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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.
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.
I'm pleased with our company's performance in the second quarter of fiscal 2021.
We have delivered solid results while continuing to make progress on our strategy.
We've improved the way in which we serve our customers, expanded margins, and allocated capital effectively.
As you know, the pandemic has created real challenges over the past several quarters and we have yet to return to a steady state.
The slowdown last year had a global impact on supply chains and logistics and we continue to feel the impact of this in the economy and in our operations.
Yet, we have continued to have consistent and strong performance during this time.
As we look forward, we are facing some new and existing challenges.
As demand begins to rebound, global logistics, for example, continues to encounter issues.
New challenges include the global chip shortages and the rising cost of some components.
To be clear, these are good problems to have.
We are managing these challenges aggressively and our entire team will work tirelessly to deliver the best possible outcomes for our customers and continued high quality results.
So moving on to the second quarter highlights, our team delivered great results this quarter.
Sales were down 5.8%.
However, we saw gross profit margin of 43.4% expand 170 basis points and reported operating profit margin expand 180 basis points against the prior year.
The expansion was largely a result of product and productivity improvements throughout the business and we are very happy with the results.
Karen will speak in more detail about this later in the call.
Finally, in a message to our associates earlier this month, we announced that we were carbon neutral in our operations.
I will talk more around this later in the call, but I'm delighted that we were able to announce this milestone as quickly as we did.
I'd now like to update you on our ongoing transformation.
I have been at Acuity Brands for a little over 12 months and what I continue to see every day is a team that is striving for success, that is not shy about changing and that believes in Acuity and where we are going.
It is no secret that I came to Acuity because I saw the opportunity for our company to be more than a lighting business.
Our core lighting and lighting controls business was and is way more durable than the market gives it credit for, as evidenced by our performance over the past several quarters.
And we will continue to transform our business and the broader industry.
We have the best go-to-market network in the industry and the broadest product lines that serve a wide variety of end markets.
We continue to improve the effectiveness of our products and the efficiency of our supply chain through the implementation of new technologies.
We have a valuable and growing business in Distech and in Atrius we have the potential to build a very valuable technology business.
Finally, we have the ability to grow through acquisitions both in our current businesses as well as in new ones.
In our Lighting and Lighting Controls business we announced an exciting evolution in the leadership of that business.
Trevor Palmer has taken over as President.
Most recently, Trevor was leading our Controls business.
He joined the Company through the Distech acquisition nearly five years ago and he exemplified the talent that already exist within our organization.
Trevor brings 27 years of industry experience to the role.
I'm excited for what Trevor and his team will do with this business going forward.
During the quarter, we continued to invest in product development.
We have introduced new lighting and controls products and improved and evolved parts of our product and solutions portfolio.
In our Contractor Select portfolio, we saw significant demand for the Compact Pro High Bay, a versatile high bay that has been in demand as a result of the increase in warehouse renovations, driven by the shift to online retail and the expansion of logistics networks across North America.
The CPHB is a breakthrough product that was designed to deliver improved performance in a smaller size to ensure ease in installation.
The product uses fewer inputs, is more efficient to transport, and is both globally sourced and manufactured in our facilities to ensure supply chain flexibility.
Within our GUV category, we introduced EvolAIR with UV technology -- with UV Angel technology, excuse me.
This product uses onboard 254-nanometer technology and circulation above the fixture to locally disinfect air in occupied and unoccupied spaces.
We have installed this product in multiple Acuity locations and have specifications being developed with this product in education, office, and healthcare applications.
It is worth pointing out that our controls capabilities are a key differentiator for successful GUV lighting solutions.
Our Holophane product continued to win bids in infrastructure projects.
We were awarded the order for the relighting of the Big Dig project in Massachusetts that will begin in the second half of our fiscal year.
Part of the scope of this mandate was to replace existing low cost fixtures that had been installed several years ago and were not performing as expected.
Holophane is known for its quality, and durability and I am pleased we are the partner of choice to make the necessary improvements.
Throughout the pandemic, we have continued to invest in product vitality.
We have maintained the pace and quality of product rollouts this year, which positions us well for the market recovery.
I continue to be impressed by the agility of our team.
Transitioning to go-to-market, we are committed to our independent sales network.
This quarter we announced the realignment in the Northeast that will benefit our customers in the region and nationwide.
We are creating a new agency through the consolidation of what were formerly the Acuity-owned agency in New York, the New Jersey territory and the independent agency in Philadelphia.
This transaction demonstrates our commitment to the independent sales network, which we believe to be the strongest in the industry.
By creating this new agency, we are better positioned to participate in designs and specifications that start in New York and travel around the country.
We are also better positioned to serve contractors who work in New York, New Jersey and Philadelphia.
We continue to make progress with Distech and Atrius.
Distech is uniquely positioned in the building management space, built on open protocols and distributed through a network of independent systems integrators.
