Lighting Market Slows – Pulse of Lighting Report and Acuity

Late last month Channel Marketing Group conducted its Q1 Pulse of Lighting study. Over 225 individuals throughout the industry shared their input (and have since received an advanced copy of the results).

And earlier this month Acuity Brands released their Q2 2023 results and held their earnings call.

Coincidentally, the findings were very similar.

First let’s touch on the highlights from the Q1 2023 Pulse of Lighting Report which reports a decline in the market from the Q4 2022 Pulse of Lighting Report.

Q1 Pulse of Lighting Report Highlights

• All three elements of the channel shared that business was up on the lower end of mid-single digits.
• Looking towards Q2, all three elements of the channel see a slight improvement in performance.
• In considering project mix, distributors are seeing a migration to small and medium sized new and renovation projects. Other market segments showed slowing activity. Some could be related to weather, some to project delays, some due to marketplace-driven financial considerations.
• Backlogs remain strong but there appears to be some inventory change with some distributors.
• A majority of distributors reported that they have had projects delayed due to other products being delayed.
• Overall, quotation activity remains strong.
• In some instances, “product innovation is considered poker stakes.”
• Price deflation is occurring due to competitive issues.
• Some markets continue to be strong, others are “challenged.”
• Sales performance was minimally impacted by price appreciation and the market questions if there will be price increases in Q2.
• Key focus areas for sales generation are commercial retrofits, healthcare, industrial opportunities, and the educational market according to survey respondents.

Overall, cautious optimism but the growth rate is reverting to the historical industry mean.

There are more details and specific insights from distributors, manufacturers and reps / lighting agents in the report. The full report is available for only $35. Click here to order and pay via PayPal / credit card.

Acuity Q2 2023 Earnings

On April 4^th Acuity Brands held its Second Quarter Earnings Call. During the call they shared (key CMG comments are in italics):

• Management feels its performance was “solid”.
• Regarding its agency network, Acuity has about 80 agents who collectively employ about 4000 sales and sales support people. Their agents are exclusive to Acuity for “key controls” and do not represent other majors.
• Acuity highlighted some new lighting control products which begs the question of “what percent of Acuity Brands Lighting (ABL) is controls?” and then “what is its growth rate?” The reason for the questions is that with a plethora of lighting control offerings in the market (from fixture companies, lighting control companies, wiring device companies and others), the market is pretty “crowded” but it’s questionable if the adoption rate will support the supplier base.
• Slowing business due to “lead time compression” and “changing C&I lending environment”.
• Contractor Select offering performing well (which means Acuity is increasing its share of the stock / flow business and that its product mix is changing.)
• Q2 Net sales up 4%
  • ABL was up 3% with net sales of $891 million for the quarter
    • Project business slowed
    • Contractor Select and retail business (which is relatively small), grew
  • ISG was up 16%, or $58 million in Q2.
• Acuity is “focused on what it can control”
• From Analyst Q&A:
  • In answering a question re project vs Contractor Select (stock business), Acuity tried to rationalize why project down and stock up. The answer may lay in the types of projects … more retrofits, especially smaller projects, serviced from “stock” and with more “white goods” that are at a “value” price point. Essentially, the market is trading down, especially as the size of projects declines.
  • Contractor Select positioned as “right product, right place, right price” and Acuity references that it can play the price game in the marketplace. Reportedly they are being aggressive, when they need to be, and are strategically offering SPAs.
  • Seeing “favorability on the input cost side.”
  • Acuity sees some longer-term opportunities for itself on infrastructure projects
  • An analyst projected that about 20% of Acuity’s business is Contractor Select. Analyst also says he thinks the business is 50/50 new construction vs renovation.
  • Acuity feels that “Asian imports are down over 30%”
  • Feel that “sales goal will be harder to achieve but demonstrating that profits are achievable.” (so, company focuses on profit achievement rather than revenue achievement … but obviously wants both.)

Takeaways

The takeaways are:

• The lighting business has slowed significantly. While the Pulse of Lighting Report’s performance was slightly higher than Acuity’s business, it is within the range of expectation.
• Price is not a revenue driver for companies as, essentially, pricing is static unless a manufacturer wants to get aggressive to win a piece of business.
• The business is evolving to more retrofit and small / medium projects.
• Backlogs remain strong but this may be more due to project delays caused by switchgear and hence delaying sales, hence masking true market performance. Distributors report that quotation activity is still good.

With lighting representing 20-25% for many distributors, and if this segment is performing at a low to mid-single digit range, overall distributor performance is probably mid-single digits, at the most, and on average. The outlook appears to be slightly better, however, marketplace feedback is that there is some consternation for Q3 and Q4. This also correlates with the feedback shared in the recent DISC Flash Report which projects the market being down 4.6% and the construction market being down 6.1%. If DISC is correct, either commodity prices will decline, switchgear won’t ship till 2024 or lighting performance will remain weak for the year (or decline futher.)

Bottom line … and underwhelming lighting market

Don’t forget to order your Pulse of Lighting Report for only $35 and be on the look out for the next Pulse of Lighting survey in June to respond and receive a free copy.