It has been about a month since the last earnings report for Acuity Brands (AYI - Free Report) . Shares have added about 3.9% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Acuity Brands’ (AYI - Free Report) Q4 Earnings & Sales Miss Estimates
Acuity Brands, Inc. reported lower-than-expected results in fourth-quarter fiscal 2019. Notably, the company believes that overall market conditions will remain sluggish in fiscal 2020 due to continuous economic uncertainties caused by global trade issues and import tariffs.
In the quarter under review, adjusted earnings came in at $2.75 per share, lagging the Zacks Consensus Estimate of $2.78 by 1.1%. Nonetheless, the said metric grew 2.6% year over year, backed by higher price realization and productivity gains, despite continuing inflationary cost pressures and the impact of tariffs.
Net sales during the quarter totaled $938.1 million, missing the consensus mark of $1,029 million by 8.8%. Also, the reported figure declined 11.6% from $1,061.2 million in the prior-year quarter, owing to a 16% decrease in volume, partially offset by positive impact of product price/mix changes.
The volume declined mainly resulted from prior year’s shift in sales among key customers within the retail channel, elimination of certain products from the portfolio and soft market conditions. The company’s sales declined in most of the key channels. In fact, more than half of the sales decline was experienced particularly in the retail channel.
Meanwhile, contribution from acquisitions (net of divestitures), negative impact of foreign currency translation and adoption of ASC 606 contributed less than half of the total sales decline.
Adjusted gross profit margin improved 320 basis points (bps) to 42.1% on a year-over-year basis. The upside was mainly attributable to higher price realization, favorable sales channel mix and productivity improvements, partially offset by under-absorption of manufacturing costs due to inventory reduction efforts.
Adjusted selling, distribution and administrative or SD&A expenses — constituting 26.5% of net sales — grew 230 bps from the year-ago quarter. Adjusted operating margin came in at 15.6%, up 90 bps year over year.
Cash and cash equivalents at the end of fiscal 2019 were $461 million compared with $129.1 million a year ago. Net cash provided by operating activities was $494.7 million in fiscal 2019 compared with $351.5 million in the comparable prior-year period.
In fiscal 2019, the company repurchased 650,000 shares of common stock for approximately $81.6 million under the previously authorized stock repurchase program and paid $20.8 million dividends to its shareholders.
Fiscal 2019 Review
In fiscal 2019, the company generated adjusted earnings of $9.57 per share, up 8.3% from $8.84 a year ago. Revenues of $3.67 billion declined marginally from $3.68 billion reported in fiscal 2018.
Adjusted gross margin contracted 20 bps during fiscal 2019. Also, adjusted operating margin declined 10 bps.
Fiscal 2020 Outlook
Despite reporting year-over-year improved earnings in the fiscal fourth quarter, the company remains cautiously optimistic for fiscal 2020 due to U.S.-China trade tensions and tariffs. Acuity Brands continues to expect sluggish market demand for lighting products.
For fiscal first-quarter 2020, it projects net sales to decline in the mid-to-high single-digit range compared with fiscal first-quarter 2019. The downside is largely owing to the pull forward of orders by customers in advance as a result of announced price increases and its efforts to reduce less profitable products from the portfolio.
Nonetheless, it anticipates The Luminaires Group — its recent acquisition — to mitigate the above-mentioned headwinds to some extent. Moreover, capital expenditure is expected to be around 1.7% of net sales.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -10.61% due to these changes.
Currently, Acuity Brands has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Acuity Brands has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.