Acuity Brands Inc (AYI) 2004 Q3 法說會逐字稿

Good afternoon, and welcome to Acuity Brands' third-quarter fiscal 2004 conference call.

Following today's presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

At the request of Acuity Brands, this conference is being recorded for replay purposes.

Should you object, you may disconnect.

I would now like to introduce today's host, Ms. Karen Holcom, Vice President Financial Services of Acuity Brands.

Ms. Holcom, you may begin.

Good afternoon.

Jim Balloun, our Chairman and Chief Executive Officer, Vern Nagel, our Vice Chairman and Chief Financial Officer, and other selected members of our executive team are here today to discuss our 2004 third-quarter earnings results.

We are webcasting today's conference call at www.AcuityBrands.com.

I would like to remind everyone that during this call we will make projections or forward-looking statements regarding future events or future financial performance of the Company.

Such statements involve risks and uncertainties such that the actual results may differ materially.

Please refer to our most recent 10-K and 10-Q SEC filings and today's press release, which identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

Now let me turn this call over to Jim Balloun.

Thank you, Karen, and welcome to today's call.

I'll be brief to allow plenty of time to address your questions.

Today Acuity Brands reported net income for the 2004 third quarter of $18 million, or 42 cents per diluted share, compared to $15.3 million, or 37 cents per diluted share reported for last year's third quarter.

Year-over-year net income increased 18 percent and diluted earnings per share increased 14 percent.

Additionally, we continued to reduce total debt.

We ended the quarter with total debt of $429.6 million, which is down $16.2 million from the beginning of fiscal 2004 and $7.9 million from the end of the 2004 second-quarter.

Year-over-year net sales for the third quarter increased to $532.2 million from $521 million a year ago.

Both our Lighting and Specialty Products businesses posted higher net sales in the quarter, due primarily to better pricing and product mix.

Overall consolidated gross profit margins decreased slightly to 41.8 percent of net sales in the 2004 third quarter from 42 percent reported last year.

This was due largely to the higher cost of raw materials and expenses associated with enhancements to the supply chain at Acuity Brands Lighting.

These items were partially offset by favorable price and mix changes and the impact of other profit improvement programs.

Consolidated operating profit of $37.4 million was $4.7 million, or 14 percent, higher than last year, due to the contribution margin from the higher net sales during the quarter and lower operating expenses.

We are pleased that during the third quarter we improved our consolidated operating profit margins by 70 basis points and increased diluted earnings per share by 18 percent over the prior year.

We were able to show solid financial improvement during the quarter in which the nonresidential construction market continued to show no real signs of recovery.

Our positive year-over-year financial results were largely the outcome of numerous initiatives to enhance margins, improve operating efficiencies, lower costs and increase asset turnover.

Furthermore, we delivered these positive results while incurring costs to redeploy resources within the supply chain at Acuity Brands Lighting and confronting increased raw material cost company-wide.

We expect this investment in our supply chain will strengthen our performance as we go forward.

Our focus also remains on driving cash flow, and we were pleased to continue to pay down our debt during the quarter.

Additionally, for the first time, our debt-to-total-cap ratio fell below 50 percent.

While market conditions are forecast to improve some time in the fourth quarter of the calendar year, we remain cautious about the potential benefit on our own fourth-quarter performance.

In spite of this caution, we expect full-your earnings to be in the upper end of the range of our earlier full-year forecast of $1.31 cents to $1.51 per share.

Now we will take some questions.

(OPERATOR INSTRUCTIONS).

Craig Kennison from Robert W. Baird.

First, I want to address where we had some variances relative to our model.

I guess, what specifically is included in other expense?

That line was particularly high relative to our model.

Vern?

Craig, this is Vern.

We recognized in there an impairment charge.

As we continue to consolidate a couple of our facilities within the Lighting Company, there was one facility for which we recognized a non-cash impairment charge of about $900,000.

And given that you continue to become more efficient, should we anticipate more impairment charges of about this size every quarter?

No, you shouldn't.

As we continue to look at the facilities, we may have some -- I consider this to be fairly de minimus, but we may have some charges like this as we go forward, but you won't see anything large.

The bigger charges, as you might imagine, (indiscernible) Jim identified in his comments, approximately were $4 million of incremental cost for inefficiencies associated with the continued consolidation of those factories.

