower average shares outstanding due to repurchases of the Company’s stock during the prior twelve-month period.
Adjusted diluted EPS for the first quarter of fiscal 2019 increased 19.6 percent to $2.32 compared with adjusted diluted EPS of $1.94 for the year-ago period. Adjusted operating profit for the first quarter of fiscal 2019 decreased $1.4 million, or 1.0 percent, to $134.1 million, or 14.4 percent of net sales, compared with the year-ago period adjusted operating profit of $135.5 million, or 16.1 percent of net sales. Adjusted results are non-GAAP financial measures that exclude the impact of acquisition-related items, amortization expense for acquired intangible assets, share-based payment expense, and special charges for streamlining activities. 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, “Our first quarter performance was solid despite continuing inflationary cost pressures. We have taken several actions to address these cost issues, including price increases and productivity improvements. Further, our top line growth this quarter continued our long trend of outpacing the overall growth rates of the markets we serve, and diluted earnings per share rose nearly 17 percent while adjusted diluted earnings per share increased approximately 20 percent. Our significant growth in net sales this quarter was due in large part from continued efforts to expand our customer base and the introduction of new products and solutions. Net sales through our independent sales network, which historically comprises approximately 70 percent of our total net sales, were up 10 percent in the first quarter compared with the year ago period, primarily as demand for lighting solutions used in small and medium sized lighting projects improved as well as continued strong growth for our building management solutions. This was partially offset by continued weak demand for larger non-residential lighting projects as well as continued product substitution to lower priced alternatives for certain lighting products. During the quarter, we implemented two price increases to recover higher costs for both components and other input items due to inflation as well as government tariffs enacted on certain Chinese-sourced finished goods and components. While we believe that some of the increase in net sales was due in part to customers buying products in advance of the effective dates of these announced price increases, it is impossible to quantify the exact impact this had on our first quarter sales growth or the impact from a potential pull-forward of sales from the second quarter.”
Nagel continued, “Our adjusted gross profit and margin were negatively impacted by higher input costs for certain items, including electronic and oil-based components, freight, and certain other commodity-related items such as steel. Many of these items experienced dramatic increases in price in the last half of our fiscal 2018 due to several economic factors, including new tariffs and wage inflation caused by tight labor markets. We estimate that the inflationary impact of these items reduced our gross profit in the quarter by approximately $16 million and lowered our gross profit margin by approximately 170 basis points. We believe that the benefit of our recent price increases will better offset higher input costs in our second fiscal quarter and beyond. Our first quarter gross profit margin increased 60 basis points on a sequential basis from the fourth quarter of fiscal 2018 on lower revenues, primarily due to an improvement in sales channel mix and actions to improve our cost structure.”
Fiscal 2019 first quarter results were impacted by the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), which resulted in a decrease to revenues, gross profit, and operating profit of $2.4 million, $1.1 million, and $1.2 million, respectively, during the three months ended November 30, 2018. 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 first quarter reported operating profit and other expense both increased $1.6 million. The provisions of ASU 2017-07 had no impact to previously reported net income or earnings per share.
The 10.7 percent year-over-year increase in fiscal 2019 first-quarter net sales was primarily due to an approximate 11 percent increase in sales volume and a 1 percent favorable impact of acquired revenues from acquisitions net of lost revenues from divestitures, partially offset by the 1 percent combined unfavorable impact of the adoption of ASC 606 and changes in foreign exchange rates. The net change in product prices and mix of products sold (“price/mix”) was flat year over year.
Gross profit for the first quarter of fiscal 2019 increased $17.6 million, or 5.0 percent, to $367.5 million compared with $349.9 million in the prior-year period due to higher sales volumes and productivity improvements, partially offset by higher material, component, and freight costs. Fiscal 2019 first-quarter gross profit margin of 39.4 percent declined 210 basis points compared with prior year’s gross profit margin, while adjusted gross profit margin of 39.5 percent declined 200 basis points compared with the year-ago period. Selling, distribution, and administrative (“SD&A”) expenses for the first quarter of fiscal 2019 were $250.1 million compared with $229.5 million in the prior-year period. The increase in SD&A expenses was primarily due to an increase in freight and commission expense to support the greater sales volume, higher employee-related costs, and expenses associated with acquired businesses.
The Company recognized a pre-tax special charge of $1.0 million during the first quarter of fiscal 2019, primarily related to moving costs associated with the previously announced transfer of activities from a planned facility closure. In the first quarter of the prior fiscal year, the Company recorded a pre-tax special charge of $0.2 million consisting primarily of severance and employee-related benefit costs for the elimination of certain positions following a realignment of the Company’s operating structure.
Net cash provided by operating activities totaled $131.8 million for the first quarter of fiscal 2019 compared with $139.8 million for the year-ago period. Cash and cash equivalents at the end of the first quarter of fiscal 2019 totaled $214.8 million, an increase of $85.7 million since the beginning of the fiscal year. During the first quarter of fiscal 2019, the Company spent $25 million to repurchase two hundred thousand shares of Acuity Brands common stock under its authorized stock repurchase program.
Outlook
Nagel commented, “We remain cautiously optimistic for fiscal 2019 and do not believe that the demand outlook has meaningfully changed since our prior outlook provided in early October 2018. Our wide and varied base of customers generally remains positive about current year growth prospects. Many customers continue to have record backlogs though they too are concerned about the timing of releases, particularly for larger projects, and the potential impact of tariffs and inflation on overall demand. Third-party forecasts and leading indicators continue to suggest that the North American lighting market, the Company’s primary market, should grow in the low-single-digit range in fiscal 2019.”
Nagel continued, “Our focus in fiscal 2019 is to garner additional top-line growth driven primarily by outperforming the growth rates of the markets we serve through execution of our previously announced growth strategies, continue to improve the mix of products and solutions sold as we execute our tiered solutions strategy, and leverage our fixed cost infrastructure to achieve targeted incremental margins to improve our overall profitability.”
Nagel concluded, “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 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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