Credit: Shutterstock photoMood lighting is nothing new, as anyone familiar with love scenes in cheesy 1960s movies can tell you. The guy puts on some music, Austin Powers-style, then dims the lights and, well, you know.
What is new is the reason behind mood lighting innovations by companies such asAcuity Brands ( AYI ).
Instead of creating an atmosphere that might bring two lovebirds closer together, modern mood lighting -- or smart lighting, as it is also called -- might focus on everything from making sick people feel better to influencing consumers to make a purchase.
"If you are a big retailer in the middle of the summer's back-to-school sale, you can tune the indoor lighting so it looks more like fall, when school actually begins," said Acuity Senior Vice President Dan Smith.
The idea is to put shoppers in the right frame of mind to buy.
Acuity makes lighting products for the industrial, commercial and residential markets. Its brands include Lithonia Lighting, Holophane and Gotham.
Lighting's New Day
The company has run off double-digit sales and earnings gains in five of the past six quarters, thanks partly to a rebound in commercial real estate markets and partly to its own strategy of filling demand for new, advanced lighting systems.
Part of the demand in the lighting industry -- not just for Acuity, but also for other players such asPhilips Electronics ( PHG ) andEaton ( ETN ) subsidiary Cooper Industries -- focuses on digital systems tied to the Internet of Things.
With this technology, a facility's lighting system can communicate with other systems to direct people to open parking spaces or tell you what the weather is like outside.
Some systems can even hook up with a shopper's smartphone and direct her to within a few feet of the product she's looking for.
With these kinds of technologies, "the light itself becomes a communication device capable of providing solutions you might not have imagined 10 years ago," Smith told IBD. "The Internet of Things is really in the first inning. It's just now getting its feet wet."
While research and development teams, including those at Acuity, continue to look for new things to do with lighting systems, much of the current growth comes from adoption of light-emitting diode (LED) solutions.
In its fiscal fourth quarter, which ended in August, LED-based lighting solutions contributed around 40% of Acuity's net sales. Adoption of LED lighting solutions nearly doubled from the prior year, a company press release said.
One reason there is so much demand for LED products is that they help customers save money on energy costs, Smith says. "All of our customers are looking for energy efficiency. They have to meet stricter building codes, so they want to reduce their operating costs. Lighting is one way to do that."
Rapid growth of LED lighting products is one reason Goldman Sachs analyst Brian Lee recently upgraded his rating on Acuity to buy from neutral. In a research note, he said Acuity's growth rate in LED lighting is more than double the industry average.
"We expect Acuity to see continued upside in growth vs. peers, as well as margin stability and free cash flow generation," he added.
Plugged Into Smart Lighting
Lee cited tailwinds from smart lighting -- where Acuity continues to boost its share of the $3 billion to $4 billion sensor/control market -- as well as growth in nonresidential construction, where "near-term trends suggest upside."
Nonresidential markets account for the vast majority of Acuity's business. Only about 10% comes from residential markets, according to Smith.
In the nonresidential market, the office, commercial and manufacturing segments have been particularly strong for Acuity.
"From our perspective, those have been sectors where you haven't necessarily seen a lot of square footage, but there has been a lot of retrofitting," Smith said.
He concedes that Acuity is under-represented in the market for residential lighting.
"We wouldn't mind increasing our exposure there," Smith said. "The residential segment has nice margins, and increasing our exposure there would reduce the cyclical nature of our business."
Even though Acuity's business is affected by the ups and downs of the construction industry, the company remained solidly profitable throughout the worst parts of the recession and financial crisis.
Although it reported lower sales and earnings in both fiscal 2009 and 2010, the company always operated in the black.
Since then, Acuity has produced consistent gains on the top and bottom lines.
Last month, it reported fiscal 2014 Q4 revenue of $668.7 million, up 15% from a year earlier and above analysts' consensus estimate for $648.5 million. Earnings rose 22% to $1.26 a share, topping expectations for $1.22.
Sales of LED products led the gains. In a research report, analyst Brent Thielman of D.A. Davidson estimated that sales of non-LED items declined by midsingle to low-double-digit percentages.
For the full fiscal year, Acuity logged a 15% revenue gain -- its biggest since at least 2005 -- and reported a 37% EPS increase.
Acuity stock leapt 11% to 130.62 the day the company reported results. Shares have since moved higher. Acuity currently trades near 138.
Thielman notes that the company should get a boost from "increased planning/development for large building projects, a tailwind for Acuity volume (and margin) in the upcoming quarters."
Analysts polled by Thomson Reuters expect Acuity to increase annual earnings 25% in fiscal 2015 and 24% in fiscal 2016.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
