Acuity Brands, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended November 30, 2021, compared with the three months ended November 30, 2020, unless otherwise noted. Acuity Brands designs and sells lighting, lighting controls, building management systems, and location-aware applications through Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).
Financial performance
| Metric | Q1 FY22 | Q1 FY21 | Change |
|---|---|---|---|
| Net sales | $926.1 million | $792.0 million | Up 16.9% |
| Gross profit | $385.8 million | $332.4 million | Up 16.1% |
| Gross margin | 41.7% | 42.0% | Down 30 bps |
| Operating profit | $115.1 million | $85.7 million | Up 34.3% |
| Operating margin | 12.4% | 10.8% | Up 160 bps |
| Net income | $87.6 million | $59.6 million | Up 47.0% |
| Diluted EPS | $2.46 | $1.57 | Up 56.7% |
| Operating cash flow | $83.7 million | $123.9 million | Down $40.2 million |
Sales growth reflected higher activity in both segments, continued end-market recovery, price increases, and less than 4% contribution from acquisitions. Higher material, conversion, and freight costs weighed on gross margin; pricing and product and productivity improvements largely offset them. Operating margin improved as operating expenses were better leveraged, despite higher selling, distribution, and administrative costs. The effective tax rate fell to 19.6% from 24.7%, primarily due to discrete tax benefits on share-based payments.
Segments
- ABL: Sales of $883.6 million, up 17.3%; operating profit of $128.1 million, up 30.2%; operating margin of 14.5%, versus 13.1%. Growth included price increases and stronger independent/direct channels and corporate accounts, partly offset by lower retail sales.
- ISG: Sales of $46.4 million, up 13.7%; operating profit of $2.0 million, versus a $0.1 million loss. Growth was driven mainly by demand for building and HVAC controls and pricing.
Financial position, cash flow, and capital allocation
- At November 30, 2021, cash and cash equivalents were $504.0 million, compared with $491.3 million at August 31, 2021. Long-term debt was $494.5 million; the company reported no revolver borrowings.
- The $400 million revolving credit facility had $395.9 million of available borrowing capacity after letters of credit. Cash plus available capacity totaled $899.9 million. The company reported compliance with financial covenants.
- Operating cash flow was lower year over year, primarily because of higher operating working capital, particularly inventories, and timing of income tax and deferred payroll tax payments. Inventory rose to $439.7 million from $398.7 million at fiscal year-end.
- Capital expenditures were $9.3 million. The company expects fiscal 2022 capital expenditures of approximately 1.5% of net sales.
- The company repurchased 0.3 million shares for $52.8 million; cash outflows for repurchases were $56.3 million. It paid a $0.13-per-share quarterly dividend and reported 3.5 million shares remaining under its repurchase authorization. On January 6, 2022, the board declared another $0.13-per-share dividend, payable February 1, 2022.
Outlook, risks, and notable matters
- The filing provides no specific revenue or earnings forecast. Management cautioned that quarterly results may not indicate full-year performance. It estimated a fiscal 2022 effective tax rate of approximately 23% before discrete items and expects capital expenditures of approximately 1.5% of sales.
- Management cited continued uncertainty from COVID-19, economic conditions, seasonality, and end-market demand. The pandemic has disrupted supply chains and affected construction and renovation spending; renewed restrictions and further disruption could affect operations and results.
- Material, freight, component, and labor availability and costs remain risks. The company said recent price increases and productivity measures had largely offset cost escalation in the quarter, but gross margin still declined year over year.
- A proposed $15.8 million settlement of a securities class action was accrued, with a corresponding insurance receivable. The company expected the settlement payment to be funded entirely by directors’ and officers’ insurance, subject to court approval, and did not anticipate a significant net loss or cash outflow. A related derivative action was filed; the company said it could not estimate potential losses or the outcome.
- The current revolving credit agreement expires in June 2023; management planned to enter into a new agreement before expiration. The filing also notes the transition away from LIBOR.
Important facts for investors to verify
- Whether the securities settlement receives court approval and whether insurance fully covers the $15.8 million payment.
- Whether inventory and other working-capital needs continue to pressure operating cash flow.
- Whether pricing and productivity gains can offset further material, freight, and supply-chain cost increases without further margin erosion.
- How COVID-19, construction and renovation demand, and other end-market conditions affect future sales and operations.
- Progress toward replacing the revolving credit agreement before its June 2023 expiration and any implications of the LIBOR transition.