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Acuity Brands (AYI) Outpaces Industry: Innovation Drive Growth

·5 min read

Acuity Brands, Inc. AYI has been rallying on innovative lighting solutions, energy-efficient luminaries, business re-alignment and cost-control measures. Strategic initiatives to transform the business supported revenue growth and cost-saving moves helped margins to gain further in the past quarters.

In the past three months, the stock has strongly outperformed the Zacks Building Products - Lighting industry.

However, extensive research and development involve high costs. Although the incremental cost of the technology is relatively low, the real cost of installation of that technology is still growing. Again, inflation and higher cost of the inputs could dampen its overall results. The industry is going through supply chain challenges and the rising cost of some components.

The Zacks consensus estimates for this manufacturer and distributor of lighting fixtures’ earnings in fiscal 2022 have moved up 3.4% in the past 30 days to $12.33 per share. This suggests 21.4% year-over-year growth.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s check out the factors mitigating these headwinds and allowing this Zacks Rank #3 (Hold) company to grow further. It is to be noted that earnings topped analysts’ expectations in the trailing eight quarters, depicting optimism surrounding its prospects.

Factors Driving Growth

Diversified Portfolio of Lighting Solutions/Luminaries: Acuity Brands keeps on diversifying its product portfolio through continuous innovation of energy-efficient luminaries and lighting control solutions. In response to the rapidly-changing market trends, Acuity Brands is continually expanding its portfolio of innovative lighting control solutions and energy-efficient luminaries.

The company’s focus on innovation through product vitality and increasing service levels for the benefit of customers has delivered strong results. Acuity Brands’ vitality efforts include improvements to existing products and the introduction of new ones. The company mainly focuses on three areas. First, by focusing on strategic supplier relationships; second, by empowering its teams to prioritize access and speed over cost on available components; lastly, by redesigning products to the available components by its highly-skilled engineers. Acuity Brands introduced around 220 new and upgraded many lighting and lighting control products over the last two years.

The company also focuses on reducing customer energy consumption, reducing packaging and waste, and improving transportation efficiency. It announced a new initiative that brings together both technology and sustainability to significantly reduce paper use by introducing scannable QR code instructions across its products. Acuity Brands has expanded its capabilities to provide a broad portfolio of leading germicidal UV products.

Strategic Initiatives: Acuity Brands is working on various strategies to achieve consistent sales and earnings growth. It has reorganized the business into two units: Acuity Brands Lighting and Lighting Controls "ABL" and Intelligent Spaces Group "ISG". ABL includes lighting, lighting controls and components businesses, and ISG offers building management systems as well as location-aware applications, including Distech and Atrius. Through the beginning of fiscal 2022, the company’s Trevor and the rest of the ABL team continue to focus on high product vitality, elevate service levels, and use technologies to differentiate its performance from others. For ISG, the company mainly focuses on technologies to solve problems in spaces by making them smarter, safer and greener.

Also, it has undertaken various cost-saving actions like price increases and reductions in other costs that are expected to improve margins. For first-quarter fiscal 2022, adjusted operating margin expanded 120 bps year over year.

Expansion Via Acquisition: Acuity Brands focuses on expanding geographic borders via acquisitions and joint ventures. On Jul 1, 2021, it announced the intention of acquiring a developer and manufacturer of lighting components — ams OSRAM’s North American Digital Systems business. Earlier, on May 18, Acuity Brands acquired Rockpile Ventures — an accelerator of Edge artificial intelligence startups.

Superior ROE: Acuity Brands’ superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 19.8%, almost three times the industry’s 6.7%. This indicates efficiency in using its shareholders’ funds and AYI’s ability to generate profit with minimum capital usage.

Key Picks

Arcosa, Inc. ACA, currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.

ACA’s expected earnings growth rate for 2022 is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 13.7% over the past 30 days.

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

Gibraltar Industries, Inc. ROCK, currently carrying a Zacks Rank of 2 (Buy), is benefiting from its three-pillar value creation strategy, the strong housing market and solid demand for legacy and TerraSmart businesses.

ROCK’s expected earnings growth rate for 2022 is 18.7%. The Zacks Consensus Estimate for current-year earnings has remained stable over the past 60 days.

Primoris Services Corporation PRIM, a Zacks Rank #2 company, is a specialty contractor company operating in the United States and Canada. A robust backlog of more than $4 billion and solid contract awards in the Energy/Renewables and Utilities segments imply incredible momentum in the future despite supply-chain and permitting challenges. Utility-scale solar projects continued to drive progress in the Energy/Renewables segment.

PRIM’s earnings for 2022 are expected to grow 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 4% in the past 30 days.


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