Lighting Slows with Declining Growth Rate; Acuity Reports

Respondents to our Q3 Pulse of Lighting survey forecasted a slowdown in the lighting market. Acuity foreshadowed similar in its last quarterly earnings report.

Guess what? Both were right.

2022 Q4 Pulse of Lighting Report

Highlights from our recently released 2022 Q4 Pulse of Lighting report included:

• Manufacturers, reps / lighting agents and distributors each reported mid-single digit performance
• Busiest market segments are small and medium new and renovation construction markets. Large projects are market specific and dispersed and manufacturers see capital spending for large projects slowing.
• There is a sense of distributors possibly working down their inventory, however, new multi-use products (tunable wattage products) create opportunities for distributors to reduce their inventory.
• Over 2/3rds of distributors reporting having some projects delayed due to product delays in other product categories, especially switchgear
• Some report that projects have been cancelled due to the economy and/or labor issues.
• Some supply chain issues remain, at least for some, although container rates have dropped significantly.
• 40-50% of specifiers, according to reps and manufacturers are seeing a slowdown / are concerned looking out over the next 6 months. Filling backorders and local conditions are the key, which infers that “success” may not be spread throughout the country and winning will be “ground warfare.”
• Pricing was relatively flat in Q4.

And for 2023 …

• Distributors expect a couple of points lower for Q1 but, ending a little higher but still low mid-single digit growth for the year.
• Manufacturers are a little more optimistic for 2023 albeit mirror
• Reps are projecting lighting market performance in line with their distributors but significantly less than manufacturers.
• We asked each audience to rank key drivers of success in 2023
• There is nominal conviction about price increases for Q1, an indication of a competitive market, declining supply chain issues (and costs) and a weakening market where price returns as a more important decision criterion.

From a sales growth viewpoint, it appears that lighting may be reverting to the historical electrical distribution industry mean.

 If you’d like a copy of the 2022 Q4 Pulse of Lighting report, it is available for only $29.

Which brings us to Acuity’s FY 2023 Q1 earnings report.

Some key data, and observations, from Acuity’s call, and we’ll focus on the ABL (lighting) business rather than the ISG (Intelligent Spaces Group) which is not sold through electrical distributors.

• Interestingly, Acuity started their presentation talking about their Contractor Select offering, which is an indication of the importance that they are putting on this offering, probably in an effort to gain greater share within distributors for discretionary business and “box out” a plethora of competitors, especially in the believe that their agents can “control” spec-oriented projects. Acuity touted their “product vitality” in this segment and an outdoor lighting product launch.
• Reducing product backlog
• Company is looking for acquisitions
• Time spent discussing their sustainability initiatives and successes.
• The numbers:
  • Overall (ABL and ISG) the business was up 8% :largely due to price”.
  • ABL sales were $947M, up 7% (which was slightly higher than our Pulse of Lighting projection.)
    • Results driven by the independent, direct, corporate accounts and retail channels.

Interestingly, nominal insights into the business (they did share some operating profit information and sales performance for ISG).

• Observations from analyst questions:
  • Starting to see some consistency in component availability which will help reduce backlog. Think it will take another quarter or two to catch up to a more acceptable level.
  • Made “investments” in direct sales force commissions (Holophane) to help position (perhaps “motivate or focus?”) on infrastructure opportunities as well as to help secure “certain project business.”
    • In some instances, paying double commissions … to agents and Holophane personnel in the same market for infrastructure projects.
  • Acuity has repurchased over 20% of Company stock.
  • Company is looking to grow margins as it leverages some operational initiatives.
  • Have made some investments in Holophane
  • Tangentially mentioned investments in commissions, or other funding, for agent changes in New York and Atlanta (most recently.)
  • Inferred that they think some distributors bought ahead on stock (inventory) due to supply chain issues and in advance of price increases. Thinks this will affect their performance for next couple of quarters. Even with these headwinds, they expect to take share in the industry.
  • Pricing is based upon “market conditions to compete effectively in everyday products, and we can win the projects that we like to win.” (sounds like they are willing to be price competitive whenever they want to / are pushed to be. Negotiating becomes the name of the game … value engineering initiatives will help with price negotiation for soft spec projects. Driving to competitive price for stock will help distributors for undifferentiated product unless Acuity leverages project business opportunities and/or has other “benefits” for distributors to capture the discretionary / stock business.) A key for the discretionary business is gaining contractor preference which Acuity reportedly plans to market more aggressively its Contractor Select offering to the contractor audience and agents, and Acuity, have invested more into personnel focused on this audience.)
  • 20% of Acuity products are sourced from Asia, 60% is manufactured in North America (Canada, Mexico, and the US.)

In Acuity’s words “solid results.”

So, the lighting market slowed in Q4 and is expecting slower growth for 2023. Projects become scarcer. Acuity’s focus on the Contractor Select market is also an indicator that they see the renovation market being the more prominent driver of the market in 2023. Their focus on Holophane by incenting agents and direct salespeople to focus on infrastructure projects highlights their interest in pursuing government support for these initiatives (and it begs the question of “which distributors does / will Holophane support and whom should non-supported Holophane / Acuity distributors support?

Click here if you’d like to receive the 2022 Q4 Pulse of Lighting report for only $29!

Some questions / thoughts:

• How was your quarter?
• How is your lighting market?
• Should you have a strategy to pursue infrastructure projects, or would you prefer to wait to bid?
• Do you have a team that understand the opportunities from using OPM (otherwise known as recouping your tax dollars / government funding)?