Acuity Brands Reports First Quarter Results

Acuity Brands, Inc. (NYSE: AYI) today announced results for the first quarter of fiscal 2008, including a 37 percent increase in adjusted diluted earnings per share (EPS) from continuing operations to $0.93 compared with $0.68 for the prior year period. Adjusted diluted EPS for the first quarter of fiscal 2008 excludes a $14.6 million pre-tax special charge, or $0.21 per diluted share, as explained below. Net sales for the first quarter of fiscal 2008 increased 6.6 percent to a record $508.9 million compared with $477.6 million for the year-ago period. The results for both periods exclude the specialty chemicals business, which was spun off to the shareholders of Acuity Brands on October 31, 2007 as Zep Inc. The historical results of the specialty chemicals business are now reported in discontinued operations of the Company. Vernon J. Nagel, Chairman, President, and Chief Executive Officer of Acuity Brands said, "We are very pleased to report record quarterly results from continuing operations excluding the special charge for the first quarter. This is our 11th quarter in a row of quarter-over-quarter record results. Our strong first quarter performance reflects the benefits from programs implemented to create greater value for our customers, to invest in our associates to be more customer-focused and productive, and to more effectively deploy our assets to generate greater returns for our stakeholders.” Income from continuing operations in the first quarter of fiscal 2008, which includes the special charge, was $30.9 million, or $0.72 per diluted share, compared to the prior year’s first quarter income from continuing operations of $29.5 million, or $0.68 per diluted share. The $14.6 million ($0.21 per diluted share) special charge included in fiscal 2008 first quarter income from continuing operations is related to recent and planned actions to streamline and simplify the Company’s organizational structure and operations as a result of the spin-off of Zep Inc, including eliminating most of the corporate office space. The Company expects to realize annual cost savings of approximately $14 million as a result of its reorganization efforts. While the Company expects to realize benefits from a more simplified organization throughout the remainder of fiscal 2008, the full benefits are expected to be realized beginning in the first quarter of fiscal 2009. The year-over-year increase in net sales reflects a more favorable mix of products sold and more favorable pricing as well as unit volume growth in shipments of non-residential lighting fixtures, partially offset by a decline in sales of residential fixtures and related products. Additionally, net sales from the recent acquisition of Mark Architectural Lighting contributed 1.2 percentage points of year-over-year growth in net sales. Operating profit for the first quarter of fiscal 2008 was $54.9 million, or 10.8 percent of net sales. Excluding the special charge, adjusted operating profit for the first quarter of fiscal 2008 was $69.5 million, or 13.7 percent of net sales. The year-over-year 250 basis point improvement in the adjusted operating profit margin was due primarily to a better mix of products sold driven by new products, more favorable pricing, incremental profit contribution on unit volume growth, and improved productivity. Acuity Brands completed the spin-off of Zep Inc. (the business formerly known as Acuity Specialty Products) on October 31, 2007. Therefore, the Company reflects the results of Zep Inc. as a discontinued operation reported as a one-line item on the income statement. For the first quarter of fiscal 2008, the Company reported income from discontinued operations of $0.1 million, or effectively no impact on diluted earnings per share, compared to the prior year’s first quarter income of $4.1 million, or $0.09 per diluted share. Income from discontinued operations for the first quarter of fiscal 2008 includes non-tax-deductible spin-off costs of $5.5 million, or $0.13 per diluted share, primarily for legal and professional fees. Including the results of discontinued operations, the Company reported first quarter fiscal 2008 diluted earnings per share of $0.72, or $31.1 million of net income, compared to $0.77 diluted earnings per share in the first quarter of fiscal 2007, or $33.6 million of net income. Reported earnings for the first quarter of fiscal 2008 includes the special charge of $0.21 per diluted share. Cash and cash equivalents at the end of the first fiscal quarter totaled $201.7 million, a decrease of $12.0 