Just moving product from plan A to plan B, trying to put those into lower-cost production environments, the learning curves associated with that -- that's really the more significant cost that you've seen.

And our expectation is that we will continue to experience those probably through the fourth quarter, but to what degree -- I can assure you we're working very hard to remove those inefficiencies.

But it still will take some time.

In your press release you indicated that that 4 million was higher than you had anticipated.

What were you looking for?

Well, what we were looking for was zero, to be perfectly honest with you.

But frankly, we knew we were going to experience some inefficiencies, and the $4 million number -- again, the higher end of the range, why we didn't specifically provide guidance as to how much inefficiencies we had or were expecting, certainly, that number was quite a bit higher than, I think, what we would have originally forecasted.

And as we move in through the rest of this year and get into next year, should we anticipate or model for a continuation of that line?

Or when do we think that goes away?

Well, as you know, as we said in our 10-K last year, we want as a goal -- it's a goal -- to increase our operating profit margins by 100 basis points or better on a per-annum basis.

We're close to being on track to delivering that in the '04 year, and that is while absorbing these types of cost.

So as we go into the 2005 period, our goal continues to be that 100 basis points or better.

Given the kind of environment that we have right now, as Jim said in his comments, we really have not seen any benefit from the forecasted rebound in the nonresidential construction market.

So even without that, we have been able to show improvements on a consolidated basis of about 80 basis points year-to-date, and that is while absorbing these types of consolidation costs.

So there's a lot of good stuff going on in other areas of our business -- sourcing, improvements in the manufacturing, efficiencies in the plants that have already gone through this transformation.

And if we can go to your Lighting business specifically, what was the percentage change in pricing and volume?

My guess would be volume was flat, but I would like to confirm that.

Volume -- I'm trying to recall.

Volume was flat.

Actually, volume in certain portions of the business may have been slightly down; again, no rebound yet in the Lighting portion of the nonresidential construction side of the world, so a lot of it had to do with price and mix product.

Can you give an indication of what pricing was on a comparable basket of products?

Pricing continued to improve slightly, but the mix of product and efficiencies within the factories, again, for those that had gone through the consolidation, continue to show fairly nice improvement.

And none of the price increase you recently instituted is part of this quarter; is that correct?

No.

We went to our annual price review in the earlier part of the calendar year, so that would have been the January timeframe.

That had some modest benefit in the quarter.

The price increase that was announced in April effective for May, which gave rise to the dramatic increase in our backlog, really did not have any impact on flags (ph), if you will, in the third quarter.

And because the backlog is so high, giving recognition of those orders that were in advance of the effective date of the price increase, it's questionable as to how much impact the price increase will have on our fourth quarter as well.

You had targeted, I believe, up to a six percent price increase on products shipped after May 31st.

Now that we've had a month under our belts, where does it look like it's going to shake out?

Craig, it's too early to tell.

The order book -- orders are coming in relatively as expected after a price increase.

What happens is a lot of folks, as you all know, will take orders, agents that they have in their hold bin, and release those to get price protection.

So they disgorge those, and the question now is how rapidly will market demand fill up those agents' fold bins.

And we are seeing some positive activity, but it's not aggressively robust -- again, as some folks are calling for.

There are many positive signs out there, by the way, but they have not yet materialized in robust types of orders for Lighting fixtures.

And finally, you had a $1.7 million gain in addition to the $900,000 impairment.

What should we anticipate from a gain perspective as you move forward?

Should it also be less significant moving forward?

You know, that is very difficult for us to predict.

For modeling purposes, I would say it's infrequent in nature.

So I would continue to look at it in that light.

(OPERATOR INSTRUCTIONS).

At this time I would like to turn the mic back over to Mr. Jim Balloun.

Folks, thank you for your investment in the Company.

We had a full and exciting quarter, and we're looking forward to the fourth quarter.

And as we said, we expect to hit the high-end of the range we estimated last year.

You can imagine we are pretty busy around here.

We are really doing about three things simultaneously in the Acuity Brands Lighting Group; we're installing Oracle systems everywhere; we're moving product from one plant to another, and we're building new plant capacity in targeted spots.

So there are a lot of balls up in the air simultaneously.

And as Vern said, that costs us in the near-term, but we are very confident it's the right thing to do and we're plowing ahead with it, looking forward to the future.

Thank you.

Thank you for participating in today's teleconference and have a nice day.