Acuity Brands, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended May 31, 2011. Amounts are in millions of dollars, except per-share data. The company designs, manufactures, and distributes lighting products and controls, operating as one segment. Financial statements are unaudited.
Financial performance
| Metric | Three months ended May 31, 2011 | Year-over-year change | Nine months ended May 31, 2011 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $458.3 | +12.4% | $1,299.5 | +9.9% |
| Gross profit | $189.7 | +16.0% | $529.6 | +11.0% |
| Gross margin | 41.4% | +130 bps | 40.8% | +50 bps |
| Operating profit | $50.2 | +28.1% | $132.9 | +21.1% |
| Operating margin | 11.0% | +140 bps | 10.2% | +90 bps |
| Net income | $27.1 | +27.2% | $71.3 | +36.1% |
| Diluted EPS | $0.62 | +$0.14 | $1.63 from continuing operations | +39.3% |
- For the quarter, sales growth excluding acquisitions was 9%; management attributed about 5% to higher unit volumes, about 3% to favorable price/mix, and about 1% to foreign currency translation.
- For the nine-month period, sales growth excluding acquisitions was slightly less than 8%; volume contributed about 6%, with the remainder attributed to price/mix and favorable currency translation.
- Higher volumes, price/mix, productivity improvements, and acquired businesses supported gross profit and operating profit. Higher material and component costs reduced gross profit by an estimated $5.0 in the quarter and $12.0 for the nine-month period.
- Prior-year nine-month results included a $5.2 special charge and a $10.5 pretax loss on early debt extinguishment. Excluding these items, adjusted nine-month diluted EPS was $1.41 in 2010 versus $1.63 in 2011; adjusted operating margin rose from 9.7% to 10.2%.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $81.6, down from $97.0. Investing used $106.5, including $90.4 for acquisitions and $17.4 for capital expenditures. Financing used $8.9, including $16.9 in dividends and $2.9 to settle a share repurchase from fiscal 2010.
- Cash declined $30.2 from August 31, 2010, to $160.8 at May 31, 2011. Operating working capital rose $35.9 to $245.0, mainly due to higher inventory and lower accounts payable. Management cited seasonal finished-goods buildup, strategic commodity and component purchases, inflation, and payment timing.
- Total debt was $353.4, substantially unchanged from fiscal year-end. It consisted primarily of $350.0 of 6.0% senior notes due in 2019 and a $4.0 variable-rate industrial revenue bond due in 2021. The revolving facility matures in October 2012; $240.5 of borrowing capacity was available under the most restrictive covenant, and the company reported compliance with all financial covenants.
- Debt to total capitalization was 31.2%, versus 33.7% at August 31, 2010; debt net of cash to total capitalization net of cash was 19.8%, versus 18.9%.
- Current assets were $626.5 and current liabilities $313.3. Stockholders’ equity was $779.0, up from $694.4 at fiscal year-end.
Outlook, risks, and other notable items
- Management said non-residential construction remained weak and expected continued demand volatility and commodity-cost inflation through the rest of fiscal 2011. It did not provide a specific sales or EPS forecast in this filing.
- Quarter-end backlog was $164.4; comparable backlog, excluding acquisition-related backlog, was down about 3% year over year. June 2011 order rates were nearly 10% higher year over year, according to the filing.
- A recently implemented price increase was expected to provide its full benefit in the fourth quarter, but management expected it only to offset incremental commodity costs. The company cautioned that competition could prevent timely or complete recovery of cost increases.
- Management estimated a fiscal 2011 effective tax rate of about 34%, subject to tax-jurisdiction rates remaining generally consistent. It expected fiscal-year capital investment of about $25.0 and pension contributions of about $8.5 combined for domestic and international plans.
- The company acquired Healthcare Lighting in May 2011, Sunoptics in February 2011, and Winona Lighting in October 2010; it had acquired the remaining interest in Renaissance Lighting in July 2010. Acquisition-related purchase-price allocations remained provisional. Management described the acquisitions as individually and collectively not material to the periods’ financial statements.
- Key risks include weak end-market demand, volatile steel, petroleum, and other input costs, competition and pricing execution, foreign-exchange movements, and the possibility that warranty, legal, environmental, or other claims exceed reserves. Management reported no material changes in disclosed contingencies or risk factors and considered pending legal matters not likely to have a material adverse effect based on information then available.
- Management stated that disclosure controls were effective at a reasonable assurance level as of May 31, 2011, with no material change in internal control over financial reporting during the quarter. The filing noted that controls cannot provide absolute assurance.
Important facts for investors to verify
- Whether demand and the improvement in June order rates continued, and how backlog developed after quarter-end.
- Whether price increases offset commodity and component inflation, including the resulting effects on gross margin.
- How much reported growth and profitability came from acquisitions versus underlying operations, and the final purchase-price allocations.
- Whether operating cash flow recovered as working capital normalized, particularly inventory and accounts payable.
- Revolver availability, covenant compliance, debt maturity terms, and the Board’s approval of future quarterly dividends.
- Whether warranty, legal, environmental, or other contingencies changed materially after the reporting date.