Intelligent lighting and space solutions provider Acuity Brands (NYSE:AYI) announced better-than-expected revenue in Q3 CY2024, with sales up 2.2% year on year to $1.03 billion. Its non-GAAP profit of $4.30 per share was also 2.3% above analysts’ consensus estimates.
Is now the time to buy Acuity Brands? Find out by accessing our full research report, it’s free.
Acuity Brands (AYI) Q3 CY2024 Highlights:
- Revenue: $1.03 billion vs analyst estimates of $1.01 billion (1.9% beat)
- EPS (non-GAAP): $4.30 vs analyst estimates of $4.20 (2.3% beat)
- Gross Margin (GAAP): 47.3%, up from 43.8% in the same quarter last year
- EBITDA Margin: 18.5%, up from 17.3% in the same quarter last year
- Free Cash Flow Margin: 14.6%, up from 8.7% in the same quarter last year
- Organic Revenue rose 2.2% year on year (-9% in the same quarter last year)
- Market Capitalization: $8.37 billion
“Our fiscal 2024 fourth quarter performance was strong. We grew net sales in both Lighting and Spaces, delivered margin expansion and increased earnings per share," stated Neil Ashe, Chairman, President and Chief Executive Officer of Acuity Brands,
Company Overview
One of the pioneers of smart lights, Acuity (NYSE:AYI) designs and manufactures light fixtures and building management systems used in various industries.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Acuity Brands struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Acuity Brands’s recent history shows its demand has stayed suppressed as its revenue has declined by 2.1% annually over the last two years. Acuity Brands isn’t alone in its struggles as the Electrical Systems industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Acuity Brands’s organic revenue averaged 1.8% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not M&A) drove most of its performance. 
This quarter, Acuity Brands reported reasonable year-on-year revenue growth of 2.2%, and its $1.03 billion of revenue topped Wall Street’s estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 3.6% over the next 12 months, an acceleration versus the last two years.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Operating Margin
Acuity Brands has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Acuity Brands’s annual operating margin rose by 3.8 percentage points over the last five years, showing its efficiency has improved.
This quarter, Acuity Brands generated an operating profit margin of 15.2%, up 4.4 percentage points year on year. This increase was encouraging, and since the company’s operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Acuity Brands’s EPS grew at a solid 10.2% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into Acuity Brands’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Acuity Brands’s operating margin expanded by 3.8 percentage points over the last five years. On top of that, its share count shrank by 20.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Acuity Brands, its two-year annual EPS growth of 9.8% is similar to its five-year trend, implying stable earnings power.
In Q3, Acuity Brands reported EPS at $4.30, up from $3.97 in the same quarter last year. This print beat analysts’ estimates by 2.3%. Over the next 12 months, Wall Street expects Acuity Brands’s full-year EPS of $15.55 to grow by 5.9%.
Key Takeaways from Acuity Brands’s Q3 Results
We enjoyed seeing Acuity Brands exceed analysts’ revenue expectations this quarter on better organic revenue growth. EPS also topped Wall Street’s estimates. Overall, this quarter had some key positives. The stock remained flat at $275 immediately following the results.
Should you buy the stock or not?If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings.We cover that in our actionable full research report which you can read here, it’s free.