Acuity Brands Builds Shareholder Value In Dark Times

Key Points

• Acuity Brands falls on mixed results, including wider margin and bottom line strength. 
• Share repurchases are more than 2% of the share count in H1 and will continue. 
• The sell-side is buying this stock and helping to support the price. 

As troubling as the times are, Acuity Brands NYSE: AYI can deliver value to shareholders with inflation still hot and interest rates moving higher. The company’s focus on intelligent spaces is helping to drive growth and expand margins to provide robust cash flows that support a dividend and share repurchases. The dividend isn’t much to discuss; it yields about 0.30% but is incredibly safe. The payout ratio is less than 5%, and the balance sheet is sound, allowing share repurchases. The share repurchases are what counts in this discussion. The YTD 2023 purchases are worth more than 2% of the current market and share count and are expected to continue through the end of the year and into the future. 

"We delivered solid performance again in the second quarter of 2023," stated Neil Ashe, Chairman, President and Chief Executive Officer of Acuity Brands, Inc. "We grew sales in both our lighting and spaces businesses, expanded adjusted operating profit, and grew adjusted diluted earnings per share. We generated strong cash flow from operations and created permanent value for shareholders through repurchases."

Acuity Brands Falls On Mixed Quarter 

Acuity Brands had a decent quarter if mixed relative to the analyst's expectations. The company reported $943.6 million in net revenue for a gain of 3.8% compared to last year. However, this is slightly below the Marketbeat.com consensus estimate, which was expecting closer to $960 million in sales. The gain was driven by strength in both segments, but Intelligent Spaces Group outperformed with a 16.4% increase compared to only 3.2% for the ABL segment. 

The good news in the report is about the margin. Margin expanded on a GAAP and adjusted basis with adjusted operating margin up 50 bps YOY. This left the earnings up solid double digits on a GAAP and adjusted basis, and the adjusted $3.06 beat consensus by $0.33. 

The company did not give any guidance for the back half of the year, but it is displaying momentum. While ABL sales may flag during the year due to the expected slowdown in housing, the ISG group should offset the difference. The analysts expect FY23 growth in a range near 4.35% compared to the 5.75% pace set in the 1st half and for earnings to grow by nearly 13%. 

The Sell-Side Loads Up On Acuity Brands 

The analysts have yet to comment on the Q2 results, but they were bullish going into the report. The sentiment has held firm at Moderate Buy for the last year, but the price target has fallen to $200. That’s about 10% above the current price action and may begin to firm now that Q2 results are in. The institutions are more obviously bullish, having netted about 5% of the stock in the last 12 months. Their holdings are up to about 94% and growing and have helped the stock to bottom in the $160 to $170 region. 

The market is moving lower following the Q2 release, but support should hold in the $160 to $170 range. A move below that would indicate the potential for a deeper pullback with a target near $140. Assuming the $170 level holds, this stock should trend sideways until later in the year when there is more clarity on the economy.