million from the $213.7 million at the beginning of the fiscal year. During the first quarter, the Company repurchased approximately two million shares of outstanding common stock at a cost of $93.1 million. The use of cash for stock repurchases was partially offset by a $62.5 million cash dividend received from Zep Inc. prior to the spin-off. Outlook Mr. Nagel commented, "While we anticipate that the second quarter will once again be challenging due primarily to normal seasonal factors, including inconsistent customer demand and the potential for inventory rebalancing by certain customers, we believe that our consolidated first quarter results support our positive performance expectations for 2008. Additionally, our backlog at the end of the first quarter was $171 million, a 7 percent increase over the prior year, and incoming order rates for lighting fixtures, while sometimes inconsistent, continue to be encouraging. "Overall, we remain positive about our performance for the remainder of fiscal 2008. Clearly, certain of our markets are experiencing economic headwinds that will influence demand. However, we believe we can drive profitable growth by providing our customers with superior value through ongoing programs to enhance service, improve product quality, and accelerate the introduction of new, innovative and energy-efficient products and services, while maintaining our disciplined approach to pricing. In addition, results going forward should benefit from previous price increases and our on-going initiatives to improve productivity and contain costs, including expected savings from reorganization efforts associated with the special charge taken this quarter. Based on current order rates and third-party projections of construction activity, we also anticipate continued positive unit volume growth in key areas of the non-residential construction market through the remainder of the fiscal year. "While we are positive about our future prospects, we, of course, are not without challenges in 2008. We continue to monitor economic factors such as costs for energy, raw materials and components; the uncertainty caused by the potential for more strict lending standards for commercial projects; the potential for a slowing U.S. economy, which could impact the pace of growth in non-residential construction; the potential economic repercussions that could result from instability caused by worldwide political events; the risk for changes in competitive pricing dynamics; and the impact of the significant decline in the residential housing market. However, all this notwithstanding, we believe that we are positioned to continue to prosper because of benefits from our intense focus on expanding our industry-leading, energy-efficient product portfolio, providing our customers with unparalleled service, improving company-wide productivity, and further penetration of growing markets such as lighting renovation. As such, we expect to meet or exceed our longer-term financial goals including operating margin expansion, earnings growth, and cash flow generation.” Please see the Company's Form 10-Q to be filed with the Securities and Exchange Commission by the end of day on Wednesday for more information on fiscal 2008 first quarter results. You may access the 10-Q through the Company’s website at www.acuitybrands.com. Non-GAAP Financial Measures Acuity Brands’ management included in the above news release the terms "adjusted diluted EPS,” "adjusted operating profit,” and "adjusted operating profit margin” which are non-GAAP financial measures provided to enhance the user's overall understanding of the Company's current financial performance and prospects for the future. Specifically, management believes the non-GAAP financial measures provide useful information to investors by excluding or adjusting certain items affecting reported operating results that were unusual and not indicative of the Company's core operating results. The non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with GAAP. The most directly comparable GAAP measures for adjusted diluted EPS, adjusted operating profit, and adjusted operating profit margin are "diluted EPS from continuing operations,” "operating profit,” and "operating profit margin,” respectively, all of which include the impact of special items. The non-GAAP financial measures included in this news release have been reconciled to the nearest GAAP measure. Conference Call As previously announced, the Company will host a conference call to discuss first quarter results today at 10:00 a.m. ET. Interested parties may