Acuity Inc. AYI reported mixed results in the second quarter of fiscal 2025 (ended Feb. 28, 2025). Earnings surpassed the Zacks Consensus Estimate, but net sales missed the same. AYI’s earnings beat the consensus mark for the 20th consecutive quarter.

Acuity stock lost 3.4% yesterday during the trading session. Negative investor sentiment likely followed as net sales fell short of expectations.

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Solid contributions from the Intelligent Spaces segment and the company's focus on product vitality and innovation helped it drive performance and improve profitability. The acquisition of QSC added $95.1 million in sales. Higher net sales in Distech and Atrius products also supported growth. Also, the company's emphasis on cost optimization and enhancing operational efficiencies helped drive margin expansion.

In March, the company changed its name from Acuity Brands to Acuity. AYI aims to drive long-term growth, create stakeholder value and enhance shareholder returns.

Taking a Look at Acuity’s Q2 Performance

AYI reported adjusted earnings per share (EPS) of $3.73, which topped the consensus estimate of $3.66 by 1.9%. The metric also increased 10.4% from the year-ago reported EPS of $3.38.

Net sales of $1.01 billion missed the consensus mark marginally by 1.6%. However, the metric improved 11.1% from the prior-year quarter’s level.

Acuity’s Q2 Segment Details

The Acuity Brands Lighting segment, responsible for the majority of sales, experienced a modest decrease in quarterly sales by 0.3% to $840.6 million. Our estimate for the metric was $859.3 million.

Net sales in the Independent Sales Network were slightly up 0.5% year over year to $615.2 million. Sales from the Direct Sales Network were up 4.7% from the prior-year period’s level to $97.4 million.

Retail sales of $41 million declined 11.6% from the prior-year quarter’s levels. Sales in the Corporate Accounts channel decreased 6.6% from the prior-year quarter to $35.6 million. The original equipment manufacturer and other channels sales of $51.4 million were down 4.3% from the prior-year period’s levels.

The adjusted operating profit in the segment increased 3.6% from the prior year’s levels to $141.3 million. The adjusted operating margin was up 60 basis points (bps) year over year to 16.8%.

Acuity Intelligent Spaces generated net sales of $171.5 million, significantly up 151.8% year over year. However, the reported figure was down from our estimate of $175.6 million. The adjusted operating profit was $32 million, up 123.8% from the year-ago period. The adjusted operating margin was down 230 bps year over year to 18.7%.

The Intelligent Spaces division's focus on data-driven solutions, such as systems integration and the use of cloud-connected technologies, is a key driver of growth. Acuity's mission to make spaces "smarter, safer, and greener" positions it well to capture market share in building management systems. Geographic expansion in regions like the United Kingdom, Asia and Australia also contributes to its momentum.

AYI’s Q2 Operating Highlights

The adjusted operating profit increased 16.3% year over year to $162.9 million. The adjusted operating margin of 16.2% was up 70 bps year over year. Adjusted EBITDA rose 15.4% to $176.6 million from the year-ago period. The adjusted EBITDA margin expanded 60 bps to 17.5% from the year-ago period.

Acuity’s Financials

At the fiscal second-quarter end, Acuity had cash and cash equivalents of $397.9 million compared with $845.8 million at the fiscal 2024-end. Long-term debt was $996.5 million, up from $496.2 million at the fiscal 2024-end.

During the first six months of fiscal 2025, cash provided by operating activities totaled $191.6 million, down from $292.6 million in the prior-year period. Free cash flow was down 38.2% year over year to $163 million in the first six months of fiscal 2025.

During the first six months of fiscal 2025, the company repurchased nearly 68,000 shares of its common stock for $22.6 million.

Acuity’s Expectations and Strategic Outlook

For fiscal 2025, Acuity expects net sales between $4.3 billion and $4.5 billion (indicating growth from $3.84 billion reported in fiscal 2024), with adjusted EPS in the range of $16.50-$18.00 (depicting growth from $15.56 reported in fiscal 2024). The focus remains on maintaining a balance between growth and margin expansion. In Intelligent Spaces, growth will be driven by leveraging synergies from the QSC acquisition and continuing to innovate within Distech and Atrius offerings.

In lighting, Acuity aims to outperform the market by expanding its presence in underpenetrated verticals and delivering value through strategic product segmentation like the Contractor Select and Design Select portfolios. The company’s investments in technology and product development will underpin its gross margin expansion over the long term.

Acuity also plans to allocate capital judiciously, prioritizing investments in core businesses and M&A opportunities while repaying acquisition-related debt within 12-18 months.

AYI’s Zacks Rank & Key Picks

Acuity currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Construction sector are Sterling Infrastructure, Inc. STRL, EMCOR Group, Inc. EME and Gibraltar Industries, Inc. ROCK.

Sterling presently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company delivered a trailing four-quarter earnings surprise of 16.2%, on average. The stock has declined 6.9% in the past year. The Zacks Consensus Estimate for Sterling’s 2025 sales indicates a decrease of 4.1% and the same for earnings implies an increase of 34.6% year over year.

EMCOR currently sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 29%, on average. The stock has declined 9.5% in the past year.

The consensus estimate for EMCOR’s 2025 sales and EPS implies an increase of 12.8% and 8.6%, respectively, from a year ago.

Gibraltar currently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of 1.8%, on average. The stock has lost 36.4% in the past year.

The Zacks Consensus Estimate for Gibraltar‘s 2025 sales and EPS implies an increase of 9.8% and 15.5%, respectively, from a year ago.

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