It has continued to grow throughout the COVID-19 pandemic.
We're also making progress around the product roadmap for Atrius.
We are recruiting best-in-class talent to drive the capabilities in that business.
In early January, Sandeep Modhvadia joined the business as Vice President of Product Development.
Sandeep comes to us from Google Cloud where he was responsible for the product development team building vertical solutions for the manufacturing, industrial, automotive, power and transportation industries.
We will continue to add talent to Atrius and make progress building unique and valuable technology solutions.
Now, I would like to take a few minutes to highlight our progress on the ESG front.
ESG is directly aligned with our values and our business strategy.
We care about the environment, our people and our communities.
Our company has been built on products, technologies and services that deliver sustainability and energy efficiency.
Over the last year, we have focused on our own operations.
Our recent accomplishment of achieving carbon neutrality across Scope 1 and 2 emissions in our operations is the result of this work and demonstrates our commitment to continually improving our communities.
We achieved carbon neutrality as a result of reducing environmental impacts in our facilities and through investing in carbon offsite projects.
Some of the energy efficient improvements made in our facilities can be highlighted by our Crawfordsville, Indiana facility where we optimized air compressors, installed more efficient belts and added switches to reduce energy consumption and by our Conyers, Georgia and Des Plaines, Illinois facilities where we installed our new I-BEAM IBG and Holophane Phuzion high bay lights and used our Atrius building OS technology to conserve energy and improve the quality of light and space.
And in our facility in New York, Ohio, in which we rebuilt the glass furnace to improve overall efficiency and which has now completely converted to renewable electricity, a win for the environment and the cost savings.
Our priority is the reduction of energy usage in our facilities and for our customers.
Until we're able to realize the full impact of our energy efficiency improvements, we are supplementing with an offset program that is focused on helping the communities where we operate.
We are investing in a series of carbon offset projects in Mexico, Indiana and California, all communities where we have a presence.
These projects support energy efficiency and renewable energy options at colleges and universities, landfills and agricultural sites.
These programs allow us to remove carbon from the atmosphere and balance our carbon footprint from operations.
While the focus of our recent accomplishments has been environmental, we are giving equal prominence to the S and the G parts of EFG.
Simply stated, we want to be the place where the best people come to do their best work.
To do this, we are continuing to focus on improving the lives of our associates by strengthening our culture and removing the barriers to success.
Acuity is proud to be an inclusive company where we all succeed together.
Finally, we have addressed several issues of governance over the last year by, among other things, diversifying and restructuring our Board of Directors and overhauling our total rewards program including improving our long-term incentive plans.
Moving on to capital allocation.
As I previously mentioned, we have now repurchased nearly 10% of our outstanding shares since May 2020.
Effectively allocating capital is an important part of how we will create value for our company.
To reiterate, our capital allocation priorities are clear: first, to grow our current businesses; second, to grow our company through acquisitions; third, to maintain our dividend; and fourth to create value through share repurchases.
We were able to capitalize on the dislocation in our share price and have been very effective repurchasing shares over the last year.
As we look forward and barring another significant market dislocation, we do not anticipate maintaining this rate of share repurchases.
We will return to our priority of using capital to grow the business.
As we look ahead, we see improvements in the end markets we serve and we are cautiously optimistic about the outlook for the remainder of fiscal year '21.
We intend to use the breadth of our product portfolio and the strength of our go-to-market teams to deliver a solid top line performance.
While there will be global challenges ramping back up, we are aggressively addressing them.
We will continue to invest in our business with the intention of becoming a larger, more dynamic company.
I want to start by echoing Neil's initial comments regarding this quarter's performance.
Our associates pulled together to deliver a solid performance and the fourth consecutive quarter of gross profit margin over 42%.
I am proud of the changes and progress we continue to make.
Moving to our second quarter results, net sales were $777 million, a decrease of 5.8% compared to the prior year, which we believe was a very good performance in this market.
Notably, within our sales performance, our independent sales network and direct sales network were approximately flat with the prior year as we continued to see strength in medium to large projects, offsetting some of the pressure in the commercial office space, which continues to be impacted by the COVID-19 pandemic.
Retail channel sales declined approximately 24% as compared to the prior year as a result of strong year-over-year pre-pandemic comparison.
This was exacerbated by one of our large customers carrying out an inventory rebalancing, which we believe to be a one-off impact.
We expect to see sequential growth in this channel in our fiscal third quarter of 2021.
Finally, sales in corporate accounts declined just over 50% as compared to the prior year.
We continue to see large retailers differ renovation spend as a result of safety concerns resulted from the COVID-19 pandemic.
In the last few weeks, there have been indications that these concerns are slowly lifting and we expect to see continued sequential recovery through the balance of the year.
Moving on to the rest of the income statement.
Gross profit margin was 43.4% for the second quarter of fiscal 2021, an increase of 170 basis points over the prior year.
