Commercial lighting and retail display solutions provider LSI (NASDAQ:LYTS) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 35.5% year on year to $147.7 million. Its non-GAAP profit of $0.26 per share was 30% above analysts’ consensus estimates.
Revenue: $147.7 million vs analyst estimates of $129.2 million (35.5% year-on-year growth, 14.3% beat)
“The grocery vertical generated sales growth over 50% in the quarter driven by the resurgence in refrigerated and non-refrigerated display case demand”
Adjusted EPS: $0.26 vs analyst estimates of $0.20 (30% beat)
Adjusted EBITDA: $13.3 million vs analyst estimates of $12.04 million (9% margin, 10.5% beat)
Operating Margin: 5.7%, down from 7.2% in the same quarter last year
Free Cash Flow Margin: 6%, similar to the same quarter last year
Market Capitalization: $570.5 million
“LSI delivered 14% organic sales growth in the fiscal second quarter, supported by strong demand across our core refueling, c-store, and grocery verticals,” stated James A. Clark, President and Chief Executive Officer of LSI.
Company Overview
Enhancing commercial environments, LSI (NASDAQ:LYTS) provides lighting and display solutions for businesses and retailers.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, LSI’s sales grew at a solid 10% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
LSI Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. LSI’s recent history shows its demand slowed as its annualized revenue growth of 3% over the last two years is below its five-year trend.
LSI Year-On-Year Revenue Growth
This quarter, LSI reported wonderful year-on-year revenue growth of 35.5%, and its $147.7 million of revenue exceeded Wall Street’s estimates by 14.3%.
Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and implies its newer products and services will spur better top-line performance.
LSI was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
On the plus side, LSI’s operating margin rose by 4.5 percentage points over the last five years, as its sales growth gave it operating leverage.
LSI Trailing 12-Month Operating Margin (GAAP)
This quarter, LSI generated an operating profit margin of 5.7%, down 1.5 percentage points year on year. Since LSI’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
LSI’s EPS grew at an astounding 117% compounded annual growth rate over the last five years, higher than its 10% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
LSI Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into LSI’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, LSI’s operating margin declined this quarter but expanded by 4.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For LSI, its two-year annual EPS growth of 5.6% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q4, LSI reported EPS at $0.26, up from $0.21 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects LSI’s full-year EPS of $0.97 to grow 19.1%.
Key Takeaways from LSI’s Q4 Results
We were impressed that LSI beat analysts’ revenue, EBITDA, and EPS expectations this quarter by convincing amounts. The company attributed the success partly to demand from grocery customers, who "generated sales growth over 50% in the quarter driven by the resurgence in refrigerated and non-refrigerated display case demand”. Zooming out, we think this was a very good quarter. The stock traded up 10.9% to $21.95 immediately after reporting.
Sure, LSI had a solid quarter, but if we look at the bigger picture, is this stock a buy? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
