Acuity Brands’ earnings beat expectations (NYSE:AYI) | Private Equity Weekly

On April 3, the management team Acumen Brands Inc. (NYSE:AYI), a company focused on the production and sale of lighting solutions such as commercial and architectural lighting, as well as a variety of other lighting solutions Products such as building management systems and location-aware applications, Announcement of financial results Covers the second quarter of fiscal year 2024. Those who follow my work may know that I am not the most enthusiastic person about business. But if you look at my past business, you’ll know that my judgment was also wrong. In March 2022, I wrote an article article Regarding Acuity Brands, I rate it a Hold. That’s based on some growth-related struggles the company was seeing even before the pandemic.it is balance sheet and Cash flow is impressive, but the stock’s valuation is more or less fair.

Unfortunately, this call turned out to be too pessimistic. While growth remains an issue and revenue has actually declined year over year, management has improved profitability quite significantly. This caused the share price to soar, with the stock returning a total of 40.6% to investors since my last article on the business. That dwarfs the S&P 500’s (SP500) 19.6% gain in the same time frame. Much of the performance that drove the stock well above market expectations continued into the second quarter of fiscal 2024. While the business did miss expectations on revenue, it beat them on earnings per share. Even so, given the way the stock is priced, I can’t imagine this outperformance continuing. So while I haven’t answered the call so far, I’ve decided to keep my rating on the business at “Hold” for the time being.

mixed quarter

As I’ve already mentioned, on April 3, the management team at Acuity Brands received some interesting news.manage report Financial results were mixed, but the reception was generally warm. Take income, for example. Second quarter fiscal 2024 sales totaled $905.9 million. That’s down 4% from $943.6 million a year ago. It was also $2.1 million less than analysts expected.

According to management, this was due to weakness in the ABL (Acuity Brands Lighting and Lighting Controls) segment. The segment’s revenue fell 5.3%, plummeting from $890.8 million to $843.5 million. Management claimed that all of the unit’s sales pipeline was negatively impacted. But that appears to be due to higher-than-expected revenue for the second quarter of fiscal 2023 as the company works through its backlog. Fortunately for investors, not every part of the company was negatively affected. The smaller segment, the ISG (Intelligent Space Group) segment, saw revenue increase 17%, with sales jumping from $58.2 million to $68.1 million. An acquisition, combined with higher demand-driven sales, were responsible for the sales growth.

With revenue down, you might think profits would take a hit. But the opposite is true. Earnings per share for the quarter were $2.84. That was $0.14 per share higher than analysts’ expectations. It easily topped the $2.57 per share reported in the same period a year ago. There were several contributors behind this improvement, which increased net profit from US$83.2 million to US$89.2 million. But by far the most important are two specific metrics. The company’s cost of product sales fell to $493.5 million this year from $536.9 million last year. The company’s selling, distribution and administrative costs fell to $294.3 million from $295.2 million. Improvements in material and import costs were the main reasons for the company’s lower cost of sales. Other profitability indicators followed a similar trajectory.

The only exception is operating cash flow. It fell from $118.8 million in the second quarter of 2023 to $102.6 million in the same period this year. But if we adjust for changes in working capital, our funding would increase from $116.5 million to $124 million. At the same time, the business’s EBITDA grew from $144.8 million to $153 million.

As shown above, the results for the second quarter of 2024 are very similar to the results for the second quarter a year ago, as are the results we saw in the first half of fiscal 2024 relative to the first half of fiscal 2023. Revenues fell, as did operating cash flow. However, net profit, adjusted operating cash flow and EBITDA all improved from the same period last year. Unfortunately, we don’t know what will happen throughout fiscal 2024.

But if we assume that performance in the first half is indicative of performance in the second half, we can get some reasonable estimates. For example, net profit should be approximately $415.4 million. That would be significantly higher than the $346 million reported in 2023. Adjusted operating cash flow of $493.4 million will exceed the $465.4 million generated in 2023. EBITDA totaled approximately $696.2 million, which would exceed the $648.5 million the company generated last year.

With these numbers, valuing the company becomes simple. In the chart above, I’ve done just that, using historical results for 2023 and estimates for 2024. Looking forward, the stock does look cheaper. This is especially true when it comes to the EV to EBITDA approach. But that’s because the company has $83 million in net debt.

I wouldn’t exactly call it a value prospect. But it’s certainly not overpriced either. I actually think the stock is more or less fairly valued relative to similar companies.

This can be seen from the table below. In this table, I compare Acuity Brands to five similar companies. When it comes to pricing for the P/E method and the operating cash flow method, I found three of the five methods to be cheaper than our candidates. When using the EV vs. EBITDA approach, this number drops to two out of five.

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take away

Fundamentally, I’m not the biggest fan of Acuity Brands, Inc. I don’t like seeing revenue go down year after year. Although I didn’t show it, revenue did decline from 2022 to 2023 as well.

It’s great to see profits and cash flow rising. However, Acuity Brands, Inc. stock isn’t cheap enough to warrant any meaningful optimism. On the contrary, I think it is still logical to maintain a “hold” rating on the business for now.