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Why Is Acuity Brands (AYI) Up 14.5% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Acuity Brands Inc (AYI - Free Report) . Shares have added about 14.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as 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.

Acuity Brands Tops Q3 Earnings Estimates, Margins Down

Acuity Brands reported third-quarter fiscal 2017 adjusted earnings of $2.03 per share, beating the Zacks Consensus Estimate of $1.92 by about 5.7%. Earnings were adjusted by excluding 0.13 of non-recurring items. In spite of achieving record third-quarter net sales and earnings, the company’s profits were adversely impacted by higher-than-normal supply chain costs, including increased quality expenses and inbound freight charges.

Without the above adjustment, the company reported adjusted diluted earnings of $2.15 per share, up 4.4% from $2.06 a year ago.

Sales

Net sales during the quarter totaled $891.6 million, surpassing the Zacks Consensus Estimate of $881.4 million by 1.2%. The reported figure also increased 5% year over year.

The upside was mainly attributable to a 6% increase in volumes, partly offset by a net unfavorable change in product prices and mix of products sold (price/mix) of approximately 1%. Sales volumes improved across most key product categories and sales channels.

Operating Highlights

Adjusted gross profit margin was 42.5% in the third quarter, reflecting a decrease of 200 basis points (bps) year over year owing to higher-than-normal supply chain costs, including increased inbound freight costs and quality costs, and unfavorable price/mix.

Adjusted operating margin was 16.6%, down 60 bps year over year.

Adjusted selling, distribution and administrative expenses were $230.6 million or 25.9% of quarterly net sales, compared with $232.7 million or 27.3% a year ago. This was primarily due to lower incentive compensation expenses.

Financials

Cash and cash equivalents, as of May 31, 2017, were $189.7 million, compared with $413.2 million in fiscal 2016.

Net cash provided by operating activities was $179.3 million in the first nine months of fiscal 2017, down 26.5% from $243.9 million a year ago.

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

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

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter.

Acuity Brands Inc Price and Consensus

 

VGM Scores

At this time, the stock has an average Growth Score of 'C', however its momentum is doing a bit better with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

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

Based on our scores, the stock is more suitable for momentum investors than those looking for growth.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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