Acuity Brands, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2021, the three months ended November 30, 2020. The filing is unaudited and compares results with the three months ended November 30, 2019. Acuity develops and sells lighting, building management, and related technology solutions, primarily in North America.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $792.0 million | $834.7 million | Down 5.1% |
| Gross profit / margin | $332.4 million / 42.0% | $355.8 million / 42.6% | Down $23.4 million / 60 bps |
| Operating profit / margin | $85.7 million / 10.8% | $83.6 million / 10.0% | Up 2.5% / 80 bps |
| Net income | $59.6 million | $57.0 million | Up 4.6% |
| Diluted EPS | $1.57 | $1.44 | Up 9.0% |
| Operating cash flow | $123.9 million | $129.6 million | Down $5.7 million |
Gross margin fell on lower volume and pricing and an unfavorable product mix, partly offset by lower input costs. SD&A expense declined 7.3%, reflecting lower employee, freight, travel, sales and marketing costs, among other factors. Lower SD&A and special charges, together with lower gross profit, resulted in higher GAAP operating profit. Adjusted operating profit was $104.2 million, down 12.4%, and adjusted diluted EPS was $2.03, down 4.7%. These are non-GAAP measures; the company’s adjustments include acquired-intangible amortization, share-based compensation, special charges, acquisition-related items, and investment impairment, and are not directly comparable across companies.
Financial position, cash flow, and capital allocation
- Cash and cash equivalents were $507.0 million at November 30, 2020, compared with $560.7 million at August 31, 2020. Current assets were $1,347.7 million and current liabilities were $583.4 million.
- Total debt was approximately $499.9 million, versus $401.1 million at fiscal year-end. Acuity issued $500 million of 2.150% senior unsecured notes due December 2030 and used the proceeds to repay the $395 million term loan. The notes are primarily fixed-rate debt.
- The company reported $395.9 million of additional borrowing capacity under its revolving credit agreement, after letters of credit and applicable covenant limits, and was in compliance with financial covenants.
- Net cash used in financing was $164.1 million, including $255.2 million of share repurchases, offset in part by note proceeds. The company repurchased approximately 2.6 million shares at an average $100.06 per share; 5.1 million shares remained authorized for repurchase.
- Capital expenditures were $11.4 million. Management expected fiscal 2021 capital expenditures to be approximately 1.5% of net sales. Dividends declared were $0.13 per share; the Board declared another $0.13 quarterly dividend payable February 1, 2021.
Material changes and unusual items
- Sales declined across most channels: independent sales network down 3%, direct sales down 10%, and corporate accounts down 28%; retail sales increased 3%. Management cited lower volume, pricing and mix, and pandemic-related weakness, especially in industrial projects and big-box retail retrofit activity.
- Interest expense, net, declined to $4.9 million from $8.3 million, principally due to prior refinancing and lower-rate debt. Net income also benefited from lower diluted share count.
- The company recorded a $4.0 million impairment of an investment in an unconsolidated affiliate. Special charges were $0.7 million, mainly severance and relocation costs, compared with $6.9 million a year earlier.
- No acquisitions were completed in the quarter. Fiscal 2020 acquisitions included The Luminaires Group and LocusLabs.
- The Lighting Science Group patent disputes were settled with pending actions to be dismissed with prejudice and no compensation payable by the company. A securities class action remains ongoing; the company stated it could not reasonably estimate potential losses.
Outlook, commentary, and risks
Management provided no specific full-year revenue or earnings guidance. It said the impact of COVID-19 on fiscal 2021 and beyond remained uncertain, citing construction, renovation, and consumer spending, sales-channel conditions, supply-chain disruptions, and the ability of manufacturing and distribution operations to continue with limited disruption. The company said it believed cash on hand, operating cash flow, and borrowing availability would meet liquidity needs over the next 12 months, while noting that sustained economic deterioration could affect liquidity and operations. Management estimated a fiscal 2021 effective tax rate of approximately 23% before discrete items. The company also reported effective disclosure controls and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether sales and gross-margin trends stabilize as pandemic-related effects on demand, channel mix, and supply chains evolve.
- How the company’s adjusted profit and EPS trends compare with GAAP results, including the nature and recurrence of excluded items.
- Debt repayment, liquidity, covenant headroom, and the cash impact of further share repurchases and dividends.
- Developments and potential financial exposure in the securities class action and other legal or product-related contingencies.
- Whether the stated capital-expenditure and tax-rate expectations remain consistent with subsequent results and disclosures.