Acuity Brands (AYI) Q1 Earnings: Is Disappointment in Store?

Acuity Brands, Inc. AYI is slated to announce first-quarter fiscal 2018 results on Jan 9, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 6.25%. In fact, the company clocked a positive earnings surprise in two of the trailing four quarters, the average beat being 0.96%.

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

Factors to Consider

Lately, Acuity Brands has been facing issues with lower gross margins. In fact, its adjusted gross profit margin in the last reported quarter of fiscal 2017 declined 100 basis points (bps) compared with the prior-year period. This was primarily due to softness in the lighting industry.

The overall growth rate of the lighting market over the last few quarters remained muted and even slightly down compared with year-ago periods. This is likely to exist in the fiscal 2018 too. Lack of skilled labor and thereby higher costs associated with it, and pricing pressure in certain end markets are leading to softness in the industry. Also, Acuity Brands expects volatility in demand among certain sales channels and geographies to persist in the next few quarters as well.

Apart from labor shortages, customer delays (particularly on the West Coast), and Chinese competition are expected to create pressure on pricing in the to-be-reported quarter.

Overall, Acuity Brands expects the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises more than 97% of its revenues, to be up low single digits for fiscal 2018, reflecting an expected rebound in the second half of the year.

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 about its addressable market or the North American market and expects it to return to growth in fiscal 2018 banking on executing strategies focused on opportunities for new construction and renovation projects, expanding into underpenetrated geographies and channels, and introducing lighting and building management.

For the fiscal first quarter, the Zacks Consensus Estimate for earnings stands at $2.15, reflecting a 7.6% year-over-year increase. Meanwhile, the consensus estimate for revenues is pegged at $884 million, implying 3.9% growth.

Here is what our quantitative model predicts.

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.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Acuity Brands is -2.44%.

Zacks Rank: Acuity Brands carries a Zacks Rank #4 (Sell). 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.

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

Meanwhile, Acuity Brands’ shares have lost more than 25% in the past year compared with the Zacks Building Products – Lighting Industry’s decline of 28.3%.

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:

KB Home KBH has an Earnings ESP of +1.63% and a Zacks Rank #3. The company is slated to report quarterly results on Jan 10, 2018.

D.R. Horton, Inc. DHI has an Earnings ESP of +1.64%. This Zacks Rank #3 company is scheduled to report quarterly results on Jan 31, 2018.

Owens Corning OC has an Earnings ESP of +4.02% and a Zacks Rank #3. The company is expected to report quarterly results on Feb 14, 2018.

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