Acuity Brands' (AYI) Stock Rallies on Q2 Earnings Beat

Acuity Brands, Inc.’s AYI shares gained almost 4% after it reported better-than-expected earnings in second-quarter fiscal 2019.

Adjusted earnings of $1.99 per share topped the Zacks Consensus Estimate of $1.79 by 11.2% and increased 5.3% on a year-over-year basis, backed by improved sales, solid margins, higher price realization and productivity gains, despite continuing inflationary cost pressures and the impact of tariffs.

Sales

Net sales during the fiscal second quarter came in at $854.4 million, missing the consensus mark of $876.9 million by 2.6%. However, the reported figure increased 2.7% year over year. The upside stemmed from a 3% increase in sales volume, and less than 1% favorable impact from acquisitions (net of divestitures). However, these positives were partially offset by a less than 1% negative impact from price/mix and the adoption of ASC 606, as well as changes in foreign exchange rates.

Acuity Brands Inc Price, Consensus and EPS Surprise

Acuity Brands Inc Price, Consensus and EPS Surprise | Acuity Brands Inc Quote

Operating Highlights

Adjusted gross profit margin declined 100 basis points (bps) to 39.2% on a year-over-year basis. Increased sales, higher realized price and benefits from productivity improvements were offset by a shift in key customers, changes in sales channel mix and higher input costs.

Adjusted selling, distribution and administrative or SD&A expenses — constituting 26% of net sales — improved 150 bps from the year-ago quarter. The upside was attributable to a decrease in freight and commission expense and productivity improvements.

Adjusted operating margin came in at 13.2%, up 50 bps year over year.

Financials

Cash and cash equivalents, as of Feb 28, 2019, were $232 million compared with $129.1 million at the end of fiscal 2018.

Net cash provided by operating activities was $188.3 million in the fiscal second quarter compared with $177.6 million a year ago.

Outlook

Despite reporting better-than-expected earnings in the fiscal second quarter, the company remains cautiously optimistic for the rest of fiscal 2019. Third-party forecasts and leading indicators continue to suggest that the North American lighting market is projected to increase in low-single digits during the fiscal year.

Acuity Brands remains optimistic about the potentiality of the lighting and lighting-related industry.

Also, it remains confident of its previously announced growth strategies that continue to improve products and solutions mix, while leveraging the company’s fixed cost infrastructure in order to achieve its pre-determined target of achieving higher margins and overall profitability.

The shift in sales among key customers within the retail channel is expected to continue having a dampening effect on gross profit and margins. Nonetheless, it expects the impact from the same to be largely offset by lower freight and commission costs, included in SD&A expenses. In order to boost margin, the company initiated a review of a small portion of its product portfolio and services offering, and aims to eliminate items that do not meet its return objectives.

Zacks Rank & Key Picks

Currently, Acuity Brands carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Construction sector are Quanta Services, Inc. PWR, Apergy Corporation APY and Armstrong World Industries, Inc. AWI. While Quanta Services and Apergy sport a Zacks Rank #1 (Strong Buy), Armstrong World carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Quanta Services’ earnings for the current year are expected to increase 25.3%.

Apergy has a solid three-five year expected EPS growth rate of 22.5%.

Armstrong World’s earnings for 2019 are anticipated to grow 21.9%.

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