Acuity Brands (AYI) released the firm's fiscal fourth quarter financial results on Tuesday. They were solid. For the three month period ended August 31st, Acuity Brands posted adjusted EPS of $3.95 (GAAP EPS: $3.48) on revenue of $1.11B. The firm beat Walll Street on both the top and bottom lines, while the sales numbers were good for year over year growth of 11.8%.
Gross profit increased 10% to $462.5M as gross margin decreased to 41.7% from 42.2% for the year ago comp. Operating profit increased 12.7% to $149.6M, while operating margin improved from 13.4% a year ago to 13.5%. Adjusted operating margin dropped to 15.3% from 15.8%. Net income increased an impressive 17.6% to $115.4M. Adjusted net income increased 11.1% from the same period last year.
Who Are These Guys?
Acuity Brands is an Atlanta, Georgia based industrial technology company that engages in the production of lighting products for the industrial, commercial, and residential markets. The focus is on developing, manufacturing, and marketing building management systems, lighting, lighting controls, and location-aware applications.
The firm operated through two segments, ABL and ISG. ABL (Acuity Brands Lighting and Lighting Controls) is dominant and drove net sales of $1.06B during the quarter reported, which was up 11.4% year over year. Adjusted operating margin for this group was 15.3%. ISG (Intelligent Spaces Group) offers building management systems such as products for heating, ventilation, and air conditioning. ISG posted sales of just $61.4M, but that was an increase of 21.6% year over year. Adjusted operating margin for this segment was 23.8%, which is why Acuity is trying to grow this business.
For the coming fiscal year, Acuity sees net sales in a range spanning from $4.1B to $4.3B. The lower end of the range is above the $4.08B that Wall Street was looking for. The firm also sees adjusted full year EPS at $13 to $14.50. This takes the mid-point way above the consensus view of $13.11. The ABL segment is expected to grow in the low to mid-single digits percentage-wise, while the ISG segment is seen growing at a low to mid-teens clip.
Acuity ended the quarter with a net cash position of $223.2M and inventories of $485.7M. The cash/inventories mix was more heavily slanted toward inventories than it was a year ago. This puts current assets at $1.463B. Current liabilities ended the period at $733.6M, leaving the firm with a current ratio of 1.99, which is very strong. Sans inventories, the firm's quick ratio cones to 1.33. Still very strong.
Total assets add up to $3.477B. The firm makes no entry on the balance sheet for "goodwill" or any other intangible assets. We like that. Total liabilities less equity amount to $1.565B including $495M in long-term debt.
This is really a solid balance sheet. I don't love the difference between the debt-load in dollars and the cash position, but I understand why they went heavy on inventories. That said, as supply chains normalize, I would need to see the values for cash and inventories rebalance. The current situation is golden.
I like the business. I like the outlook. Hedge funds in aggregate appear to have, for the most part, exited the name back in 2021 and 2022. That could be seen as a negative. That could also be seen as a positive as there is no risk there now. I think I can be positive on this name going into 2023. The stock is not highly followed, but trades at a below market 12 times forward looking earnings.
Readers will see that AYI had been mired in a downtrend from last November into this past spring. From April on, a basing period of consolidation appears to morph out of that trend. The shares have gapped from the 21 day EMA up to the 50 day SMA on today's rally alone. I think an interested buyer, and I am one, might want to wait and see how the stock performs at that 50 day line. This could very well be a point of resistance that sticks.
My plan would be to wait for either a second chance down around $163 or buy on momentum above $170, but not at $169-sih. AYI options don't really trade much. I would not go hitting any bids in a market with such wide spreads, but if one could get "taken" on some (one?) November $165 puts at $6.50 plus? That might be really interesting.