ATLANTA — Acuity Brands, Inc. (AYI) (“Company”) today announced fiscal 2020 first quarter net sales of $834.7 million, a decrease of 10.5 percent compared with the year-ago period. Operating profit for the first quarter of fiscal 2019 was $83.6 million, a decrease of 28 percent compared with the year-ago period. The decrease in operating profit was due primarily to a decline in net sales, higher share-based payment expense, and increased special charges for streamlining activities. Net income for the first quarter of fiscal 2020 was $57.0 million, a decrease of 28 percent compared with the prior-year period. Fiscal 2020 first quarter diluted earnings per share (“EPS”) of $1.44 decreased 27 percent compared with the year-ago period.
Adjusted diluted EPS for the first quarter of fiscal 2020 decreased 8.2 percent to $2.13 compared with the year-ago period. Adjusted operating profit for the first quarter of fiscal 2020 decreased 11.3 percent, to $119.0 million compared with the year-ago period. Adjusted operating profit margin for the first quarter fiscal 2020 was 14.3 percent compared with 14.4 percent in the year-ago period. Adjusted results are non-GAAP financial measures that exclude the impact of acquisition-related items (including acquired profit in inventory and professional fees), 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 and Chief Executive Officer of Acuity Brands, commented, “While we expected our first quarter net sales to be down compared with the prior year, the decline was greater than previously forecasted due to weaker than expected market demand, which we estimate declined in the low-to-mid single digit range, with the decline in large projects even greater. We experienced lower activity of large projects in various key areas such as commercial, renovation, and infrastructure. We previously announced our net sales would decline in the first quarter primarily due to the pull forward of orders by customers in advance of announced price increases in the prior-year period as well as our recent efforts to reduce our exposure to products whose profitability has been most negatively impacted by tariffs. We were pleased that our adjusted operating profit margin remained relatively flat compared with the prior year and we continued to generate strong cash flow from operations. We continue to aggressively manage our business in this uncertain market environment, which included, among other actions, the initiation of streamlining actions to reduce our operating costs to better align with current demand.”
Fiscal 2020 First Quarter Results
The decline in fiscal 2020 first quarter net sales was primarily due to a 16 percent decrease in volume, partially offset by a 3 percent net favorable change in price and mix of products sold (“price/mix”) and a contribution from acquisitions of approximately 2.5 percent. Changes in foreign currency rates did not have a meaningful impact on first quarter net sales. Management estimates that price/mix was impacted by a favorable shift in sales channel mix and, to a lesser extent, realization from price increases implemented in fiscal 2019, partially offset by an unfavorable mix of products sold.
Gross profit for the first quarter of fiscal 2020 decreased $11.7 million to $355.8 million compared with $367.5 million in the prior-year period primarily due to lower sales volume and increased tariffs, partially offset by favorable price/mix, lower costs for certain inputs, and the contribution from acquisitions. Fiscal 2020 first quarter gross profit margin of 42.6 percent increased 320 basis points compared with prior year’s gross profit margin. The improvement in gross profit margin was primarily due to favorable sales channel mix, partially offset by the mix of products sold and lower net sales volume. Fiscal 2020 first quarter adjusted gross profit margin of 42.8 percent increased 330 basis points compared with prior year’s adjusted gross profit margin.
Selling, distribution, and administrative (“SD&A”) expenses for the first quarter of fiscal 2020 totaled $265.3 million, an increase of $15.2 million, or approximately 6.1 percent, compared with the prior-year period. The increase was primarily due to higher share-based payment expense, the addition of acquisitions, and higher professional fees associated with recent acquisitions. Share-based payment expense increased due to changes made to the equity incentive program as part of the Company’s comprehensive review of its compensation programs that was performed during the past year, which resulted in the acceleration of share-based payment expense in the first quarter. Adjusted SD&A expenses for the first quarter of fiscal 2020 totaled $237.9 million, an increase of $3.3 million, or 1.4 percent compared with the prior-year period. The increase in adjusted SD&A expenses was primarily due to the added operating costs associated with recent acquisitions.
Special Charge
The Company recorded a pre-tax special charge of $6.9 million in the first quarter of fiscal 2020 compared with a pre-tax special charge of $1.0 million in the prior fiscal-year period. The special charge consisted primarily of severance costs and expense associated with the consolidation of certain facilities. Management believes that these streamlining actions will better align the Company’s cost structure with current market demand while permitting continued investment in future growth initiatives. Management expects to achieve pre-tax savings in fiscal 2020 in excess of the special charge amount with most of the benefit occurring in the second half of the fiscal year.
Cash Flows
Net cash provided by operating activities totaled $129.6 million for the first quarter of fiscal 2020 compared with $131.8 million for the year-ago period. Cash and cash equivalents at the end of the first quarter of fiscal 2020 totaled $266.6 million, a decrease of $194.4 million since the beginning of the fiscal year. During the first quarter of fiscal 2020, the Company spent $302.0 million on acquisitions and paid dividends to stockholders of over $5 million.
Financing
In December 2019, the Company borrowed the full $400 million available under its existing delayed drawdown term loan. The majority of the proceeds were used to refinance the $350 million public notes that matured on December 15, 2019. Borrowings under the term loan are based on short-term interest rates that are currently approximately half the rate of the refinanced public notes. The interest savings associated with refinancing the public debt is estimated between $7 and $8 million for the remainder of fiscal 2020, assuming no meaningful changes in short-term interest rates.
Outlook
Nagel commented, “We remain cautious about overall market conditions within the lighting industry for the remainder of our fiscal 2020 primarily due to continued economic uncertainties caused by global trade issues, including tariffs. We also expect to continue to have topline headwinds associated with the pruning of products that do not meet our profitability objectives, primarily in the retail channel. While we expect market demand for lighting products to remain sluggish until there is more clarity regarding these global trade issues, we are seeing encouraging indicators such as improvement in the Dodge Momentum Index, which could be a positive indicator for market demand for lighting in the latter half of this calendar year.”
Nagel concluded, “Our focus in fiscal 2020 is to outperform the growth rates of the core markets we serve through execution of our previously announced growth strategies, increase margins by selling a richer mix of products and solutions as we execute our tiered solutions strategy, and leverage our fixed cost infrastructure to achieve targeted incremental margins to improve our overall profitability. Lastly, we are extremely excited that Neil Ashe will join the Company as our next President and CEO. We have a tremendous company with great associates and market-leading solutions with a very strong financial profile that will provide Neil and the team the ability to create strategies that I believe will meaningfully enhance value for our key stakeholders.”
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