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Acuity Brands (AYI) Up 5.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Acuity Brands (AYI - Free Report) . Shares have added about 5.6% in that time frame, outperforming the S&P 500.

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

Acuity Brands' (AYI - Free Report) Q2 Earnings Beat, Revenues Miss

Acuity Brands, Inc. reported better-than-expected earnings in second-quarter fiscal 2019. Adjusted earnings of $1.99 per share topped the Zacks Consensus Estimate of $1.79 by 11.2% and increased 5.3% on a year-over-year basis, backed by improved sales, solid margins, higher price realization and productivity gains, despite continuing inflationary cost pressures and the impact of tariffs.

Sales

Net sales during the fiscal second quarter came in at $854.4 million, missing the consensus mark of $876.9 million by 2.6%. However, the reported figure increased 2.7% year over year. The upside stemmed from a 3% increase in sales volume, and less than 1% favorable impact from acquisitions (net of divestitures). However, these positives were partially offset by a less than 1% negative impact from price/mix and the adoption of ASC 606, as well as changes in foreign exchange rates.

Operating Highlights

Adjusted gross profit margin declined 100 basis points (bps) to 39.2% on a year-over-year basis. Increased sales, higher realized price and benefits from productivity improvements were offset by a shift in key customers, changes in sales channel mix and higher input costs.

Adjusted selling, distribution and administrative or SD&A expenses — constituting 26% of net sales — improved 150 bps from the year-ago quarter. The upside was attributable to a decrease in freight and commission expense and productivity improvements.

Adjusted operating margin came in at 13.2%, up 50 bps year over year.

Financials

Cash and cash equivalents, as of Feb 28, 2019, were $232 million compared with $129.1 million at the end of fiscal 2018.

Net cash provided by operating activities was $188.3 million in the fiscal second quarter compared with $177.6 million a year ago.

Outlook

Despite reporting better-than-expected earnings in the fiscal second quarter, the company remains cautiously optimistic for the rest of fiscal 2019. Third-party forecasts and leading indicators continue to suggest that the North American lighting market is projected to increase in low-single digits during the fiscal year.

Acuity Brands remains optimistic about the potentiality of the lighting and lighting-related industry.
Also, it remains confident of its previously announced growth strategies that continue to improve products and solutions mix, while leveraging the company’s fixed cost infrastructure in order to achieve its pre-determined target of achieving higher margins and overall profitability.

The shift in sales among key customers within the retail channel is expected to continue having a dampening effect on gross profit and margins. Nonetheless, it expects the impact from the same to be largely offset by lower freight and commission costs, included in SD&A expenses. In order to boost margin, the company initiated a review of a small portion of its product portfolio and services offering, and aims to eliminate items that do not meet its return objectives.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a flat path over the past two months.

VGM Scores

At this time, Acuity Brands has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Acuity Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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