ATLANTA — Acuity Brands, Inc. announced record fourth quarter and full-year results for net sales, net income, and diluted earnings per share (“EPS”). Fiscal 2016 fourth quarter net sales of $925.5 million increased $166 million, or 22 percent, compared with the year-ago period. Operating profit for the fourth quarter of fiscal 2016 was $135.1 million, an increase of $23.3 million, or 21 percent, over the year-ago period. Net income for the fourth quarter of fiscal 2016 was $82.9 million, an increase of 38 percent compared with the prior-year period. Fiscal 2016 fourth quarter diluted EPS of $1.89 increased 38 percent compared with $1.37 for the year-ago period.
Adjusted diluted EPS for the fourth quarter of fiscal 2016 increased 27 percent to $2.21 compared with adjusted diluted EPS of$1.74 for the year-ago period. Adjusted operating profit for the fourth quarter of fiscal 2016 increased $32.9 million, or 27 percent, to $156.5 million, or 16.9 percent of net sales, compared with the year-ago period adjusted operating profit of $123.6 million, or 16.3 percent of net sales. Adjusted results for both periods exclude the impact of amortization expense for acquired intangible assets, share-based compensation expense, acquisition-related items (including acquired profit in inventory and professional fees), net loss on financial instruments, special charge for streamlining activities, and impairment of intangible asset. 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, “We were very pleased with our achievement of record fourth quarter and full-year results. These results are even more impressive when one considers that we continued to invest in our strong sales growth and areas with significant future growth potential, including the expansion of our solid state luminaire and controls portfolio as well as our building management, software, and Internet of Things solutions. Fourth quarter’s adjusted gross profit margin of 43.5 percent represented an increase of 120 basis points over prior year’s fourth quarter, while adjusted operating profit margin of 16.9 percent increased 60 basis points over last year’s fourth quarter. We believe our record fourth quarter and full-year results reflect our ability to provide customers with truly differentiated value from our industry-leading portfolio of innovative lighting and building management solutions along with superior service.”
Nagel continued, “During the fourth quarter, we made the decision to accelerate certain actions to streamline our supply chain, enhance our customer service and drive productivity. These actions included, among others, the closure of a manufacturing facility and the transfer of certain production to alternate locations in order to free up additional capacity for future growth and to better leverage our overall supply chain. These actions overlapped with the ramping-up of a new manufacturing facility and the addition of a new paint line. The combination of these actions created labor shortages in certain locations which negatively impacted production and shipments and resulted in cancelled orders as well as added costs. We estimate these short-term labor issues resulted in cancelled orders and lost contribution margin on more than $25 million of net sales and caused us to incur additional overtime and other costs in excess of $2 million in the quarter. The actions implemented during the fourth quarter are expected to have significant benefits to our business as we go forward. While the impact of these labor issues is mostly behind us, we may experience some modest carry over effect into our first quarter although we do not expect it to have a material impact on our results.”
Fiscal 2016 Fourth Quarter Results
The 22 percent year-over-year growth in fiscal 2016 fourth quarter net sales was primarily due to a 13 percent increase in volume as well as a 12 percent increase from acquisitions, partially offset by a net unfavorable change in product prices and mix of products sold (“price/mix”) of 2 percent and a 1 percent unfavorable impact from changes in foreign currency exchange rates. The increase in volume was broad-based across most product categories and key sales channels. Sales of LED-based products, which grew almost 40 percent over the year-ago period, represented approximately two-thirds of fiscal 2016 fourth quarter total net sales.
During the fourth quarter of fiscal 2016, the Company recorded a pre-tax special charge of $4.9 million for actions initiated to streamline the organization, including the integration of recent acquisitions. The special charge consisted primarily of severance and employee-related benefit costs for the elimination of certain positions, primarily within various selling, distribution, and administrative departments. Management expects to realize annual savings equal to approximately twice the amount of the charge and to achieve the full annualized run-rate by the end of the second quarter of fiscal 2017. The Company expects to incur additional special charges in fiscal 2017 related to further integration activities of recent acquisitions. In connection with management’s decision to rationalize the Company’s portfolio of various brands, a $5.1 million impairment of an intangible asset was recorded in the fourth quarter of fiscal 2016 for the phaseout of a trade name.
Fiscal 2016 Full-Year Results
Net sales for fiscal 2016 increased $584.6 million, or 22 percent, to $3,291.3 million. Results for fiscal 2016 include operating profit of $475.2 million, net income of $290.8 million, and diluted EPS of $6.63.
Adjusted operating profit for fiscal 2016 increased $134.1 million, or 32 percent, to $555.2 million, or 16.9 percent of net sales, compared with prior year’s adjusted operating profit of $421.1 million, or 15.6 percent of net sales. Adjusted net income for fiscal 2016 was $343.7 million compared with $254.1 million for the prior-year period, an increase of 35 percent. Adjusted diluted EPS for fiscal 2016 increased $2.01, or 34 percent, to $7.84 compared with adjusted diluted EPS of $5.83 for the year-ago period. Adjusted results exclude amortization expense for acquired intangible assets, share-based compensation expense, acquisition-related items (including profit in inventory, professional fees, and certain contract termination costs), net loss on financial instruments, special charge for streamlining activities, and impairment of intangible asset. The total impact of these items on diluted EPS for fiscal 2016 and 2015 was $1.21 and $0.74, respectively. 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.
Net cash provided by operating activities totaled $345.7 million for the full year compared with $288.9 million for the year-ago period, representing a year-over-year increase of 20 percent. Cash and cash equivalents at the end of the fourth quarter of fiscal 2016 totaled $413.2 million, a decrease of $343.6 million since the beginning of the fiscal year. The Company used cash of$623.2 million for acquisitions during fiscal 2016.
Outlook
Nagel commented, “We remain bullish regarding the Company’s prospects for continued future profitable growth. We expect the growth rate for lighting and energy management solutions in the North American market, which includes renovation and retrofit activity and comprises over 97 percent of the Company’s revenues, will be in the mid-to-upper single digit range for fiscal 2017 based on third-party forecasts and other key leading indicators. Our order rates through the month of September reflect this favorable trend. Additionally, we believe that overall demand in our end markets will continue to experience solid growth over the next several years. We expect to continue to outperform the growth rates of the markets we serve by executing our strategies focused on growth opportunities for new construction and renovation projects, expansion into under-penetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutions as part of our integrated, tiered solutions strategy.”
Management estimates a fiscal 2017 annual tax rate of approximately 35.5 percent before any discrete items, assuming the tax rates in the Company’s taxing jurisdictions remain generally consistent throughout the year. Additionally, management expects fiscal 2017 capital expenditures will approximate 2.5 percent of net sales.
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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