Acuity Brands (AYI) Q4 Earnings: A Surprise In The Cards?

Acuity Brands, Inc. (NYSE:AYI) is slated to announce fourth-quarter fiscal 2016 results on Oct 5, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 0.51%. The company has clocked positive earnings surprises in the past three out of four quarters, at an average of 4.30%.

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

ACUITY BRANDS Price and EPS Surprise

ACUITY BRANDS Price and EPS Surprise | ACUITY BRANDS Quote

Factors at Play

Acuity Brands, the North American market leader and one of the world`s leading providers of indoor and outdoor lighting and energy management solutions, expects the growth rate for the North American lighting market (comprising over 97% of the company’s revenues) to be in the mid-to-upper single digit range for fourth-quarter fiscal 2016. Overall, the company expects demand in its end-markets to continue to be strong over the next several years.

As stated earlier, the company will likely spend approximately 2.5% of its revenues in capital expenditures in fiscal 2016, which will support growth including tooling for new products, expansion and electronic capacity. The commercial lighting backdrop is expected to help Acuity Brands deliver impressive volume growth in the to-be-reported quarter.

During the fiscal fourth quarter, the company acquired 100% of the equity interests of DGLogik, Inc., a San Francisco Bay Area-based provider of innovative software solutions that enable and visualize the Internet of Things (IoT). With this addition, Acuity Brands will be able to expand its IoT solution portfolio for the growing market of intelligent networked systems.

However, it expects to incur additional cost associated with its streamlining activities in the fiscal fourth quarter.

For the quarter, the Zacks Consensus Estimate for earnings stands at $2.27, reflecting an impressive 39.3% year-over-year increase. Meanwhile, our estimate for revenues is pegged at $949.9 million, implying 25.1% growth.

Earnings Whispers

Our proven model does not conclusively show that Acuity Brands is likely to beat earnings this quarter. This 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. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Acuity Brands is 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate stand at $2.27.

Zacks Rank: Although Acuity Brands’ Zacks Rank #3 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies in the construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

DR Horton Inc. (NYSE:DHI) has an Earnings ESP of +6.49% and a Zacks Rank #3. The company is expected to report fourth-quarter fiscal 2016 results on Nov 8.

Watsco Inc. (NYSE:WSO) has an Earnings ESP of +3.70%. This Zacks Rank #3 company is expected to report third-quarter 2016 results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

PulteGroup, Inc. (NYSE:PHM) has an Earnings ESP of +4.65%. This Zacks Rank #3 company is expected to report third-quarter 2016 results on Oct 20.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>