Q2 lighting-market signals from Pulse of Lighting, Acuity, and Signify point to a flat but steady market with selective growth opportunities.

The lighting industry continued to undergo much change in Q2. Aside from a number of small manufacturer acquisitions / mergers, lighting agents merging, and the final “implosion” of Cree Lighting, we also had LEDucation, Signify’s Capital Markets Day, Acuity’s earnings call and we conducted our Q2 Pulse of Lighting survey.

Oh, and the industry generated lighting sales while the macroeconomic environment was unsteady due to the war with Iran and the resultant increase in fuel costs.

Additionally, while the overall construction market is flat, that is solely because of the value of data center construction, which uses a nominal amount of lighting which infers that the lighting market would be down without data center business.

Let’s touch on some highlights

Pulse of Lighting Shows Steady with The Potential for Growth

We had about 200 respondents who shared their Q2 performance and Q3 expectations. They also shared some market insights, some feedback on circadian lighting, and, perhaps more informatively, the percentage of lighting business that is new construction vs renovation / retrofit.

The report was free to survey respondents and is available to everyone else for only $35.

Some of the insights include:

• According to the feedback, the market was essentially flat. Down nominally according to distributors and manufacturers, reps/lighting agents were up a little however that can be due to specific lines.
  • Only 20% of distributors reported lighting growth greater than 5% but, overall, distributor backlog increased, which is a positive.
• Key market drivers continue to be data centers, healthcare, education, some multi-family, municipal / government, and infrastructure markets. And small to medium projects is where the activity is, requiring companies to aggressively pursue “everything.”
• There is much requoting going on and there are delays in getting submittal approvals.
• Distributors are managing their inventory tightly. Few are increasing, more are reducing. Between demand, manufacturer product “consolidation” (1 SKU doing X features … color changing, lumen changing, etc.) and manufacturer shipping policies, why should distributors carry more?
• The outlook for Q3 is, preliminarily, forecasting mid-single digits given that backlogs for distributors and manufacturers are high. About a third of manufacturers also reported an increase in their backlog.
• Pricing remained relatively stable.
• While there has been much talk about circadian lighting, about a quarter of manufacturers sell products in this segment and less than 10% of distributors know if they have sold circadian lighting. Manufacturers need to focus on generating end-user demand and/or further engage distribution.
• Less than 50% of manufacturer sales, and 40% of distributor sales are for new construction projects. This changes the types of products needed on a project and, typically, a renovation project carries a lower lighting budget than a new construction project.

If you’d like more detail, click here to purchase the report for only $35, and look out for the Q3 survey in early September.

Acuity Shares Their Q3 Results

On June 25^th Acuity shared their Q3 (CY Q2) earnings results and their presentation. We’ll focus on the ABL (Acuity Lighting Brands results as the AIS (Acuity Intelligent Spaces) segment had double digit growth and is driven by their QSC acquisition’s performance and other dynamics.

• Touted “sequential performance” (so, a little bit better than the prior quarter) and strong margins.
• Highlighted how Contractor Select and Design Select enhance distributors, contractor, and specifier productivity by reducing complexity in product decision-making. (Remember, the audience for these calls is Wall Street analysts.)
  • Launched an enhanced industrial linear high-bay offering, under the Design Select brand, under the Lithonia brand.
  • Also launched a 3 pane panel in Contractor and Design Select that has switchable lumen output and switchable color temperature (provides an example of why distributors are not increasing inventory as the SKU does the job of multiple SKUs … but this is where the industry has gone.)
• Sales
  • Overall net sales were $1.2 billion, up 2% vs last year.
    • ABL sales were $905M, down 2%
      • Their business through their agents was up nominally, outperforming the Pulse of Lighting report, and hence the industry, by a few points.
    • Acuity also had a $6.4 million tariff refund (and it is impossible to determine what % to each distributor, but have selected SKUs decreased in price … for Acuity and other manufacturers?)
  • Acuity says it is seeing the lighting business “firm up” and its “conversion rates” get back to normal. (which would be an interesting question to ask them … what is your Acuity rep’s conversion rate (or the rate for your region)?)
  • The company plans to use the free cash flow generated from lighting to support new product development, stock buybacks and acquisitions with more of the acquisitions expected to support the AIS side of the business.
  • Acuity has a significant commitment to use AI throughout the company. (Which begs the question of impact, expectations, and opportunities for distributors and lighting agents.)
  • For the data center market, “it’s kind of worth noting that on a percentage basis, we’ve had hypergrowth in the Lighting in data centers, but it’s — they’re smaller dollar numbers compared to the others. We expect that to continue. So, we’re dealing directly now with contractors, who are building for the hyperscalers we sell into directly into them as well as to prefab operators so that we can be the lighting system of choice.”

