LSI Industries (NASDAQ: LYTS) reported Q4 EPS of $0.02, $0.01 worse than the analyst estimate of $0.03. Revenue for the quarter came in at $83.4 million versus the consensus estimate of $85.23 million.

Ron Brown, CEO commented, “Our results in the fourth quarter were mixed. While the Graphics business posted strong results, we continue to face challenges in the Lighting business. During the quarter, we drove several improvement initiatives across the Company which will better position the business for growth in the coming quarters. These actions generated some very positive developments, as well as addressed some of our continuing challenges.

“Our Graphics business delivered a solid quarter, generating sales growth of 33% versus last year, with operating income improving 86%. More encouraging is that orders outpaced sales, and as a result, we are entering the first quarter of fiscal 2019 with an increased backlog. Activity remains strong in the petroleum market, with increasing opportunities being realized at multiple accounts. The deregulation of the Mexico petroleum industry generated incremental business in the fourth quarter, and our proven solutions with major oil companies positions us well for future opportunities in this region.

“Our digital signage business, branded SOAR, continues to generate strong interest. We were recently selected by a national quick service restaurant (QSR) chain to be a significant supplier for a major image program as they implement digital technology across the brand. We began shipping products for pilot locations late in the fourth quarter and are preparing to accelerate production as required by their renovation schedule.

“Lighting segment sales were 8% below prior year, with much of the shortfall occurring in the general commercial and industrial project (C&I) area. We continue to evaluate the broad C&I market, focusing on applications which are growing and present the opportunity for LSI to provide specific solutions to customer needs. LED sales now represent 93% of all lighting fixture sales at LSI.

“Petroleum, which is a key market in lighting where we hold a strong position, has also remained somewhat soft. However, we are encouraged as customers continue to favorably adopt our new canopy fixture range. This product line has recently been expanded to provide customers with the flexibility to choose feature sets that best meet their individual needs. A similar scenario is occurring in the automotive market, where customer reaction to our new outdoor lighting line has been very favorable. Ongoing training efforts highlighting the features and benefits of the new product line are leading to increased levels of inquiries and quotations. The launch schedule for these new automotive products will continue through October, when the full product range will be available to the market.

“Other new product development activity remains strong, targeting growing applications including parking, renovation, and warehousing. I would like to highlight our new “Excursion” parking garage fixture. Soon after launch, we received a significant order which included our AirLink wireless control solution. LSI was awarded the order not only because we provided the preferred solution, but also due to our ability to produce and ship on a short lead-time basis. Our capability to engineer, produce, and ship customer-specified solutions with short lead-time requirements is an important element of our value equation. Going forward, we intend to promote this capability more effectively in the marketplace.

“Gross margin for the fourth quarter was 140 basis points below prior year, impacted primarily by volume/mix, and low margins on the initial pilot runs for several of our new products and solutions. We expect these margins to improve as we shift out of the pilot phase to normal production. Operating expenses decreased 140 basis points, offsetting the lower margin.

“Our sourcing team continues to alertly monitor tariff activity and supply availability. The uncertainty regarding tariffs on Chinese imports is driving up demand as domestic manufacturers increase inventory levels of certain imported components. This, along with strong global demand, is causing increased lead-times and shortages. The steel and aluminum tariffs had limited impact to the business in the fourth quarter; however, we will realize some impact in Q1. We have many cost saving initiatives in process to offset these commodity cost increases. Our announced selling price increase on legacy and select LED products was effective with new mid-June quotations. It remains premature to assess the level of price increase to be realized, and we expect that it will vary by product category.”

Mr. Brown concluded, “As we move forward, LSI’s structure is being aligned around our key markets and customers. This will enable the Company to better package our technology, products and services in a unique way to continue to provide our customers with innovative solutions. We will work closely with customers and channel partners in these markets to better capture the outside-in view of their evolving needs. I am confident that this approach will lead to superior solutions for our customers, and improved opportunities for profitable growth at LSI. Our team is energized by this approach, and our organization and investment plans are being aligned accordingly.”

For earnings history and earnings-related data on LSI Industries (LYTS) click here.