Acuity Brands (AYI) To Post Q2 Earnings: What's In Store?

Acuity Brands, Inc. (NYSE:AYI) is slated to announce second-quarter fiscal 2019 results on Apr 3, before the opening bell.

The company delivered a positive earnings surprise of 7.4% in the last reported quarter. In fact, the company reported positive earnings surprise in three of the trailing four quarters, with the average beat being 1.9%.

In the last reported quarter, earnings increased 19.6% on a year-over-year basis, backed by solid top-line growth (up 10.7%) of the company. The positive results were mainly driven by higher demand for small and medium-sized lighting solutions, along with growth of its building management solutions.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. For the quarter to be reported, the Zacks Consensus Estimate has been downwardly revised by 1.1% over the past seven days to $1.79 per share. This reflects a decrease of 5.3% from year-ago earnings of $1.89 per share. Revenues, however, are expected to increase 5.5% year over year to $878.2 million.

Factors at Play

Higher input cost of electronic and certain oil-based components, along with freight and commodity-related items, particularly steel prices, will likely impact the company’s margins in the to-be-reported quarter. Higher level of employee-related costs further added to the woes. The company’s gross and operating margins have suffered in fiscal first-quarter 2019, owing to the above-mentioned headwinds. Adjusted gross margin declined nearly 200 basis points (bps) and adjusted operating margin contracted 170 bps in the said quarter.

The fiscal second quarter is seasonally the weakest revenue quarter for Acuity Brands. The lighting industry is witnessing weak demand in the North American market over the last few quarters. Management does not expect a meaningful rebound in the demand for luminaries in the near term. Despite reporting better-than-expected results in first-quarter fiscal 2019, the company remains “cautiously optimistic for fiscal 2019” as it has been a little apprehensive about the overall growth rate of the construction market for the fiscal year. Further, continued product substitutions to lower-priced alternatives and labor shortages in certain markets added to the woes.

That said, Acuity Brands is poised to benefit from its diversified portfolio of innovative lighting control solutions and energy-efficient luminaries. Notably, net sales growth of 11% in the first quarter of fiscal 2019 was robust and primarily driven by volume growth in its Contractor Select portfolio, Atrius-enabled luminaires, and Holophane solutions.

Again, its inorganic moves bode well. Acuity Brands is expanding its geographic borders and product portfolio through acquisitions and joint ventures. Acquisitions (net of divestitures) added 1% to its total revenues in the fiscal first quarter.

What Our Model Indicates

Acuity Brands does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

Earnings ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.60%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Acuity Brands carries a Zacks Rank #4 (Sell), which further decreases the predictive power of ESP.

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

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Here are some companies in the construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarterly reports:

KBR, Inc. (NYSE:KBR) has an Earnings ESP of +5.59% and carries a Zacks Rank #3.

Martin Marietta Materials, Inc. (NYSE:MLM) has an Earnings ESP of +53.94% and holds a Zacks Rank #3.

Vulcan Materials Company (NYSE:VMC) has an Earnings ESP of +0.80% and carries a Zacks Rank #3.

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