What Management Said
Read the full Q3 2026 transcript ↗We grew net sales, we expanded our adjusted operating profit, and we increased our adjusted diluted earnings per share. Contractor Select drives growth and productivity for electrical distributors and retailers by lowering their cost of doing business and reducing their inventory requirements. The Eureka Segment earned the prestigious Best of the Best recognition, while Tulip, Jerry, and Orelia received multiple product design awards. Now, switching to Acuity Intelligent Spaces, which continue to deliver strong sales and margin performance.
Today, I want to focus on Distech, where we have delivered strong, consistent growth and margin expansion. Through open protocols, open tools, and an independent system integrator network, we have customers full control over how their systems are deployed, serviced, and upgraded over time. Our investments in product innovation, combined with productivity enablers such as AI-enabled programming tools, workflow automation, and the expansion of Distech Academy, are making our partners more efficient and driving growth across the platform. Our third quarter order trends indicate that demand in the lighting market is firming.
We are focused on executing our strategy and advancing our growth algorithm while managing gross profit margin through strategic pricing, product innovation, and productivity improvements, positioning us well for today and for the future. Our focus will continue to be on growth, and we have the opportunity to continue to expand margins over time. We grew net sales, improved adjusted operating profit, and increased our adjusted diluted earnings per share. This was driven by growth in AIS, partially offset by revenue declines at ABL.
What went well
- Acuity delivered solid across-the-board profit growth, with total net sales up 2% to $1.2 billion, adjusted operating profit up 1% to $224 million, and adjusted diluted EPS up 4% to $5.31, reflecting higher profitability and a lower share count.
- Acuity Intelligent Spaces (AIS) was the standout, growing sales 15% to $304 million on strength in Distech and QSC, expanding adjusted operating margin 150 basis points to 25.1%, and lifting segment operating profit 22.5% to $76 million.
- Acuity Brands Lighting again posted an industry-leading adjusted gross profit margin of 46.1%, sustained by strategic pricing, product innovation, and productivity improvements even as volumes stayed soft.
- Cash generation was strong, with $520 million of operating cash flow in the first nine months of fiscal 2026, up $121 million versus the prior-year period, and more than $400 million of cash on the balance sheet.
- Capital allocation stayed disciplined and multi-pronged: Acuity raised its quarterly dividend 18%, repaid $200 million of term loan, and repurchased over 766,000 shares for $230 million year-to-date (nearly 500,000 shares this quarter at an average of $281), while refinancing into a new five-year, $800 million unsecured revolver.
- Third-quarter order trends indicated that lighting-market demand is firming, with sequential ABL performance improving and management pointing to more normal project activity and conversion rates.
What went wrong
- ABL sales declined 2% to $905 million against a difficult comparison to the prior-year third quarter, when orders were pulled forward ahead of price increases; on a two-year stacked basis ABL grew only 1%.
- ABL adjusted operating profit fell $9 million to $165 million and its adjusted operating margin contracted 60 basis points to 18.2%, driven largely by the lower sales volume.
- Management flagged broad-based inflation across the complex, including materials and metals, higher SG&A costs, and medical costs rising 12% going forward.
- A memory supply shock emerged as a new headwind, landing largely on the AIS side rather than ABL, which Acuity expects to work through over roughly the next year using its tariff/supply-shock playbook of securing availability, covering dilution with dollars, then restarting productivity.
- Order rates were softest in the winter months of October through January with longer-than-normal conversion times, and management believes the government shutdown clogged up activity during that period before it began to clear.