listen to this call live today or hear a replay at the Company's Web site: www.acuitybrands.com. Acuity Brands, Inc. owns and operates Acuity Brands Lighting. With fiscal year 2007 net sales of approximately $2.0 billion, Acuity Brands Lighting is one of the world's leading providers of lighting fixtures and related services and includes brands such as Lithonia Lighting®, Holophane®, Peerless®, Mark Architectural Lighting®, Hydrel®, American Electric Lighting®, Gotham®, Carandini®, SpecLight®, MetalOptics®, Antique Street Lamps™, and Synergy Lighting Controls®. Headquartered in Atlanta, Georgia, Acuity Brands employs approximately 7,000 associates and has operations throughout North America and in Europe and Asia. Forward-Looking Statements This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that may be considered forward-looking include statements incorporating terms such as "expects," "believes," "intends," "anticipates," "may,” and similar terms that relate to future events, performance, or results of the Company and specifically include statements regarding the realization of annual cost savings of approximately $14 million as a result of its reorganization efforts, the timing of the realization of cost savings, and performance expectations for fiscal 2008. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the historical experience of Acuity Brands and management's present expectations or projections. These risks and uncertainties include, but are not limited to, customer and supplier relationships and prices; competition; ability to realize anticipated benefits from initiatives taken and timing of benefits; market demand; litigation and other contingent liabilities; and economic, political, governmental, and technological factors affecting the Company. Please see the other risk factors more fully described in the Company's SEC filings including the Form 10-K filed with the Securities and Exchange Commission on October 30, 2007. A variety other risks and uncertainties are discussed in the Company's filings with the SEC, including the risks discussed in Part I, "Item 1a. Risk Factors” in the Company's Annual Report on Form 10-K for the year ended August 31, 2007. The discussion of those risks is specifically incorporated herein by reference. Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events. ACUITY BRANDS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per-share data)   NOVEMBER 30, 2007 AUGUST 31, 2007 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 201,709 $ 213,674 Accounts receivable, less reserve for doubtful accounts of $1,669 at November 30, 2007 and $1,361 at August 31, 2007 284,531 295,544 Inventories 146,881 146,536 Deferred income taxes 20,704 14,773 Prepayments and other current assets 35,357 38,853 Current assets related to discontinued operations   —     158,182   Total Current Assets   689,182     867,562   Property, Plant, and Equipment, at cost: Land 9,359 9,286 Buildings and leasehold improvements 123,904 121,327 Machinery and equipment   317,861     314,030   Total Property, Plant, and Equipment 451,124 444,643 Less - Accumulated depreciation and amortization   289,213     282,632   Property, Plant, and Equipment, net   161,911     162,011   Other Assets: Goodwill 353,776 352,945 Intangible assets 117,985 118,774 Deferred income taxes 3,274 1,731 Defined benefit plan intangible assets 2,587 2,587 Other long-term assets 19,358 22,274 Long-term assets related to discontinued operations   —     89,983   Total Other Assets   496,980     588,294   Total Assets $ 1,348,073   $ 1,617,867     LIABILITIES AND STOCKHOLDERS’ EQUITY   Current Liabilities: Accounts payable 189,263 210,402 Accrued compensation 30,562 64,147 Accrued pension liabilities, current 1,268 1,268 Other accrued liabilities 130,961 109,944 Current liabilities related to discontinued operations   —     84,635   Total Current Liabilities 352,054 470,396 Long-Term Debt   363,892     363,877   Accrued Pension Liabilities, less current portion   22,174     22,043   Deferred Income Taxes   24,255     17,437   Self-Insurance Reserves, less current portion   9,461     8,657   Other Long-Term Liabilities   50,059     44,167   Long-Term Liabilities related to discontinued operations   —     19,324   Commitments and Contingencies Stockholders’ Equity: Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued — — Common stock, $0.01 par value; 500,000,000 shares authorized; 49,464,269 issued and 41,395,669 outstanding at November 30, 2007; and 49,323,225 issued and 43,314,625 outstanding at August 31, 2007 495 493 Paid-in capital 616,096 611,701 