In a hard advance today, shares of lighting solutions company Acuity Brands (AYI 200.96, +21.23 +11.8%) regain the majority of the spring losses.
The crux of the story is, AYI beat market expectations on both the top and bottom lines in Q3. Adjusted earnings per share (EPS) were $2.15 on revenues which rose 4.7% compared to a year ago to $891.6 million.
Management highlighted that net sales were strong due primarily to a 6% increase in volume, and partially offset by an approximately 1% net unfavorable change in product prices and mix of products sold as well as a modest unfavorable impact from changes in foreign currency exchange rates. The change in price/mix was due primarily to lower pricing on luminaires, partially as a result of lower LED component costs. Management further commented that robust adoption of LED-based products continued during Q3 and represented about two-thirds of the company’s total net sales.
Gross profit margin for the period was 42.5%, a 190 basis points decline compared with prior-year’s record gross profit margin of 44.4% and 200 basis points lower than last year’s adjusted gross profit margin of 44.5%. The company stated that the gross margin decline was due primarily to higher than normal supply chain costs, including increased quality expense and greater inbound freight charges, as well as unfavorable price/mix.
Management gave the caveat that the company recorded a pre-tax special charge of $0.5 million and $9.7 million during 3Q17 and 3Q16, respectively, for actions initiated to streamline the organization, including the integration of recent acquisitions.
Giving a bit of a 10,000 foot view, management called attention to general softness in demand in the North American lighting market which they think began in 3Q16 and which they also see continuing through the remainder of the calendar year. Management believes that encouraging signs point to support of third-party forecasts which see improvement in growth rates in calendar year 2018.
It’s impressive to see AYI holding up so well in the face of the cautious commentary which came out of this report. The headline beat seems to be enough for now to keep the stock higher, but higher-than-normal supply chain costs and the forecasted continuation of general softness in North America do not feel like they will bode well for AYI longer term.