Stock Story -
Commercial lighting and retail display solutions provider LSI (NASDAQ:LYTS) reported results ahead of analysts’ expectations in Q2 CY2024, with revenue up 4.3% year on year to $129 million. It made a GAAP profit of $0.19 per share, down from its profit of $0.28 per share in the same quarter last year.
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LSI (LYTS) Q2 CY2024 Highlights:
- Revenue: $129 million vs analyst estimates of $127 million (1.6% beat)
- EPS: $0.19 vs analyst expectations of $0.19 (1.7% miss)
- Gross Margin (GAAP): 26.2%, down from 29% in the same quarter last year
- EBITDA Margin: 10.9%, up from 6.9% in the same quarter last year
- Free Cash Flow Margin: 8%, down from 12.6% in the same quarter last year
- Market Capitalization: $415.2 million
Enhancing commercial environments, LSI (NASDAQ:LYTS) provides lighting and display solutions for businesses and retailers.
Electrical SystemsLike 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 GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, LSI’s 7.3% annualized revenue growth over the last five years was mediocre. This shows it couldn’t expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. LSI’s recent history shows its demand slowed as its annualized revenue growth of 1.6% over the last two years is below its five-year trend.
This quarter, LSI reported reasonable year-on-year revenue growth of 4.3%, and its $129 million of revenue topped Wall Street’s estimates by 1.6%. Looking ahead, Wall Street expects sales to grow 20.3% over the next 12 months, an acceleration from this quarter.
Operating Margin LSI was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.5%. This result isn’t too surprising given its low gross margin as a starting point.
On the bright side, LSI’s annual operating margin rose by 5.8 percentage points over the last five years
This quarter, LSI generated an operating profit margin of 7%, down 1.3 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 sales, marketing, R&D, and administrative overhead expenses.
EPSWe track the long-term growth 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 was profitable.
LSI’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. LSI’s EPS grew at an astounding 24.9% compounded annual growth rate over the last two years, higher than its 1.6% annualized revenue growth. However, this alone doesn’t tell us much about its day-to-day operations because its operating margin didn’t expand during this timeframe.
In Q2, LSI reported EPS at $0.19, down from $0.28 in the same quarter last year. This print slightly missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects LSI to grow its earnings. Analysts are projecting its EPS of $0.84 in the last year to climb by 34.5% to $1.13.
Key Takeaways from LSI’s Q2 ResultsIt was good to see LSI beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 1.7% to $14.99 immediately following the results.
