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WIKI ANALYSIS
Acuity Brands, Inc. (NYSE:AYI) is the holding company for Acuity Brands Lighting, the world's largest manufacturer of lighting fixtures. Seventy percent of the company's sales are for outdoor lights - the federal highway system, with its purchases of street lights, is a key customer for acuity. Because few of the company's products are sold to residential customers, the company isn't as affected by the weak U.S. housing market as many of its competitors. Acuity's residential sales are largely to individuals through a partnership with Home Depot stores. However, the sluggish US economy has also caused a decline in the non-residential construction markets, causing the company's revenue to fall 18% in 2009. The company earned $1.7 billion in revenue and $85 million in net income in 2009.[1]
Acuity's major competitors include three other integrated electronics manufacturers which, together with Acuity, make up nearly two-thirds of the U.S. lighting market - including 80% of commercial lighting sales.
Company Overview
Acuity's revenue comes from the sale of lighting fixtures in retail home improvement stores such as Home Depot. Acuity also sells products to third party distributors and construction firms for use in residential, commercial and industrial new construction and renovations. Finally, Acuity sells lighting fixtures for use in infrastructure applications such as roadways, parking lots and sports arenas.
Products[2]
The company's products are used in the following applications:
- Commercial and Institutional - Applications are represented by stores, hotels, offices, schools, and hospitals, as well as other government and public buildings. Products that serve these applications include recessed, surface and suspended lighting products, recessed downlighting, and track lighting, as well as special application lighting products. The outdoor areas associated with these application products are addressed by a variety of outdoor lighting products, such as area and flood lighting, decorative site lighting, and landscape lighting.
- Industrial - Applications primarily include warehouses and manufacturing facilities, utilizing a variety of glass and acrylic high intensity discharge (“HID”) and fluorescent lighting products.
- Infrastructure - Applications include highways, tunnels, airports, railway yards, and ports. Products that serve these applications include street, area, high-mast, off-set roadway, and sign lighting.
- Residential - Applications are addressed with a combination of decorative fluorescent and downlighting products, as well as utilitarian fluorescent products.
- Controls - Applications include commercial and institutional, industrial, infrastructure, and residential. Products include occupancy sensors, photocontrols, relay panels, architectural dimming panels, and integrated controls systems.
- Other Applications & Products - Other products include emergency lighting fixtures and flexible wiring systems, which are primarily used in non-residential buildings.
- Services - Applications include monitoring and controlling of lighting systems through machine to machine wireless network technology in the utility and municipality markets, as well as energy audit and turn-key labor renovation and relight services in the commercial, industrial, retail, manufacturing, and warehousing markets.
Business Growth
FY 2009 (ended August 31, 2009)[1]
- Net sales fell 18% to $1.7 billion. The company attributes the decline primarily to lower shipments from continued decline in demand on the residential and non-residential construction markets, particularly for commercial and office buildings.
- Net income fell 43% to $85 million.
Trends and Forces
Acuity's growth depends on a high pace of non-residential construction
The table below compares Acuity's year/year sales growth with the growth of spending on commercial construction. The relative unavailability of public financing for companies to undertake large investments in new physical structures may negatively impact Acuity's sales growth. In response to this, however, the Federal Reserve has kept interest rates low, which helps companies to inexpensively finance their projects when they can find the funding. This may help Acuity's non-residential business grow. While renovations focused on improving energy efficiency may help to balance any decrease in new non-residential construction (as explained below).
Because very little of Acuity's revenue comes from residential sales, it is unaffected by the pace of New Home Construction
Some of Acuity's brands specialize in or sell products exclusively for residential use - however, at just 6% of revenues, this is a relatively small segment of the company's business. Demand for these products is driven by the pace of new home construction and renovation. The decreasing availability of mortgages especially subprime mortgages to finance new construction and the general depression of the U.S. Housing Market has a negative impact on this market. Acuity is not dependent on residential construction to drive its business, but fluctuations in the growth of residential construction do have a minor impact on the company's balance sheet.
Acuity is sensitive to the cost of Manufacturing in Mexico and free trade policy
Acuity currently manufactures about half of its products in Mexico and 5 of the 12 manufacturing facilities owned by Acuity are in Mexico, making Acuity vulnerable to changes in wages in Mexico or changes in the trade policy between Mexico and the United States. This concentration also makes the company sensitive to fluctuations in the foreign exchange rate between the United States and Mexico. According to the company, a 10% increase of the value of the Mexican peso against the U.S. dollar would reduce profits by $4.9 million per year.
Increasing energy prices and tax incentives for improved energy efficiency will drive sales of Acuity's products for retrofit and renovation
The Energy Policy Act of 2005 provided tax incentives for companies to make improvements to the energy efficiency of commercial offices. These tax incentives originally only applied to improvements made in 2006 and 2007 but have since been extended (See U.S. Environmental Legislation). Approximately 50% of Acuity's revenue comes from the sale of fluorescent lighting fixtures. According to "Energy Star" traditional incandescent lights are approximately 1/4 to 1/10 as efficient as fluorescent fixtures. Furthermore, they estimate that lighting accounts for 17% of energy costs in a typical commercial property and the retrofit of new, high efficiency fixtures can reduce that cost 30 to 50%.[3] The efficiency of its lights thus confer an economic benefit to Acuity's customers, increasing the attractiveness of these products.
Competition
Acuity Lighting is the world's largest manufacturer of lighting products with 17% of the market share. It led the industry in sales of commercial & institutional, outdoor and industrial lighting.
- Energy Focus, Inc. - a major manufacturer of high efficiency fiber optic and LED lighting systems.
- LSI Industries, Inc. - operates a lighting division that markets indoor, outdoor and landscape lighting.
- The Genlyte Group, Inc. - a subsidiary of Koninklijke Philips Electronics, N.V. (PHG), markets lighting equipment under the brand names Bronzelite, Capri/Omega, Lightolier, and Wide-Lite.
- Hubbel, Inc. - electric division produces lighting fixtures, switches, controls and outlet boxes.
- Cooper Industries Ltd. - Electrical Products division manufactures lighting fixtures and control as well as emergency lighting systems.
References
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