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What's in Store for Acuity Brands (AYI) in Q3 Earnings?

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Acuity Brands, Inc. (AYI - Free Report) is slated to announce third-quarter fiscal 2018 results on Jul 3, before the opening bell.

In the last reported quarter, the company delivered a negative earnings surprise of 10.43%. In fact, the company reported negative earnings surprise in two of the trailing four quarters, with the average miss being 0.8%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

The overall growth rate of the lighting market over the past few quarters remained muted. This trend is likely to continue in the fiscal 2018 too. Lack of skilled labor and associated higher costs, and pricing pressure in certain end markets are leading to softness in the industry. Acuity Brands expects volatility in demand among certain sales channels and geographies to persist in the next few quarters as well.

Meanwhile, Acuity Brands’ shares have lost more than 39% in the past year compared with the Zacks Building Products - Lighting Industry’s decline of 40.4%.

Specifically, Acuity Brands has been facing continued weakness in the non-residential construction market. Decline in shipments in the non-residential construction market, primarily for larger projects in which demand remained soft, and lower shipments through the home center showroom sales channel are causes of concern. Now, coming to overall demand for luminaires in North America, it declined in the last reported quarter, marking the third quarter of year-over-year declines in a row.

Price mix has also been negatively impacting its performance as the company had to lower pricing on certain LED luminaires. Additionally, increased competition, primarily for more basic, lesser-featured products, added to the woes.

The above-mentioned headwinds have been impacting Acuity Brands’ gross margin of late. In fact, its gross profit margin in the last reported quarter declined 150 basis points (bps) compared with the prior-year period. This was primarily due to unfavorable price mix, foreign currency, and higher input costs for certain commodity related items, particularly steel as well as certain oil-based components.

However, Acuity Brands remained focused on channel and product diversification, as well as for better serving customers with new, more innovative and holistic lighting, and building management solutions. In this regard, Atrius-enabled luminaires need special mention as its demand has been on the rise rapidly.

Long-term fundamental drivers of the company-served markets are still positive and intact. Acuity Brands is the leader in the North American non-residential lighting fixture market owing to Lithonia brand. The company remains upbeat about its addressable market or the North American market and expects it to return to growth in fiscal 2018 on execution of strategies such as focus on opportunities for new construction and renovation projects, expanding into underpenetrated geographies and channels, and introducing lighting and building management.

For the fiscal third quarter, the Zacks Consensus Estimate for earnings stands at $2.17, reflecting a 0.9% year-over-year increase. Meanwhile, the consensus estimate for revenues is pegged at $906.7 million, implying 1.7% growth.

Acuity Brands Inc Price and EPS Surprise


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

What Our Model Indicates

Acuity Brands has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — to increase 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.  

Zacks ESP: The Earnings ESP for Acuity Brands is +3.87%.

Zacks Rank: Currently, Acuity Brands carries a Zacks Rank #3.

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.

Other Stocks to Consider

Here are some other companies in the construction sector, which according to our model also have the right combination of elements to post an earnings beat in their respective quarters to be reported:

Century Communities, Inc. (CCS - Free Report) has an Earnings ESP of +15.47% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company is expected to report quarterly results on Aug 2, 2018.

Foundation Building Materials, Inc. (FBM - Free Report) has an Earnings ESP of +21.05% and has a Zacks Rank #3. The company is expected to report quarterly numbers on Aug 2, 2018.

M.D.C. Holdings, Inc. (MDC - Free Report) has an Earnings ESP of +1.98% and sports a Zacks Rank #1. The company is expected to report quarterly numbers on Aug 7, 2018.

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