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Acuity Brands (AYI) Down 9.1% Since Earnings Report: Can It Rebound?

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More than a month has gone by since the last earnings report for Acuity Brands Inc (AYI - Free Report) . Shares have lost about 9.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fourth-Quarter Fiscal 2017 Results

Acuity Brands reported fourth-quarter fiscal 2017 adjusted earnings of $2.55 per share, beating the Zacks Consensus Estimate of $2.40 by about 6.3% and increasing 15.4% year over year on solid operating margin expansion.

Including non-recurring items, the company reported earnings of $2.15 per share, up 14% from $1.89 a year ago.

Full-year adjusted earnings came in at $8.45 versus $7.84 a year ago.

Sales

The quarter’s net sales of $957.6 million missed the Zacks Consensus Estimate of $972.5 million by 1.5%. The reported figure, however, increased 3.5% year over year.

The upside was mainly attributable to a 4.5% increase in volume, partly offset by a net unfavorable change in product prices and mix of products sold (price/mix) of approximately 1%. Sales volume improved across most key product categories and sales channels.

Full-year net sales of $3,505.1 million increased 6.5% from the fiscal 2016 level.

Operating Highlights

Adjusted gross profit margin was 42.5% in the fourth quarter, reflecting a decrease of 100 basis points (bps) year over year due to higher warranty expense and labor costs..

Adjusted operating margin was 18.4%, up 150 bps year over year.

Adjusted selling, distribution and administrative expenses were $230.6 million or 24.1% of quarterly net sales compared with $245.8 million or 26.6% a year ago. This was primarily due to lower incentive compensation expenses.

Financials

Cash and cash equivalents, as of Aug 31, 2017, were $311.1 million compared with $413.2 million in fiscal 2016.

Net cash provided by operating activities was $316.2 million in fiscal 2017, down 8.5% from $345.7 million a year ago.

Notably, Acuity Brands completed the buyback of 2 million shares during fiscal 2017 under its previously authorized stock repurchase program at a total cost of $357.9 million.

Outlook

Acuity Brands expects some volatility in demand among certain sales channels and geographies, including possible short-term volatility due to the recent hurricanes that hit Florida, Texas, and Puerto Rico. Nonetheless, it 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.

The company expects the North American lighting market to return to growth in fiscal 2018. It also expects to continue outperforming market growth rates by executing strategies focused on opportunities for new construction and renovation projects, expanding into underpenetrated geographies and channels, and introducing lighting and building management.

Additionally, fiscal 2018 capital expenditures are expected to be approximately 2% of net sales.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last month as none of them issued any earnings estimate revisions.

Acuity Brands Inc Price and Consensus

VGM Scores

At this time, Acuity Brands' stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a F. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.


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