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Article Excerpt
OPERATOR: Good morning, and welcome to the Acuity Brands 2009 second quarter financial conference call. After today's presentation there will be a formal question-and-answer session. (Operator Instructions). Today's conference call is being recorded. If you have any objections, you may disconnect at this time.
Now I would like to introduce Mr. Dan Smith, Vice President, treasurer, and secretary of Acuity Brands. Sir, you may begin.
DAN SMITH, VP, TREASURER & SECRETARY, ACUITY BRANDS, INC.: Thank you. Good morning. With me today to you discuss our second quarter results are Vern Nagle, our chairman, President and Chief Executive Officer, and Ricky Reece, our Executive Vice President and Chief Financial Officer. We are webcasting today's conference call at www.acuitybrands.com.
I would like to remind everyone that during this call we may make projections or forward-looking statements regarding future events or future financial performance of the Company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our most recent 10-K and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Also, as mentioned in our press release earlier today we expect to file our second quarter 10-Q by the end of day on Wednesday, April 8th.
Now let me turn the call over to Vern Nagle.
VERN NAGEL, CHAIRMAN, PRESIDENT & CEO, ACUITY BRANDS, INC.: Thank you, Dan. Good morning, everyone. Ricky and I would like to make a few comments and then we will be happy to answer your questions. Our results for the second quarter of 2009 reflect just how significantly the prevailing economic environment is impacting the residential and non-residential construction markets throughout the world. While our results for the quarter were down relative to our original expectations, upon closer examination I believe we actually executed very well, overcoming a number of challenges. Further, I believe we performed at least as well, if not better, than many of our served markets.
In spite of the many challenges we faced in the quarter, as I will explain in more detail, we continued to achieve success on a number of strategic priorities, including the continued introduction of new, more energy-efficient products and services; expansion in new markets; improvements in productivity; and most importantly, the acquisition of LC&D along with the pending purchase of Sensor Switch. Once the acquisition of Sensor Switch is completed, which we expect any day now, we will have assembled one of the most formidable platforms in the area of lighting control and energy management in the industry. I will talk more about this later in the call.
I know many of you have already seen our results and Ricky will provide more detail later in the call, but I would like to make a few comments on the key highlights. Net sales for the quarter were $386 million, down 20% compared with the year-ago period. Operating profit was $28.6 million, down from $60.7 million reported in second quarter last year. Diluted earnings per share was $0.35 compared with $0.82 from the year-ago period. Included in our second quarter results was a pretax special charge of $4.6 million, or $0.07 per share. The charge was for the additional costs associated with the acceleration of our previously-announced actions to streamline the organization's structure. We took these actions -- additional steps in light of the continued deterioration in the economic environment as it directly impacts construction activity and thus demand for lighting fixtures. We now expect to realize more than $50 million in annualized cost savings from our combined streamlining actions once they are completed by the end of our fourth quarter.
I find it useful to add back these special charges in order to make our results comparable between periods. Doing so, I see our operating profit was $33.2 million in the second quarter of 2009, representing a margin of 8.6% of net sales. This compares with $60.7 million, or 12.6% of net sales in the prior-year period. Similarly, diluted earnings per share, excluding the impact of the special charge, was $0.42 for the second quarter of 2009 compared with $0.82 in the year-ago period, a decline of 49%. These results, while positive given the dramatic fall-off in economic activity, do not fully reflect our accomplishments in the second quarter, given the magnitude of the challenges, so let me share some additional information with you.
First, as I mentioned in my last conference call with you, raw materials and component costs increased significantly, particularly from June through September. Prices for certain commodities then fell dramatically as the economy deteriorated. Because of the rapid rise and fall we indicated we would not be able to pass along this spike in costs in the form of higher prices to consumers. In total we estimate raw materials and component costs in the current quarter were higher by approximately $18 million compared with the year-ago quarter. This is an astounding amount, representing almost 5% of our net sales. We estimate we were able to pass along only about half of this increase in costs through higher prices initiated earlier in the year because of the speed and the timing of the cost increases. We believe the impact of the spike in costs reduced our operating profit in the current quarter by more than $6 million, or about 160 basis points of margin.
Second, we continue to structure the organization to be consistent with requirements necessary to serve current customer demand while continuing to invest significantly in growth opportunities, including new product development. Third, we continue to drive productivity throughout the organization, particularly in the supply chain where we reduced our total production costs consistent with the percent of decline in sales, a remarkable feat in such a short time for a manufacturing company. This is a strong demonstration of how well our associates executed in a very challenging and difficult economic environment.
Another fact you may find interesting is the last time we had comparable net sales of approximately $390 million was in the first quarter of 2004. Adjusting for the special charge and the spike in material costs we estimate our operating profit margin is more than 400 basis points better today than that similar period five years ago. We have been able to produce these results because of the great progress made in four key areas of strategic focus: Customer service; pricing and margin management; product portfolio expansion, including significant additions to our stable of sustainable and energy efficient products; and Company-wide productivity.
Let me talk a little bit about our sales in the quarter. We were off approximately 20% from the year-ago period, or $96 million. The decline in sales was broad-based, as most channels and geographies were impacted by the deteriorating economic environment. This is different compared with our experience in the last few quarters, where a larger portion of the decline in net sales was more concentrated in a few key areas. Overall we estimate that unit value was off about 20% in the second quarter compared with the year-ago period, as benefits from price mix offset the negative effects of a strengthening dollar on foreign currency. For us this was the first quarter where we really felt more significantly the broad-based impact of weakening demand for light fixtures in key channels serving the commercial, industrial and institutional markets. As we noted in our previous conference calls, the downturn in new store construction for big-box retailers and residential construction began almost one year ago and, of course, continued this quarter as well.
Additionally, we saw an acceleration of delays for the construction of projects and in some instances, outright cancellations, as well as key distributor customers putting off stocking orders typically placed this time of the year in advance of the spring construction season. Even sales of renovation products declined in the quarter, as business decision makers look to conserve cash in light of the economic uncertainty and the lack of clear guidance on how the stimulus plan may impact their businesses. We expect this market to rebound, as government plans become more clear. All in all, a very challenging quarter from a commercial perspective. We did see a few bright spots, including share gains in...
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