Acuity Brands (AYI) Misses On Q1 Earnings, Margins Down

Acuity Brands, Inc.’s (NYSE:AYI) reported first-quarter fiscal 2017 adjusted earnings of $1.94 per share, missing the Zacks Consensus Estimate of $2.10 by 7.6%. Earnings were down 3% on a year over year basis. Continued tepid market conditions and the decline in revenue in certain sales channels led to the drab results.

Sales

Net sales during the quarter were $842.8 million, falling short of the Zacks Consensus Estimate of $884 million by 4.7%. The reported figure also decreased 1% year over year.

The downside was mainly attributable to a 1% decrease in sales volume and a 1% net unfavorable change in product prices and mix of products sold (price/mix). These were partially offset by a 1% favorable impact from changes in foreign exchange rates.

LED-based product sales represented approximately two-thirds of the first-quarter net sales.

Operating Highlights

Adjusted gross profit margin was 41.6% in the quarter under review, reflecting a decrease of 80 basis points (bps) year over year owing to the lower-than-expected sales volume. Adjusted operating margin was 15.9%, down 90 bps year over year.

Adjusted Selling, Distribution and Administrative or SG&A expenses were $216.3 million or 25.7% of quarterly net sales, compared with $218 million or 25.6% a year ago.

Acuity Brands Inc Price and Consensus

Financials

Cash and cash equivalents, as of Nov 30, 2017, were $428.6 million, up from $451.2 million in fiscal 2016.

Net cash provided by operating activities was $139.8 million in the fiscal first quarter, compared with $55.8 million a year ago.

Guidance

Acuity Brands projects growth rate for the North American lighting market (comprising over 97% of the company’s revenues) in the low single-digit range for fiscal 2018.

Management expects the Tax Cuts and Jobs Act that was passed on Dec 22, 2017, to favorably impact the company’s net income, diluted EPS, and cash flows.

The company remains cautious about labor shortages in the construction industry and uncertainty related to both infrastructure spending as well as federal regulatory and trade policies, in the upcoming quarters.

Tax rate for the second quarter of fiscal 2018 is expected to be significantly lower than the estimated tax rate for fiscal 2018. Second-quarter tax expense is expected to be reduced by approximately $30 million for discrete items.

The company’s consolidated effective income tax rate for fiscal 2018 will be approximately between 26% and 28% before discrete items, compared with nearly 35 % for the prior year.

Fiscal 2019 tax rate will be approximately 23% to 25% before discrete items.

Zacks Rank

Acuity Brands currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Peer Releases in the Construction Sector

KB Home (NYSE:KBH) will release its fourth-quarter 2017 earnings on Jan 10. The Zacks Consensus Estimate for the company's fourth-quarter earnings is pegged at 77 cents per share.

PulteGroup, Inc. (NYSE:PHM) is slated to release its fourth-quarter 2017 earnings on Jan 30. The Zacks Consensus Estimate for the company's fourth-quarter earnings is 84 cents per share.

DR Horton Inc. (NYSE:DHI) is likely to report its first-quarter fiscal 2017 results on Jan 31. The Zacks Consensus Estimate for the company's fourth-quarter earnings stands at 61 cents per share.

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