- The ABI leading indicator remained weak (another poor print the morning of the call) in a way management said it has not been able to explain, contrasting with better Dodge momentum.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| ABL sequential sales (Q3 to Q4) | Q4 FY2026 | Expect continued growth from Q3 to Q4 as normal, though the increase may not be as steep as the Q3 sequential step-up; current order rates set up well for Q4 |
| Lighting demand outlook | Next four quarters | Proprietary models point to a firming of demand over the next ~12 months; not a dramatic increase, but a firming as the market finds more normal patterns |
| ABL gross profit margin | Long-term | Expect to continue expanding gross margin via product vitality, service levels, technology, and productivity even in a soft-volume environment; further expansion when volume growth returns |
| SG&A / operating leverage | Next couple of years | Expect significant SG&A operating leverage as lighting outgrows the market and as higher-margin AIS becomes a larger portion of the total company |
| Memory / supply-shock impact | ~Next year | To be managed over the next year or so, primarily an AIS (not ABL) impact; handled like tariffs — secure availability, cover dilution with dollars, then restart productivity |
| Capital allocation framework | Ongoing | Framework unchanged; capacity to do all of the above, with AIS acquisitions (Distech/QSC build-out) the first priority, plus opportunistic, disciplined buybacks and a growing dividend |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total net sales | +2% to $1.2B | Growth in AIS partially offset by revenue declines at ABL. |
| Adjusted operating profit | +1% to $224M (margin 18.7%) | Higher AIS profitability partly offset by lower ABL operating profit on softer lighting volumes. |
| Adjusted diluted EPS | +4% to $5.31 | Higher profitability and lower diluted shares outstanding from buybacks. |
| Adjusted gross profit margin | +10 bps to 50.1% | Primarily a higher mix of higher-margin AIS sales. |
| ABL sales | -2% to $905M | Challenging comparison to Q3 2025 when orders were accelerated ahead of price increases; two-year stack +1% and combined independent-plus-direct networks +4%. |
| ABL adjusted operating profit | -$9M to $165M (margin -60 bps to 18.2%) | Lower sales volume, even as adjusted gross margin held strong at 46.1% on pricing and productivity; a $6.4M tariff refund was adjusted out. |
| AIS sales | +15% to $304M | Strong growth in Distech and QSC, driven by share gains, product vitality, and entry into adjacencies. |
| AIS adjusted operating profit | +22.5% to $76M (margin +150 bps to 25.1%) | Operating leverage on strong revenue growth plus a 10 bps gross-margin gain to 60.3%. |
| Operating cash flow (9 months) | +$121M to $520M | Solid earnings and working-capital execution across the first nine months of fiscal 2026. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Distech as a platform company | Positioned as a controls business competing against the traditional big-four incumbents | Now framed as a platform company investing across every layer of the stack — edge control, cloud intelligence (Atrius), and occupant experience — winning share at universities, sports venues, data centers, and enterprise campuses via an open-architecture, edge-with-cloud strategy. | — |
| Data center opportunity | Alluded to over the past several calls but not a vertical historically associated with Acuity | Now a front-footed, responsible entry on both controls (new Eclypse Resilience PLC plus DDC combination positioning Acuity for multiple hyperscalers) and lighting (hyper-growth off a smaller base, selling direct to hyperscaler contractors and prefab operators). | — |
| OEM manufacturer wins | Not previously highlighted as a lane for Distech | A new growth lane: open-protocol Eclypse controllers let OEMs do more than legacy platforms, letting Distech consolidate control opportunities across manufacturers; also the primary route through which Acuity participates in the data center market. | — |
| Order firming / conversion | Elongated quoting and release activity; conversion rates longer than historical norms in the winter (Oct-Jan) | Trends firming with more normal project activity and conversion rates; management sees a combination of backlog normalization and steady demand over the next ~12 months, aided by clearing of tariff- and shutdown-related congestion. | — |
| AI and technology investment | Building AI capability over the past ~two years, embedded in SG&A investment | CEO's top time priority; AI platform maturing and being integrated into operations, supply-chain digitization (Mexican digital focus factories), and product-velocity tools, with the biggest opportunity going to organizations that pair technology change with business change. | — |
| Inflation and supply shocks | Managing tariffs and prior supply shocks | Broad inflation (metals, SG&A, medical +12%) plus a new memory supply shock (mostly AIS); managed via the same playbook of securing availability, covering dilution with dollars, then restarting productivity. | — |
| M&A / capital deployment | Opportunities to further build out the AIS platform | Enthusiastic about multiple identified AIS acquisition targets (expanding Distech and QSC footprints), emphasizing quality over quantity; QSC cited as the model of buying the right asset — with capacity to invest, acquire, grow the dividend, and repurchase stock simultaneously. | — |
Q&A Summary
Chris Snyder (Morgan Stanley) asked whether AIS's mid-teens growth is being driven by innovation and share gains at the company level or by breaking into higher-growth verticals like data center.
Ashe said Distech (which rhymes with QSC) is winning on all fronts: out-innovating the big-four competitors and taking share in the core Eclypse controllers (e.g., displacing a 20-year incumbent in Terminal D at Atlanta's Hartsfield airport), adding PLC controllers to serve hyperscalers, and entering adjacencies like refrigeration (KE2 Therm) and OEM. Combining industry growth, share gains, and adjacent-market expansion, he expects Acuity can keep growing at these rates over the next several years.
Chris Snyder (Morgan Stanley) followed up on capital deployment given the buybacks and more than $400 million of cash on the balance sheet.
Holcom said the capital allocation framework is unchanged — invest for growth, grow the dividend, evaluate acquisitions, and repurchase shares opportunistically (nearly 500,000 shares bought this quarter at an average $281). Ashe added the company's cash generation lets it do all of the above, with AIS acquisitions the first priority; he stressed quality over quantity, citing QSC as proof of buying the right asset and unlocking performance it couldn't achieve on its own.
Tim Wojs (Baird) asked whether agents are reporting that the gap between quoting and release activity is closing, and what the catalyst is.
