Acuity Brands(US:AYI)2019-04-03 16:25Financial Data and Key Metrics Changes - Net sales for the second quarter reached a record $854 million, an increase of almost 3% compared to the year-ago period [8] - Adjusted operating profit for the second quarter was $112.4 million, up 7% from $105.3 million in the prior year [8][14] - Adjusted diluted earnings per share (EPS) was a record $1.99, reflecting a 5% increase from the previous year [8][16] - Adjusted gross profit margin decreased by 100 basis points to 39.2% compared to the year-ago period [14] Business Line Data and Key Metrics Changes - Net sales through the independent sales network benefited from price increases and growth from the building management team at Distech, while C&I sales volume declined due to order pull-forward [11] - Corporate accounts channel net sales increased by 10% year-over-year, driven by the expansion of Atrius-enabled luminaires [11] - C&I market net sales were up almost 5% for the first half of 2019 compared to the previous year, indicating a recovery from the pull-forward effect [12] Market Data and Key Metrics Changes - The overall growth rate of the lighting industry in North America was reported to be low-single digits, with the company outpacing this growth [10] - The company noted that prolonged weak demand for larger non-residential lighting projects and product substitution to lower-priced alternatives continued to impact sales [12][32] Company Strategy and Development Direction - The company is focused on diversifying its product offerings and enhancing customer solutions, particularly through its Atrius IoT platform and building management solutions [17][36] - The company aims to maintain its investment-grade rating while exploring M&A opportunities and share buybacks as part of its capital allocation strategy [39][42] - The company is reviewing its product portfolio to eliminate underperforming items, which is expected to improve margins and return on invested capital [35][72] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth despite current market challenges, citing strong cash flow and sales growth [28] - The company anticipates that labor shortages and global trade issues may continue to impact growth rates in the construction and lighting markets [30][31] - Management expects to continue outperforming the overall market growth rate, particularly in North America, while facing challenges from product substitutions and pricing dynamics [33][34] Other Important Information - The company generated $188 million in net cash flow from operating activities in the first half of fiscal 2019, an increase from $178 million in the prior year [24] - The company repurchased 400,000 shares for $49 million during the first six months of fiscal 2019, with 4.8 million shares remaining under the current repurchase authorization [26][27] Q&A Session Summary Question: Thoughts on deploying net buybacks and leveraging the balance sheet - Management indicated that cash will be used for capital expenditures, shareholder returns, and acquisitions, with a preference for M&A opportunities [39][40] Question: Impact of retail channel mix on growth - Management sees opportunities for diversification and growth in the retail channel, despite the complexities of different customer service requirements [46][48] Question: Price capture and realization timeline - Management believes there may be another quarter of noise around price capture, but is optimistic about future price realization [54][55] Question: Recent lighting industry M&A activity - Management remains bullish on the lighting industry, stating that it continues to grow and that Acuity is well-positioned compared to smaller competitors [68][69]