Acuity Brands (AYI) Q3 Earnings: Is Disappointment In Store?

Acuity Brands, Inc. (NYSE:AYI) is slated to announce third-quarter fiscal 2017 results on Jun 29, before the opening bell.

Last quarter, the company delivered a negative earnings surprise of 2.94%. In fact, the company clocked a negative earnings surprise in each of the trailing four quarters, at an average of -5.03%.

Acuity Brands’ shares have lost 23.5% so far this year compared with the Zacks classified Building Products - Lighting industry’s decline of 22.9%.



Let’s see how things are shaping up for this announcement.

Factors to Consider

Acuity Brands has been facing issues in recent times with lower margins. This is primarily due to lower shipments or sales volume owing to soft demand. This is likely to impact in the upcoming quarter as well.

North America and certain European markets witnessed slower demand in the first half of fiscal 2017. A host of factors including presidential election in the U.S. and certain political events in Europe have created uncertainty and volatility, which has tempered end-user demand, particularly for certain smaller projects that have short lead times. Again, the company’s customers are also experiencing issues such as labor shortages in certain markets that have been causing delays in larger projects.

It is to be noted that Acuity Brands’ adjusted gross profit margin in the first two quarters of fiscal 2017 declined 140 basis points (bps) compared with the prior year period. The decline was primarily due to weaker-than-expected net sales volume. Additionally, factors like higher manufacturing costs, mainly due to short-term production challenges related to product introductions, a rise in quality costs, and expected increases in certain employee wages also added to the woes. Moreover, the company’s adjusted operating profit margin declined 60 bps year over year in the first half of fiscal 2017.

While the company believes this softness in demand to be temporary, the slowdown could potentially linger into the second half of 2017.

Nonetheless, long-term fundamental drivers of the markets that the company serves are still positive and intact. Acuity Brands is the leader in the North American nonresidential lighting fixture market for its Lithonia brand. The company remains upbeat on its addressable market or the North American market and expects it to increase 30--35% over the next several years buoyed by energy efficiency-driven relight market.

For the quarter, the Zacks Consensus Estimate for earnings stands at $1.92, reflecting a 1.9% year-over-year decrease. Meanwhile, our estimate for revenues is pegged at $881.4 million, implying 3.5% growth.

What Our Model Indicates

Our proven model does not conclusively show that Acuity Brands is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Acuity Brands is -2.08%, because the Most Accurate estimate stands at $1.88, while the Zacks Consensus Estimate is pegged at $1.92. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Acuity Brands’ Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Acuity Brands Inc Price and EPS Surprise

Acuity Brands Inc price-eps-surprise | Acuity Brands Inc Quote

Stocks to Consider

Here are a few companies in the construction sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:

Owens Corning (NYSE:OC) has an Earnings ESP of +11.88% and a Zacks Rank #2. The company is expected to report its quarterly results on Jul 26, 2017.

Patrick Industries, Inc. (NASDAQ:PATK) has an Earnings ESP of +0.86% and a Zacks Rank #2. The company is expected to report its quarterly results on Jul 27, 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.

CalAtlantic Group, Inc. (NYSE:CAA) has an Earnings ESP of +5.13%. This Zacks Rank #3 company is expected to report its quarterly results on Jul 27, 2017.

Sell These Stocks. Now.

Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.

See today's Zacks ""Strong Sells"" absolutely free >>