Retained earnings 265,087 313,850 Accumulated other comprehensive loss items (18,601 ) (9,513 ) Treasury stock, at cost, 8,068,600 shares at November 30, 2007 and 6,008,600 at August 31, 2007   (336,899 )   (244,565 ) Total Stockholders’ Equity   526,178     671,966   Total Liabilities and Stockholders’ Equity $ 1,348,073   $ 1,617,867   ACUITY BRANDS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per-share data)     THREE MONTHS ENDED NOVEMBER 30   2007     2006 Net Sales $ 508,865 $ 477,617 Cost of Products Sold   305,676     297,167 Gross Profit 203,189 180,450 Selling, Distribution, and Administrative Expenses 133,646 126,938 Special Charge   14,638     — Operating Profit 54,905 53,512 Other Expense (Income): Interest expense, net 6,993 8,067 Miscellaneous (income) expense, net   (309 )   257 Total Other Expense   6,684     8,324 Income from Continuing Operations before Provision for Income Taxes 48,221 45,188 Provision for Income Taxes   17,296     15,685 Income from Continuing Operations 30,925 29,503 Income from Discontinued Operations, net of tax of $2,799 at November 30, 2007 and $2,450 at November 30, 2006   147     4,064 Net Income $ 31,072   $ 33,567 Earnings Per Share: Basic Earnings per Share from Continuing Operations $ 0.74 $ 0.70 Basic Earnings per Share from Discontinued Operations $ 0.00   $ 0.10 Basic Earnings per Share $ 0.74   $ 0.80 Basic Weighted Average Number of Shares Outstanding   41,783     42,204 Diluted Earnings per Share from Continuing Operations $ 0.72 $ 0.68 Diluted Earnings per Share from Discontinued Operations $ 0.00   $ 0.09 Diluted Earnings per Share $ 0.72   $ 0.77 Diluted Weighted Average Number of Shares Outstanding   42,936     43,732 Dividends Declared per Share $ 0.15   $ 0.15 ACUITY BRANDS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)     THREE MONTHS ENDEDNOVEMBER 30   2007   2006   Cash Provided by (Used for) Operating Activities: Net income $ 31,072 $ 33,567 Less: Income from Discontinued Operations   147     4,064   Income from Continuing Operations 30,925 29,503 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 8,376 7,862 Excess tax benefits from share-based payments (610 ) (7,814 ) (Gain)/Loss on the sale or disposal of property, plant, and equipment (47 ) 3 Deferred income taxes (656 ) 1,006 Other non-cash items 1,374 1,678 Change in assets and liabilities, net of effect of acquisitions and divestitures: Accounts receivable 11,013 38,692 Inventories (345 ) 2,251 Prepayments and other current assets 3,496 (7,834 ) Accounts payable (21,139 ) (28,781 ) Other current liabilities (16,407 ) 3,707 Other   10,384     2,596   Net Cash Provided by Operating Activities   26,364     42,869   Cash Provided by (Used for) Investing Activities: Purchases of property, plant, and equipment (6,345 ) (6,823 ) Proceeds from sale of property, plant, and equipment   86     10   Net Cash Used for Investing Activities   (6,259 )   (6,813 ) Cash Provided by (Used for) Financing Activities: Repayments of long-term debt (2 ) — Employee stock purchase plan issuances 239 239 Stock options exercised 1,248 12,706 Repurchases of common stock (93,112 ) (29,958 ) Excess tax benefits from share-based payments 610 7,814 Dividend received from Zep Inc. 62,500 — Dividends paid   (6,417 )   (6,483 ) Net Cash Used for Financing Activities   (34,934 )   (15,682 ) Cash flows from Discontinued Operations: Net Cash Provided by (Used for) Operating Activities 799 (5,415 ) Net Cash Used for Investing Activities (410 ) (912 ) Net Cash Provided by Financing Activities   970     27   Net Cash Provided by (Used for) Discontinued Operations   1,359     (6,300 ) Effect of Exchange Rate Changes on Cash   1,505     (1 ) Net Change in Cash and Cash Equivalents (11,965 ) 14,073 Cash and Cash Equivalents at Beginning of Period   213,674     88,648   Cash and Cash Equivalents at End of Period $ 201,709   $ 102,721   Supplemental Cash Flow Information: Income taxes paid during the period $ 14,751 $ 2,306 Interest paid during the period $ 10,936 $ 10,391       ACUITY BRANDS, INC. Reconciliation of Continuing Operations GAAP to Non-GAAP Measures ($ in thousands, except Diluted EPS)   THREE MONTHS ENDED November 30   2007   2006   % of Sales % of Sales Net Sales $508,865 $477,617   Operating Profit (GAAP) $54,905 10.8% $53,512 11.2% Add-back: Special Charge 14,638 2.9% — — Adjusted Operating Profit (Non-GAAP) $69,543 13.7% $53,512 11.2%   Diluted Earnings Per Share from Continuing Operations (GAAP) $0.72 $0.68 Add-back: Special Charge $0.21 — Adjusted Diluted Earnings Per Share from Continuing Operations (Non-GAAP) $0.93 $0.68