Acuity Brands Inc. (NYSE: AYI) reported a 21% jump in earnings for the third quarter of 2019 helped by higher top-line growth as well as lower costs and expenses. The bottom line exceeded analysts’ expectations while the top line missed consensus estimates. Following this, the stock fell over 9% in the premarket session.
Net income climbed by 21.1% to $88.4 million or $2.22 per share. Adjusted earnings increased 7% to $2.53 per share.
Revenue moved up 0.4% to $947.6 million. This was driven by a greater than 1% increase in sales volumes, partially offset by unfavorable foreign exchange rate changes and the adoption of Accounting Standards for Revenue from Contracts with Customers.
Changes in product prices and mix of products sold were flat as higher pricing was offset by changes in the mix of products sold and customer mix within certain channels. Management estimated that the realization from recent price increases added low single-digit growth to overall net sales for the quarter. Acquired revenues from acquisitions net of lost revenues from divestitures were flat compared to the prior-year period.
For the third quarter, gross profit declined by 1.4% and gross profit margin decreased by 70 basis points. The decline in gross profit margin was due primarily to a shift in sales among key customers within the retail sales channel as well as under-absorption of manufacturing costs as a result of inventory reduction efforts.
Looking ahead, the company remains cautiously optimistic about overall market conditions for the remainder of the calendar year 2019 and does not believe that the demand outlook has meaningfully changed from its outlook provided last quarter. Third-party forecasts and several leading indicators continue to suggest that the North American lighting market should grow in the low-single-digit range in calendar 2019.
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For the fourth quarter, the company expects net sales to be down modestly compared with prior year’s net sales, which benefitted from the significant initial stocking of product in the stores of a new customer in the retail sales channel. Also, net sales could be negatively impacted by its efforts to enhance the margin profile.
For fiscal 2020 and beyond, the company is expected to garner top-line growth driven primarily by its growth strategies, improvement in the mix of products and solutions, and leverage its fixed cost infrastructure. This is likely to aid in achieving targeted incremental margins to improve its overall profitability.
The company continues to believe the lighting and lighting-related industry as well as building management systems have the potential to experience solid growth over the next decade as they see the potential to transform investments into strategic assets by deploying Acuity’s distinctive solutions.
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