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Will Lower Volume Hurt Acuity Brands' (AYI) Q4 Earnings?

Zacks Equity Research
·4 min read

Acuity Brands, Inc. AYI is slated to announce fourth-quarter fiscal 2020 results on Oct 8, before the opening bell.

In the last reported quarter, its adjusted earnings and revenues topped the Zacks Consensus Estimate by 50.4% and 0.2%, respectively. However, the top and bottom lines declined 18.1% and 23.3%, respectively, from the prior-year quarter. The downside was caused by a 20% decline in volumes, mainly due to lower demand owing to the COVID-19 pandemic, partially offset by 2% contribution from acquisitions.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been upwardly revised by 2.6% to $1.96 over the past 30 days. The estimated figure indicates a decrease of 28.7% from $2.75 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $814.6 million, suggesting a 13.2% decrease from the year-ago reported figure of $938.1 million.

Acuity Brands Inc Price and EPS Surprise

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 to Note

Acuity Brands’ fiscal fourth-quarter earnings are likely to have registered a year-over-year decline due to general economic slowdown owing to the COVID-19 outbreak and soft lighting industry. Despite undertaking certain cost-saving actions, innovative lighting control solutions and energy-efficient luminaries, the overall industry has been grappling with weak demand for luminaries in the United States.

From a channel perspective, net sales through the company’s independent sales network (which accounts for 75% of total net sales) are expected to have witnessed lower demand due to the COVID-19 pandemic and partly due to unfavorable pricing. Again, net sales through direct sales network are anticipated to have been primarily impacted by weakness in large projects that have been postponed due to the virus outbreak and some big projects in the year-ago period that did not repeat this year.

Meanwhile, the retail channel is likely to have witnessed lower year-over-year shipments owing to the impact of the actions taken by the company earlier to exit and phase out of certain products that have poor financial returns, largely due to the impact of additional tariffs. The company also expects these initiatives to negatively impact net sales in this channel for more quarters to come. Nonetheless, growth in several core products in this channel due to enhancements in the product portfolio and increased demand owing to more do-it-yourself projects (as more people were at home and had the benefit of stimulus checks) are likely to have partly offset the negatives in the retail channel.

Again, net sales in its corporate accounts channel are likely to have declined, mainly due to the impact of the COVID-19 pandemic on retail customers. These customers delayed many retrofit opportunities as they limited activity in their stores.

Overall, higher contributions from acquisitions and favorable sales channel mix are expected to have been partly offset by decline in volume and lower pricing.

What Our Model Indicates

Acuity Brands does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing 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.

Currently, the company has a Zacks Rank #4 (Sell) and an Earnings ESP of +6.74%.

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

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

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Installed Building Products, Inc. IBP has an Earnings ESP of +1.72% and a Zacks Rank #1.

Masco Corporation MAS has an Earnings ESP of +4.35% and holds a Zacks Rank #2 (Buy).

Owens Corning Inc OC has an Earnings ESP of +5.83% and a Zacks Rank #2.

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Acuity Brands Inc (AYI) : Free Stock Analysis Report
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