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Acuity Brands (AYI) to Post Q3 Earnings: Is a Beat in Store?

Zacks Equity Research

Acuity Brands, Inc. AYI is slated to announce third-quarter fiscal 2019 results on Jul 2, before the opening bell.

The company delivered a positive earnings surprise of 11.2% in the last reported quarter. In fact, it beat estimates in the trailing four quarters, with the average being 7.3%.

In the last reported quarter, adjusted earnings increased 5.3% 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 improved sales, solid margins, higher price realization and productivity gains, which offset continuing inflationary cost pressures and the impact of tariffs.

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 for earnings has been upwardly revised by 1.2% over the past 30 days to $2.48 per share. This indicates an increase of 4.6% from the year-ago earnings of $2.37 per share. Revenues are expected to increase 2.2% year over year to $965.1 million.

Acuity Brands Inc Price and EPS Surprise

Acuity Brands Inc Price and EPS Surprise

Acuity Brands Inc price-eps-surprise | Acuity Brands Inc Quote

Factors at Play

Acuity Brands’ fiscal third-quarter results are expected to benefit from the diversified portfolio of innovative lighting control solutions, energy-efficient luminaries like the Contractor Select portfolio, Atrius-enabled luminaires and Holophane solutions. Again, Acuity Brands’ inorganic moves for expanding its geographic borders and product portfolio through acquisitions and joint ventures are expected to aid the top line.

On the flip side, the lighting industry is witnessing weak demand for luminaries over the last few quarters in the United States. Although the lighting business in the North American market grew in low single digits, the company is still witnessing weak demand for larger nonresidential lighting projects, which is expected to result in tepid top-line growth in the to-be-reported quarter. Distributors have also been reporting lower-than-expected sales growth, thanks to weather, labor shortages and slow activity of large projects.

Meanwhile, increased tariffs on Chinese imports and the threat of Mexican tariffs led distributors to buy more stock and resulted in early bookings. Acuity Brands may experience higher volume growth in the quarter, though on a temporary basis, given pull-forward stock/flow orders and early shipping of some projects.

However, higher input costs, including inbound freight and tariffs and imported Chinese-made components of finished goods, as well as changes in customer mix within the retail channel will likely impact the company’s margins in the to-be-reported quarter.

What Our Model Indicates

Our proven model suggests that Acuity Brands is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for increasing 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 +0.40%. 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 #3, which further increases the predictive power of ESP.

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.

Other Stocks to Consider

Here are some other 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:

Arcosa, Inc. ACA has an Earnings ESP of +15.22% and carries a Zacks Rank #1.

GCP Applied Technologies Inc. GCP has an Earnings ESP of +2.52% and carries a Zacks Rank #3.

Martin Marietta Materials, Inc. MLM has an Earnings ESP of +2.06% and holds a Zacks Rank #1.

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