Acuity Brands, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended August 31, 2020. The filing also reports unaudited fourth-quarter results. Acuity Brands (NYSE: AYI) designs and manufactures lighting, lighting controls, building-management systems and related technology, primarily for North America. It reports one operating segment.
Financial results and position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $3,326.3 million | $3,672.7 million | (9.4%) |
| Gross profit / margin | $1,402.4 million / 42.2% | $1,479.7 million / 40.3% | Profit (5.2%); margin +190 bps |
| Operating profit / margin | $353.9 million / 10.6% | $462.9 million / 12.6% | Profit (23.5%); margin −200 bps |
| Net income | $248.3 million | $330.4 million | (24.8%) |
| Diluted EPS | $6.27 | $8.29 | (24.4%) |
| Operating cash flow | $504.8 million | $494.7 million | +$10.1 million |
Adjusted diluted EPS, a non-GAAP measure, was $8.27 versus $9.57; adjusted operating margin was 13.7% versus 14.4%. The company reported $20.0 million of special charges in FY2020, mainly severance, lease-asset impairments and relocation costs.
Cash and cash equivalents were $560.7 million at year-end, versus $461.0 million a year earlier. Total debt was $401.1 million, including $395.0 million under the term loan facility; debt was primarily variable-rate. The company had $396.2 million of additional borrowing capacity under its credit agreement and was compliant with its financial covenants. Current assets were $1,439.7 million and current liabilities were $617.6 million. Capital expenditures were $54.9 million. The company paid $20.8 million in dividends and repurchased $69.3 million of stock during the year.
FY2020 fourth-quarter results: net sales of $891.2 million, gross profit of $375.1 million, net income of $73.7 million and diluted EPS of $1.87. The filing does not provide a clear fourth-quarter year-over-year percentage comparison in the presented quarterly table.
Material changes versus the prior year
- Sales volumes fell an estimated 12%, partly offset by a 3% contribution from acquired businesses; price and mix were approximately flat. Management cited COVID-19, reduced activity in certain large-account relight projects and the removal of tariff-affected retail products.
- Gross margin improved despite lower sales, primarily from lower input costs and acquisitions. Operating profit declined as lower gross profit combined with higher SD&A and special charges.
- Cash from operations increased modestly, supported mainly by lower working-capital requirements, while net income fell.
- The company acquired The Luminaires Group and LocusLabs. Acquisitions used $303.0 million of cash, net of cash acquired; FY2020 acquired-business sales contribution was estimated at 3%.
- In December 2019, the company drew $400 million under its term loan facility and used proceeds primarily to repay $350 million of senior unsecured notes at maturity. Year-end debt increased from $356.6 million to $401.1 million.
Outlook, risks and unusual items
- Management said the duration and financial effects of COVID-19 remained uncertain and expected weakness in non-residential building activity based on construction indicators. It did not provide formal earnings or revenue guidance.
- For FY2021, management estimated an effective tax rate of approximately 23% before discrete items and expected capital expenditures of 1.5% of net sales.
- Key risks include continued pandemic-related disruption to construction demand, supply chains and operations; competition and pricing pressure; input-cost and tariff exposure; concentration of manufacturing in Mexico; and labor negotiations. Approximately 67% of the workforce was covered by collective bargaining arrangements, with agreements covering about 59% of the workforce due to expire within a year.
- FY2020 included $20.0 million in special charges and $41.7 million of acquired-intangible amortization. A $1.4 million impairment was recorded for one trade name; no goodwill impairment was recorded. Goodwill was $1.08 billion, and management’s impairment test reflected additional COVID-related estimation uncertainty.
- Litigation includes a patent case brought by Lighting Science Group: the International Trade Commission found no relief was warranted, while an appeal was pending; the related federal court action was stayed. A securities class action continued on claims relating to five challenged statements; the company said it could not reasonably estimate possible losses. Management said other pending matters were not expected to have a material adverse effect, but outcomes remain uncertain.
- After year-end, the company repurchased another 1.7 million shares through October 22, 2020, and the Board restored the repurchase authorization to six million shares on October 23, 2020.
Important facts for investors to verify
- Whether demand, construction activity and customer-channel volumes recover, and how much of the FY2020 sales decline persists.
- Whether margin gains from input costs and acquisitions can offset volume pressure, elevated SD&A as a share of sales and ongoing restructuring costs.
- Term-loan interest-rate exposure, repayment requirements (including substantial principal scheduled for FY2023), covenant headroom and available liquidity.
- Acquisition integration and the final purchase-price allocations for The Luminaires Group and LocusLabs, which were provisional at year-end.
- Developments in the patent and securities litigation, as well as the outcome of the IRS audit and other contingencies.
- Cash deployment among repurchases, dividends, acquisitions and capital investment; the repurchase program is discretionary and may be suspended.