Pop quiz: Who made the lighting fixtures in the room where you're reading this? Don't feel bad if you don't know; I came up with the question, and even I don't know the answer. Lighting is just one of those things that we all largely take for granted. And while it's part of a competitive industry, Acuity Brands
Sales increased 6% because of volume and pricing improvements during the company's fourth quarter. The lighting business, three-quarters of sales, showed the strongest sales performance with 7% growth, while the specialty chemicals business saw its top line move up 3%. All in all, demand was pretty good.
Unfortunately, Acuity needs raw materials like steel, aluminum, plastics, solvents, and other petroleum-based chemicals. As you can imagine, that's a bit of a problem these days, and the company's gross margin was down year over year as a result. While the company did manage to squeak out 4% net income growth, share dilution led to negative EPS comparisons. It should also be noted that there were some charges and gains in the quarter that gum up easy comparisons -- the company lost $0.09 for severance costs, but gained back $0.03 from a property sale and $0.06 from a lower tax rate.
Turning to the other financial statements, inventories look to be in good shape -- down 3% as reported and down 6% on a per-unit basis. The company has made a concerted effort to become more efficient with working capital utilization, and this report shows the benefits. Free cash flow for the full year came in at more than $104 million, nearly 76% better than last year and more than 17% of sales. Though I think the company has largely picked the low-hanging fruit with respect to improved efficiency, I do expect that management will continue to generate solid cash flow performance.
That cash flow, coupled with a potential revival in non-residential construction, makes Acuity a bit interesting to me. If the company is capable of growing cash flow at a double-digit rate for the foreseeable future, then the shares could be interesting indeed. Better yet, you'll get a decent dividend while you wait. True, Acuity has to contend with the likes of Cooper
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).