Acuity Outperforms

Earlier this week Acuity shared their most recently quarterly results. While the company, overall, performed well, for the electrical / lighting distribution segment, which Acuity calls its “Independent Sales Agents”, the company outperformed our Q3 Pulse of Lighting survey results and it can be inferred that they took some share by outperforming by about 3 points.

Earnings Call Insights

The following is excerpts from the transcription of their call with a focus on the areas of importance to the channel (comments are in italics)

• An area of emphasis for Acuity is “product vitality” (euphemism for new products). From a distributor viewpoint, aside from project specification, this infers that those who have demand generation capabilities versus a fulfillment approach, could have accelerated performance with Acuity. A defined new product introduction strategy could also be beneficial … along with applicable metrics.
• Acuity was named Supplier of the Year by both IMARK and AD, which says something about their support from independent distributors. It is unknown which national chains have similar awards, however, they would make these announcements early next year as they work on annual calendars whereas AD and IMARK have their meetings in the early fall.
• Acuity continues to invest in its Contractor Select offering and this segment is growing faster than other segments of the lighting business (and this is probably where they are taking significant share, most likely against imports that have had supply chain issues.)
• Apparently Acuity is positioning for acquisitions with the hiring of a SVP Corporate Development and Strategy.
• Neil Ashe, President and CEO, commented on the company’s 7 values.  As the industry meeting season unfolds, distributor’s could discuss these values as those with alignment could, perhaps, identify additional joint opportunities. Some of these values include integrity, owner’s mindset, community, time and curiosity … all in an effort to be “better, smarter, faster.”
• Expect 2023 to be a “dynamic” environment. (Code words for “challenging” and “changing”?)
• Numbers
  • Overall, annual, gross margin of  41.8%
  • Exceed $4B for the fiscal year
  • Q4 was up 12% with the ABL (lighting) and sales agent network up 11%
  • Direct sales was up 12%, however, since it is project-oriented, it tends to vary quarterly.
• 2023 outlook
  • Net sales between $4.1-4.3 billion which is low to mid-single digit growth for the lighting (ABL) segment.
    • This would exceed DISC’s current projections for 2023.
    • Correlates, directionally, with feedback in the Q3 Pulse of Lighting report of slowing lighting growth in the channel.
  • Expects some component challenges (supply chain) issues continuing into the first part of next year. Acuity has tried to be proactive in many of these areas in 2022 so, if they are hinting that some will continue, it will probably impact others more.

Analyst Questions and Acuity Input

• New products / product enhancements are targeted to impact 20-30% of the product portfolio annually (but no insights if this represents # of items, % of SKUs sold or % of sales.)
• An analyst asked about agent consolidation in light of some recent Acuity agency changes. Acuity emphasized that they are committed to the agent model, however, “We are in the process of, kind of, working through those agents and improving some of our representatives in different markets, which we feel really good about.” So, expect some changes over time as “as long as their business is good with us, we’re good with them.”
• Acuity is currently carrying a “higher than normal” backlog.
• Acuity had 7 price increases in FY 2022 (although not all, presumably, were across the product line and not all of the price increases were realized.)
• Freight costs have changed. Acuity shared that container freight costs have declined from $16-18,000 a few months ago now down to $6-8,000. While Acuity may benefit from quantity pricing, the direction is the most important part.
• When asked if Acuity sees price decreasing due to reduced costs (freight, raw materials, etc) Acuity shared that prices are “higher than they were before”, that the “combination of our product vitality and our service levels allows us to earn a different place at the table” and that they want to be “lower cost to do business with its customers”. The end result is that they don’t expect to reduce pricing (but as we know, it all comes down to the market and the opportunity.)
• For 2023, Acuity expects to take share, which contributes to its increased sales. Based upon the expectation of taking share, and low to mid-single digit growth, Acuity is implying that the market could be down or flat (best case) for lighting. If there is any price realization, this would further infer that industry lighting unit sales would be down.

Takeaways

Acuity appears to:

• Have outpaced the market last quarter and appears to be taking share in the Contractor Select product categories.
• Their 2023 outlook correlates with concerns foreshadowed in our Q3 Pulse of Lighting report based upon each channel stakeholders Q4 sales expectations and the 6 month specifier outlook.
• Product vitality is credited with being a key to Acuity’s success as well as alignment with its 7 values. These are areas where distributors may be able to better align and hence further outperform their local marketplace (assuming alignment with the Acuity lighting agent.)

The question becomes, do you agree with Acuity’s 2023 outlook (not for the company, but for the market?)