Ashe said order rates were softest October through January with longer conversion times that he viewed as an anomaly, and those releases are now extending and firming toward more normal project activity and conversion rates. He noted the prior-year period included the April tariff surge and that the government shutdown had clogged the works, both of which are now beginning to clear.
Tim Wojs (Baird) asked about inflation focus areas and whether the business can start showing more annualized SG&A leverage.
Ashe described inflation across the complex — materials/metals, SG&A, and medical costs up 12% — plus a memory supply shock (mostly AIS) handled like tariffs. On SG&A, he said the bulk of the increase has been technology/AI and supply-chain investment that drives gross-margin expansion, and that as lighting outgrows the market and higher-margin AIS becomes a larger portion of the company, Acuity will see significant operating leverage.
Ryan Merkel (William Blair) asked whether ABL's fourth quarter should show normal or above-normal seasonality, and for color on which end markets are firming.
Holcom said Q3 was a bit of a sequential outperformance and Q4 should still grow sequentially, though perhaps not as steeply, with current order rates setting up well. Ashe pointed to the two-year-stacked C&I-plus-direct network up 4%, called out corporate accounts performing well, hyper-growth in data center lighting off a small base, and continued grinding progress winning large accounts in the refuel market, noting ABL's ability to flex into whichever verticals are expanding.
Ryan Merkel (William Blair) asked whether ABL can keep expanding gross margins if volumes stay soft, and whether that is productivity-driven.
Ashe answered simply 'yes,' then explained ABL's virtuous cycle of product vitality, higher service levels, technology differentiation, and productivity — each contributing to margin. He said the lighting business is on a more productive product-vitality cadence than at any time in his tenure and that supply-chain technology is now boosting productivity even more, with further margin expansion expected when volume growth returns.
Christopher Glynn (Oppenheimer) asked Distech to double-click on winning with OEM manufacturers, a lane he had not heard before.
Ashe said the industry recognizes Distech has the best technology and, being open-protocol, lets OEMs do more with its controllers than legacy platforms allowed. He predicted Acuity can consolidate more control opportunities across manufacturers who get the best technology plus open protocol plus access to the Atrius DataLab while staying expert in their own domains like valves; this OEM route is also how Acuity largely participates in data center.
Christopher Glynn (Oppenheimer) asked where Neil had been focusing his time and energy across the organization.
Ashe highlighted four priorities: developing the company's AI platform (his biggest focus, believing the winners will pair technology change with business change); working with teams on product velocity via the 'better, smarter, faster' operating system; spending time in facilities including hosting the Board that week at the Mexican production plants; and meeting potential AIS acquisition partners.
Jeffrey Sprague (Vertical Research Partners) asked whether the firming reflects backlog normalization and delayed-conversion catch-up or a genuine uptick in end-market demand.
Ashe said it is a combination, but he would primarily attribute it to backlog normalization as long-tenured projects move through the pipeline, since customers cannot wait forever amid policy, inflation, and tariff uncertainty. Acuity's proprietary demand models show a firming — not a dramatic increase — over the next four quarters as the market tries to find normal patterns.
Jeffrey Sprague (Vertical Research Partners) asked whether Acuity has figured out why ABI stays weak while Dodge momentum looks better, noting another bad ABI print that morning.
Ashe said he had discussed it with his head of research and they do not know what is going on with the ABI number; he noted ABI measures month-over-month change and has been down for three years, which stacked would imply a deeply negative environment that does not match reality, so there is something in that data they have not yet figured out.
Brian Lee (Goldman Sachs) asked Neil to frame the growing data center product set, product vitality, and the size and competitive landscape of the opportunity.
Ashe explained Distech historically competed with DDC controllers (already used with at least one hyperscaler) and has now added PLC controllers to serve hyperscalers that favor them, while more hyperscalers are also recognizing DDC benefits — positioning Acuity as a reliable supplier to multiple hyperscalers. Without putting specific dollars on it, he said it can be an interesting portion of Distech's business, and on lighting Acuity has had hyper-growth off small dollars selling directly to hyperscaler contractors and prefab operators.
Brian Lee (Goldman Sachs) followed up on whether further data center growth would come organically or require inorganic add-ons.
Ashe emphasized it is all organic at this point — product development on Acuity's side, which he called the most valuable path to grow — though he would not rule out tack-on opportunities in the future. He said he is pleased with the team's ability to enter this dynamic market organically.
More on Acuity Inc. (De)
Reported 2026-06-25 · figures from the Acuity Inc. (De) Q3 2026 earnings call.
See how Top Bucket AI works for your firm
Request DemoTop Bucket AI Research
Stay ahead of private markets
Research and market intelligence for private-markets professionals.
✓
You're subscribed.
Thanks for signing up.