This was an outstanding achievement.
This outperformance was the result of product and productivity improvements that yielded returns and we believe that this will position us well for any unforeseen challenges.
Given this gross profit margin improvement, we believe attaining a gross profit margin above 42% is reasonable on an annualized basis.
Reported operating profit margin was 11.7% of net sales for the second quarter of fiscal 2021, an increase of 180 basis points over the prior year.
Adjusted operating profit margin was 14% of net sales for the second quarter of fiscal 2021, an increase of 170 basis points over the prior year.
The majority of this improvement was driven by the higher gross profit margin and continued cost containment efforts, particularly around travel expenses and sales and marketing costs resulting from less in-person activity due to the pandemic.
As we continue to demonstrate our ability to drive margins, we will begin to reassess our reinvestment strategy, prioritizing systems and software development as we focus on executing our digital transformation.
As the economy continues to open up, we expect to see travel and other marketing expenses increase throughout the balance of the year.
We are working with our associates to ensure that only essential travel and marketing expenses are being incurred and do not expect to return to pre-pandemic expense levels in fiscal 2021.
As previously discussed, this quarter, we were able to share with our associates that we achieved 100% carbon neutrality within our operations by prioritizing efficiency improvements in operations and some offsetting measures.
This is not just an initiative for the management team.
Both Neil and I believe this is the core to the ongoing success of the Company.
As part of the offsetting measures, we expect to see a modest SDA investment, but this will not be material.
The effective tax rate for the second quarter of fiscal 2021 was 23.5% compared with 23.4% in the prior year quarter.
We currently estimate that our blended effective income tax rate will be around 24% for the full year fiscal 2021.
Finally, we saw significant improvement in diluted earnings per share for the second quarter of fiscal 2021.
Diluted earnings per share of $1.74 increased $0.30 or 20.8% over the prior year and adjusted diluted earnings per share of $2.12 increased $0.28 or 15.2% over the prior year.
Moving on to cash flow.
Net cash from operating activities for the first half of fiscal 2021 was relatively flat at approximately $213 million compared to the prior year.
We invested $21 million or 1.4% of net sales in capital expenditures during the first half of fiscal 2021 and currently expect to invest approximately 1.5% of net sales in capital expenditures in the full year of fiscal 2021.
On February 28, 2021, we had cash and cash equivalent balance of $499 million.
I am pleased with the continued solid cash generation.
Over the last 12 months, we have been extremely judicious around our capital allocation decisions.
We continue to prioritize long-term growth and believe that reinvestment into the future of the Company is core to our success.
We have further committed to maintaining our dividend and being opportunistic around allocating capital to buybacks.
As a result, we have repurchased 3.2 million shares of common stock during the first half of fiscal 2021 for a total of $338.3 million, at an average price of $104 per share, with 4.4 million shares still remaining under our current Board authorization.
Going forward, I will spend a few minutes reviewing some of the most important conversations around our company and industry and offer insight into how we are thinking about them.
There are three discussions that have been top of mind.
How are we seeing the price increases play out?
What is the potential impact of commodity price increases throughout the balance of the year?
And what is our plan to deal with the electrical component shortage?
Price increases did not affect our fiscal second quarter earnings.
We had previously announced that price increases would go into effect March 15, 2021 across the portfolio which is the beginning of our third quarter with any potential effects not being felt until April.
To date, we do not anticipate any drop-off in demand as a result of the price increases.
Similarly, our fiscal second quarter was not impacted by escalating input pricing.
On our first quarter 2021 earnings call and throughout the second quarter, we have been deliberate about changing the conversation around the impact of price and cost.
As we highlighted last quarter, our prior discussion ignored that we as a company control several levers within our cost of goods sold structure.
Our associates understand that it is our obligation to be in control of the relationship between our price and costs, separate from whether raw material prices go up or go down.
The continuous improvement in our gross profit margin demonstrates that the move away from the price/mix conversation as appropriate and that the discussion around operating the Company toward a gross profit margin target is the correct lens in which to view our margin performance.
The ongoing improvements have been a result of product and productivity improvements.
Essentially, we are reengineering our products to meet the needs of our customers, while also meeting our margin obligations.
Whether commodity prices increase or decline, we believe we can hold gross profit margin above 42% by controlling what we can control and through the ongoing improvements throughout our business.
Finally, the electrical component shortage is starting to make its way through the supply chain, which will create challenges for the entire industry.
We have seen indications that some of our products may experience procurement issues and we are working diligently to service our customers.
To wrap up, we have seen encouraging signs of improvement in our end markets, although some challenges still remain and I continue to be proud of our dedicated team.
We are committed to instilling discipline across the organization to ensure the long-term stability and predictability of the Company and we are to-date satisfied with the progress we are making.

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compname posts q2 adjusted earnings per share $2.12.
q2 adjusted earnings per share $2.12.
q2 earnings per share $1.74.

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