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Text: These beliefs are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those detailed in our periodic SEC filings.
Please note that the company's actual results may differ materially from those anticipated, and we undertake no obligation to update these statements.
He will provide an update on our strategy and highlights from the last quarter.
And Karen Holcom, senior vice president and chief financial officer, who will walk us through our earnings performance.
There will be an opportunity for Q&A at the end of the call.
For those participating, please limit your remarks to one question and one follow-up, if necessary.
Our team delivered another strong performance in the second quarter of fiscal 2022.
For the second consecutive quarter, we delivered net sales growth of 17%, and we maintained our gross profit margin at 41.7%, consistent with the first quarter.
And compared to last year, we increased diluted earnings per share by 22%.
Despite the cost challenges, we were able to convert our sales growth into operating profit and net income by effectively leveraging operating expenses.
The world remains complicated.
Although our demand environment is strong, costs continue to be volatile, and we are continuously dealing with the ongoing pressures resulting from the global component shortages.
In spite of this, our team continues to execute well, and this is reflected in our performance.
Both ABL and Spaces are performing admirably.
Our decisions to prioritize shipments by investing in electrical components and transportation are resulting in higher sales and operating profits, albeit at slightly lower margins.
Now, I want to move to talk to our progress at both ABL and Spaces.
First, in ABL, I'm happy to report that some things are returning to the way they used to be.
In March, we hosted our first in-person sales conference in three years, NEXT '22.
It was great to be back together with our independent sales network, who have performed exceptionally through the ups and downs of the last two years.
We have the best agents in the industry, and it was a great opportunity to talk about our strategic vision for Acuity Brands Lighting, share many new products, and engage our agency partners around our EarthLIGHT initiative.
This was the first time that many of our associates and agents had seen each other in person since the pandemic started.
While we have been incredibly productive working virtually with our channel, it was great to spend some quality time together in person.
It was hard not to be struck by the levels of energy and enthusiasm throughout the event and the consistency of the feedback from our agents.
They said, "Acuity is delivering".
Our investments in service have allowed us to prioritize delivering for our customers when others have been unable to.
At the same time, our investments in product vitality have allowed us to continue to create compelling new products that are both innovative and market-moving.
As I said last quarter, we have done this by focusing on three main areas.
First, by focusing on strategic supplier relationships, the current environment has reminded us all that it really matters who you do business with.
Because we are the largest lighting company, we have certain advantages over our direct competitors.
But those same components are also used by larger industries.
Consequently, we are making investments in people, time, and resources.
We have recruited a new head of strategic sourcing for ABL.
We are working with our key suppliers on effective planning and allocation management, and we are investing in inventory.
Second, by empowering our teams to prioritize access and speed over cost on available components, we have been able to ensure continuity of supply across many of our existing product lines, while also supporting our ongoing product vitality efforts across our product portfolio.
Finally, as I said last quarter, our engineering teams continue their Herculean efforts to redesign products to the available components.
At the same time, these teams have also managed to introduce around 220 new, or significantly upgraded, lighting and lighting control products over the last two years.
We expect the challenges around access to and costs of components to continue into the foreseeable future.
Our strategy around product vitality and the dexterity of our engineering teams inflecting to the changing requirements of the component shortages have been a significant part of why we are leading in this market, and we expect to continue these efforts.
Another highlight of the NEXT conference was our focus on EarthLIGHT.
EarthLIGHT is an important part of our strategy.
Our product vitality efforts are not just about improving the functionality of our products.
It is also about redesigning products to reduce customer energy consumption, reducing packaging and waste, and improving transportation efficiency.
This quarter, we announced a new initiative that brings together both technology and sustainability to significantly reduce paper use by introducing scannable QR code instructions across our products.
At NEXT, we also expanded our community outreach by packing a thousand bags of food for a local Atlanta organization together with our agents.
It was one of the highlights of the event.
Now, moving to the Intelligence Spaces Group, Spaces had another solid quarter of growth.
In both Distech and Atrius, we have a strong product roadmap to make Spaces smarter, safer, and greener.
Distech continues to win in the building controls market against significant competition.
Through the ECLYPSE Controller products, Distech is at the forefront of the technology curve with a presence in key markets and recognized leadership built on open-protocol technology.
In the last quarter, Distech won projects across North America and Canada and saw significant project wins in key verticals, including in education, commercial infrastructure, and in data centers.
Distech is now a key supplier to two of the largest cloud providers.
We also continue to develop the Atrius platform, including progress on Atrius Building Insights, and we expect to expand the portfolio over time.
We continue to add talent to this team.
Finally, I want to update you on our capital allocation.
Our capital allocation priorities remain the same.
We expect to continue to prioritize investments for growth in our current businesses, to invest in acquisitions, to maintain our dividend, and to allocate capital to share repurchases when there is an opportunity to create permanent value for our shareholders.
This quarter, the board of directors authorized additional capacity for share repurchases to increase our remaining authorization from 3 million to 5 million shares.
Since May of 2020, we have repurchased approximately 13% of our shares outstanding.
I would also like to announce the appointment of Sachin Sankpal, our senior vice president of growth and transformation.
