Ex-Osram division rains on an otherwise bright profit parade at Acuity

There are plenty of good reasons why lighting companies have acquired entities that ams Osram has been selling. But an immediate boost to profits does not seem to be one of them. For the second time in recent months, a buyer has revealed a drag on earnings.

Acuity Brands last week reported an upbeat fiscal third quarter in which net income surged 23.3% to $105.7 million from $85.7 million in the same quarter in 2021. The leap would have been higher, if not for the company’s acquisition of a large chunk of ams Osram’s Digital Systems business. Acuity agreed to pick up the maker of LED drivers, light engines, and other components 13 months ago.

“Gross profit margins have been impacted by the dilutive mix of the acquisition of the Osram DS business throughout the first three quarters of 2022,” noted Karen Holcom, chief financial officer of Atlanta-based Acuity.

That’s not to say the acquisition has flopped. In fact, it has had a positive impact on sales. Holcom credited it as one of three factors that contributed to a nearly 18% year-on-year net sales increase to $1.1 billion from $899.7 million for the quarter ended May 31. The other two, she said, were “product vitality and service, and price increases.”

The  former ams Osram DS business resides in Acuity’s “other” revenue segment, where sales nearly doubled, to $82.6 million from $45.2 million in the same quarter a year ago. “Other” includes OEM operations.

But “in the near term it is dilutive to gross profit margins,” Holcom said. “We have been almost a full year since we purchased that business, We have been working to improve the profitability of the business, and still have some work to do.”

Her account echoed that of Signify CEO Eric Rondolat, who earlier this year acknowledged that Fluence, the horticultural lighting company which Signify acquired from ams Osram, was operating below normal Signify profit levels.

Since acquiring Osram in July 2020, ams Osram has been selling off entities that are not part of its mission to focus the combined company on chip-level business including LEDs, lasers, and sensors. Last month it unloaded the remainder of Digital Systems, selling its European and Asian driver business to Hangzhou, China–based Inventronics. Acuity had purchased the North American portion of DS.

Back at Acuity, the overall jump in company-wide sales and income came amid the ongoing supply chain difficulties that continue to challenge industries, and as the global inflationary environment added more pressure.

“Market demand in the third quarter remained strong and we continue to work through our backlog, which continues to be above normal levels,” CEO Neil Ashe said on a web call with analysts.

While noting that the company has managed supply constraints and inflation well, Ashe also alluded to unpredictability.

“I’ve told our team that while I would like to tell them that I think the next two years are going to be easier than the last two years, there’s no indication that it will be,” he told one analyst. “None of us know what the next two years are going to be like, but we know that they’re not going to be straightforward.” He did say that he does not expect continued 18% sales growth.

The company will continue to raise prices, and it has allocated capital to help support high inventory levels, he noted.

While suggesting that supply constraints might be easing, Ashe observed that it can still be difficult obtaining the chips that the company builds into LED drivers, which in turn holds up the manufacturing of luminaires.

“If there are bottlenecks, they’re really around chips,” he said when asked by one analyst to elaborate on supply constraints.

CFO Holcom said the company’s finished goods are now flowing better through ports, which had been more clogged.

Most of Acuity’s revenues in the quarter came from its Acuity Brands Lighting division, which netted slightly over $1 billion largely through the sale of luminaires under Acuity’s 18 brands and of controls and components such as drivers.

Acuity’s Intelligent Spaces Group (ISG) had sales of $58.3 million for the quarter. ISG sells Atrius cloud data services and controls from Distech Controls.

MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

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