Acuity Brands’ (AYI) CEO Vern Nagel on Q4 2014 Results – Earnings Call Transcript

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Acuity Brands’ (AYI) CEO Vern Nagel discusses Q4 2014 results on a conference call held on October 1, 2014…


Acuity Brands (AYI) Q4 2014 Results – Earnings Call Webcast Audio


Acuity Brands, Inc. (NYSE:AYI)

Q4 2014 Earnings Conference Call

October 1, 2014, 10:00 AM ET


Dan Smith – Senior Vice President, Treasurer and Secretary

Vern Nagel – Chairman, President and Chief Executive Officer

Ricky Reece – Executive Vice President and Chief Financial Officer


Rick Kwas – Wells Fargo Securities

Jed Dorsheimer – Canaccord Genuity

Winnie Clark – UBS

Tim Weiss – Robert W. Baird

Matt McCall – BB&T Capital Markets

Chris Glynn – Oppenheimer

Colin Rusch – Northland Capital Markets

Glen Wortman – Sidoti & Company

Mike Ritzenthaler – Piper Jaffray


Good morning and welcome to the Acuity Brands 2014 Fourth Quarter Financial Conference Call. After today’s presentation, there will be a formal question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now I would like to introduce Mr. Dan Smith, Senior Vice President, Treasurer and Secretary. Thank you, sir, you may begin.

Dan Smith – Senior Vice President, Treasurer and Secretary

Good morning. With me today to discuss our fiscal 2014 fourth quarter and full year results are Vern Nagel, our Chairman, President and Chief Executive Officer, and Ricky Reece, our Executive Vice President and Chief Financial Officer. We are webcasting today’s conference call at

I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or future financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our most recent 10-K and 10-Q SEC filings and today’s press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Now let me turn this call over to Vern Nagel.

Vern Nagel – Chairman, President and Chief Executive Officer

Thank you, Dan. Good morning everyone. Ricky and I would like to make a few comments and then we’ll answer your questions. First, let me say we are extremely pleased with our performance in 2014. We achieved record results for net sales, diluted earnings per share and cash flow generation for both the fourth quarter and the full year.

For the full year and the fourth quarter, net sales grew 15%, which was meaningfully higher than the estimated mid single-digit growth rate for the key markets we serve. In fact, this was the sixth quarter in a row where we achieved double-digit volume growth, a meaningful accomplishment in this environment. We believe these results are yet again a strong evidence our strategies to provide our customers with differentiated value-added solutions and to diversify the end markets we serve are succeeding, allowing us to extend our leadership position in North America.

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These strategies include the continued aggressive introduction of innovative, energy-efficient lighting solutions, expansion in key channels and geographies, and improvements in customer service and company-wide productivity. Our profitability and cash flow for the quarter and the full year were records for Acuity, even as we continue to fund our strong sales growth and areas with significant future growth potential, including the expansion of our solid-state luminaire and lighting controls portfolio.

I know many of you have already seen our results and Ricky will provide more detail later in the call, but I would like to make a few comments on the key highlights, first for the quarter. Net sales for the fourth quarter were a quarterly record of $669 million, an increase of over 15% compared with the year-ago period. Operating profit was $90.7 million compared with $78.2 million in the year-ago period. Operating profit margin was robust 13.6%, up 10 basis points from the year-ago period. Diluted earnings per share were a record $1.26 compared with diluted EPS of $1.03 in the year-ago period, up 22%, strong quarterly results indeed.

For the full year, net sales at Acuity were a record $2.4 billion, up almost 15% from 2013. Operating profit was $1 million shy of $300 million compared with $222 million in the year-ago period, up 35%. Adjusted operating profit was $293 million or 12.2% of net sales compared with $247 million or 11.8% of net sales in the year-ago period. Diluted EPS was $4.05 compared with $2.95 per share in 2013, up 37%, while adjusted diluted EPS was $3.97 per share compared with $3.31 in the year-ago period, up 20% from 2013.

In addition, we generated $233 million in net cash provided by operating activities this year, while funding a $55 million increase in accounts receivable due to our record sales growth. As Ricky will discuss later, we meaningfully enhanced our already strong financial position in 2014 as we now have more than $550 million of cash and cash equivalents on hand, far exceeding our debt at slightly more than $350 million.

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Lastly, I’m pleased to report that we once again earned much more than our cost of capital and our cash flow return on investment was a robust 29%, the second highest in our history and far in excess of most in the electrical industry. These results for the quarter and full year were significant improvements over the year-ago periods. We believe you will find our results for the quarter and the year even more impressive upon further analysis.

While net sales for the fourth quarter grew more than 15% compared with the year-ago period, we estimate our sales volume grew almost 17%, partially offset by lower price mix and to a lesser degree the impact of foreign currency. While it’s not possible to precisely determine the separate impact of price and mix changes, we believe the difference was primarily due to lower pricing on like-kind LED luminaires between periods reflecting the decline in certain LED component costs.

The increase in net sales was broad-based along most product lines, including certain specialty fixture types more closely associated with new construction as we began to see an uptick in this important market.

From a channel perspective, we continued to experience strong growth in the commercial, industrial and infrastructure. Sales growth in our largest channel, commercial and industrial, was above this quarter’s overall percentage increase as we continue to focus on projects for new construction and renovation in both the non-residential and residential markets as well as continued emphasis on selling higher value-added lighting solutions, especially LED luminaires, where sales our LED products almost doubled again this quarter compared with the year-ago period, an extraordinary achievement when one considers that sales of LED-based luminaires now account for 40% of our total sales.

Our rate of growth for LED luminaires continues to far outpace the growth rates of our largest competitors for these types of products, demonstrating our market-leading prowess. Excluding LED luminaires, we believe the puts and takes for product pricing as well as material and component costs were again fairly benign this quarter.

Looking at market conditions for the fourth quarter, we believe the North American lighting market was up mid single-digits during the quarter supported by growth in renovation as well as the residential market. This is in stark contrast compared with the growth rate of our net sales in North America, which was up more than 15%.

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