Sach joins us to manage our technology organization, to deploy our better, smarter, faster company operating system, and to lead the integration efforts for future acquisitions.
Sach comes to us with distinguished experience at leading companies, including Trimble and Honeywell.
We're excited to have Sach on our team.
Each quarter, we are faced with new challenges, and our team continues to deliver.
Our continued focus on service and product vitality is allowing us to take advantage of the strong demand environment.
I am so impressed by their flexibility and ability to drive results.
We delivered strong performance in the second quarter of 2022.
We grew net sales.
We managed margins effectively despite a volatile cost environment.
And we leveraged our operating expenses.
Net sales were $909 million, an increase of 17% compared to the prior year.
This performance was driven by our focus on service levels and product vitality, a continued recovery in the end markets of both of our business segments, and the benefits of recent price increases and acquisitions.
Gross profit was $379 million, an increase of $43 million or 13% over the prior year.
This improvement was driven by revenue growth and by offsetting the significant increase in input costs through price increases and product and productivity improvements.
Gross profit as a percent of sales was 41.7%, a decrease of 170 basis points from 43.4% in the prior year, but flat sequentially from the first quarter of 2022.
I will talk more about the current cost environment later on in the call.
Reported operating profit was $102 million, an increase of $11 million or 12% over the prior year.
Reported operating profit margin was 11.3% of net sales for the second quarter of fiscal 2022, a decrease of 40 basis points over the prior year.
Adjusted operating profit was $123 million, an increase of $14 million or 13% over the prior year.
Adjusted operating profit margin was 13.5% of net sales, a decrease of 50 basis points against the prior year.
Adjusted operating profit margin was lower than the prior year, as the decline in gross profit margins was partially offset by leveraging operating expenses.
Finally, we saw continued improvement in diluted earnings per share for the second quarter of fiscal 2022.
Diluted earnings per share of $2.13 increased $0.39 or 22% over the prior year.
And adjusted diluted earnings per share of $2.57 increased $0.45 or 21% over the prior year.
Our share repurchase program favorably impacted adjusted diluted earnings per share by $0.06.
Now, moving on to our segments.
During the quarter, our Lighting and Lighting Controls segment saw sales increase, 17% to $863 million over the prior year.
This was driven by the improvements within our independent sales network, which grew approximately 12%, and an increase of 5% in our direct sales network.
Additionally, sales in the corporate account channel increased approximately 105% over the prior year.
Recall that last year, customers had paused their renovations due to the pandemic.
That activity has now restarted as you can see from the growth this quarter.
We also had growth in our other channel of 83% over the prior year, due primarily to the acquisition of OSRAM.
Sales in the retail channel declined approximately 2% in the current quarter.
This was due to some of our inventory being delayed in transit or held up in the ports, resulting in longer lead times than we anticipated.
We should start to see growth in this channel in the upcoming quarters.
ABL's operating profit for the second quarter of 2022 was $117 million, an increase of 14% versus the prior year, with operating margin declining 30 basis points to 13.5%.
Adjusted operating profit of $127 million improved 13% versus the prior year, with adjusted operating profit margin declining 50 basis points to 14.7%.
ABL has demonstrated the ability to grow sales while leveraging our operating expenses.
Moving on to the results for our Intelligent Spaces Group.
For the second quarter of 2022, sales in Spaces increased approximately 16% to $50 million, reflecting growth in both the Distech and Atrius.
Spaces operating profit in the second quarter of 2022 increased approximately $400,000 to $1.2 million.
Adjusted operating profit of $6 million increased approximately $1 million versus the prior year as a result of the strong sales growth and continued investment in the business.
Our business model continues to be highly productive, generating $127 million of net cash flow from operating activities in the first half of fiscal 2022.
This was a decrease of $85 million compared to the prior year due primarily to an increased investment in working capital primarily related to inventory.
Inventory days are up over the end of our fiscal year, with approximately half of the increase due to increased lead times on source finished goods and, to a slightly lesser extent, increased purchases of electronic components.
We are managing our inventory levels to support our growth, as well as insulate our production facilities from inconsistent supply availability.
We also invested $24 million or 1.3% of net sales and capital expenditures during the first six months of fiscal 2022.
Finally, we have continued to repurchase shares in the second quarter.
As a result, since May of 2020, we have bought back approximately 13% of our company shares at an average price of approximately $120 per share.
I would now like to spend a few minutes focusing on the remainder of the year.
As Neil stated, we expect the current environment to continue for the foreseeable future with strong demand, while access and cost of components will remain a challenge.
Our focus throughout will continue to be on growing sales and leveraging our operating expenses.
In relation to the recent instability in Europe, we have no direct sales exposure either to Russia or Ukraine.
However, the conflict does add to the existing supply chain pressures.
Additionally, we are experiencing increases in transportation costs, driven by expected increases in oil prices.
In the last 15 months, we have strategically introduced six price increases in addition to driving product and productivity improvements.
Before I hand you over to the operator, I want to leave you with our key takeaways.
We have continued to demonstrate strong sales growth and effective management of gross margins in a volatile cost environment.
We've leveraged our operating expenses.
And finally, we have continued to allocate capital effectively.

user
q2 earnings per share $2.13.
q2 adjusted earnings per share $2.57.

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