Signify

On June 23^rd Signify held their long-awaited Capital Markets Day. It was a 4-hour presentation / live stream.

• The presentation (video) is available.
• The presentation (slides) is available.
• And there is a press release.

It was wide ranging, which is what you’d expect from a global company. India was highlighted and, for the US, Cooper Lighting (which someone afterwards commented “is the darling within the company.”)

Some takeaways

• Overall, globally, the company is seeing 0-1% growth through 2029, but this is not a geographic specific, or brand, goals.
  • And they feel that this will “outperform” the market. (Theoretically it could as Europe continues to be slow. According to the Pulse of Lighting forecast for at least next quarter, this would underperform so, we can assume that US businesses (Cooper Lighting and Genlyte) have higher performance expectations.)
  • Overall, the company is seeking to reduce inventory, but this does not mean Cooper or Genlyte as it is a corporate goal.
  • Overall, the company shared that they feel they ave too many brands and SKUs. There could be some rationalization
  • Throughout the platform they plan to increase sourcing from China and will focus their manufacturing efforts on project-related items and be “close to the customer.”
  • Signify’s OEM business is not in their “Build” category and “all options” are being considered.
• The model is “Build and Harvest”. Some divisions are in “Build” and get resourced. Others are in “Harvest” and need to improve, potentially with a goal of being cash cows.
  • Genlyte was mentioned as a business that needs a turnaround. Further, it is about 1/3rd the size of Cooper Lighting.
• They expect some “right-sizing.” (Presumably this is people, but it could also include divestiture of brands / divisions … US or Rest of World.)
• The company shared where there is need for improvement and spotlighted what it feels are successes and opportunities.
• India was highlighted as was Cooper Lighting
• Kraig Kasler shared that the company’s business mix is 30-35% stock, 35-40% project and the remainder is “Connected Lighting”
  • Kraig also shared that the Connected Lighting business needs more / better sales and marketing resources / efforts to achieve their goals.
  • Cooper’s focus will be on earning more projects
  • From a product viewpoint they make 65-67% of their products and source 33%.
  • The company is implementing AI to improve pricing, operational excellence and reduce costs.
  • Data center business is up 30-40%

So, from a US viewpoint …

• Positive for Cooper Lighting
• Genlyte … a need for focus and creating an identity that will differentiate and drive results.

Some may remember Larry Powers and how he and his team created Genlyte before the business was sold to Philips Lighting / Signify. He built a business around Lightolier, Hadco, Gardco, Crescent and Stonco Lighting, Thomas Lighting and others. The business was entrepreneurial and the brands, if appropriate, competed against each other. The company went public and the stock grew … significantly. The lighting market has changed much since that time.  And being part of a conglomerate can do that to a company too.

At the end of the day, the role of a Capital Markets meeting is to present to the analyst community your vision / plans for growth and profitability to improve the stock price.

Here’s the results.

But that’s globally. We’ll all be watching for Cooper Lighting and Genlyte’s actions, execution, and performance.

Observation

The current lighting market is stable, steady, and flat but there could be some light due to backlogs. Acuity desires to be “steady as she goes” and will harvest its business and, as the market leader, expects to reap the benefits. Signify’s brands … it will be interesting to see what strategies they introduce to create differentiation (if they can) or more likely some positioning to generate opportunities. Focus will probably be the word of the year within Signify. The “where” is the question.