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Will Product Innovation Aid Acuity Brands' (AYI) Q4 Earnings?

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

The company delivered a positive earnings surprise of 8.7% in the last-reported quarter. In fact, earnings grew 10.2% on a year-over-year basis, backed by 5.9% rise in net sales driven by greater shipments of Atrius-based luminaires, along with infrastructure and utility projects. However, the company reported negative earnings surprise in two of the trailing four quarters, with an average miss of 0.8%.

Acuity Brands Inc Price and EPS Surprise


Let’s See How Things are Shaping Up for This Announcement

Acuity Brands’ diversified portfolio of innovative lighting control solutions and energy-efficient luminaries are major growth drivers. LEDs are ruling the lighting market in a big way and it is the fastest growing segment for lighting. Sales of LED-based luminaires during nine months of fiscal 2018 accounted for approximately two-thirds of total net sales. This reflects the significant penetration of LEDs in the lighting market.

Notably, Acuity Brands is expanding its geographic borders and product portfolio through acquisitions and joint ventures. So far this year, the company spent $164 million for acquisitions. Its buyout of IOTA, the industry leader in emergency lighting and power equipment for commercial and institutional applications, will enhance market leadership in this lighting category. In the third quarter, acquisitions contributed 1% in sales volume.

Long-term fundamental drivers of markets, where the company serves, are still positive and intact. The company remains upbeat about its North American market and expects it to return to growth in fiscal 2018 on execution of strategies such as focusing on construction and renovation projects, expanding into underpenetrated geographies and channels, and introducing lighting and building management solutions.

However, Acuity Brands has been facing issues with lower gross margins. In fact, its adjusted gross profit margin in the last-reported quarter declined 90 basis points (bps) from the prior-year period. Adjusted operating margin was down 220 bps. This was primarily due to unfavorable price mix and to a lesser degree changes in channel mix, as well as higher input costs for certain items, particularly steel and oil-based components.

For the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $2.63, reflecting 3.1% year-over-year increase. Meanwhile, the consensus estimate for revenues is pegged at $1.02 billion, implying 6.3% growth.

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.

Earnings ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Acuity Brands carries a Zacks Rank #3, which increases the predictive power of ESP.

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.

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

Stocks to Consider

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.

PulteGroup, Inc. (PHM - Free Report) has an Earnings ESP of +7.79% and a Zacks Rank #2 (Buy). The company is scheduled to report quarterly results on Oct 23.

D.R. Horton, Inc. (DHI - Free Report) has an Earnings ESP of +1.05% and a Zacks Rank #2. The company is expected to report quarterly results on Nov 8.

Beazer Homes USA, Inc. (BZH - Free Report) has an Earnings ESP of +5.70% and a Zacks Rank #3. The company is expected to report quarterly numbers on Nov 13.

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