Acuity Brands Navigates Supply Challenges Successfully
Acuity Brand’s (NYSE: AYI) Q4 report proves that systemic headwinds are not the same for all businesses. While the company is experiencing the same challenges as other businesses, internal efforts to offset them and an ongoing restructuring program have the company outpacing inflation. This does, of course, include pricing increases and we are expecting future pricing increases as well but it looks for now like this company is still growing on both the top and the bottom lines. Unlike some others, we could mention. Acuity Brands pays a dividend but it is a paltry 0.3% yield oh, we like Acuity brands for its growth, its balance sheet, and its aggressive buyback plans. The company has reduced its share count by 10% over the last 2 years and has another 10% to go before the allotment is used up.
Acuity Brands Beat Consensus, Outlook Positive
Acuity Brands not only reported year-over-year growth above consensus but also managed to expand margins and beat the consensus on the bottom line. The $992.70 million in consolidated revenue is up 11.4% over last year and beat the consensus by 350 basis points. Last year's comparison is relatively easy, sales fell -5% in the Q4 period, so the 5.8% of 2-year growth is worth noting. Strength was driven by sales in both segments with the core ABL segment up 11% and the high growth ISG segment up 23.5%.
Moving down to the margins, the company expanded gross margins by 10 basis points to 42.2% to help drive an 11.8% increase in gross profit. Operating margins improved by a wider 150 basis points on a GAAP basis and 110 basis points on an adjusted basis to deliver solid earnings on the bottom line. The GAAP earnings of $2.72 are up 45% from last year and beat the consensus by $0.15 while the adjusted earnings of $3.27 are up 39% from last year and beat the consensus by $0.40.
The company declined to give any guidance but it looks like the business is strong. In our view, the Q1 results could easily see revenue growth accelerate 2 over 25%, the question is if margin gains are sticky or not. Regardless, the company's revenue and earnings are strong, and the balance sheet is a fortress so buybacks should continue unabated.
The Analysts Have Yet To Speak Out About Acuity Brands
The analysts have yet to speak out about Acuity Brands Q4 results but we feel it's only a matter of time. The overwhelming consensus is a Buy but the recent activity is very light and suggests the analysts were beginning to lose faith. Credit Suisse lowered its price target to a level consistent with the Pricetargets.com consensus just days before the results were released but did so while maintaining a Strong Buy rating. Based on today's price action, it is our belief the analysts will soon begin raising their price targets and by significantly large numbers.
The Technical Outlook: Acuity Brands Move sharply Higher
Acuity Brands shot up more than 13% in the wake of the Q4 earnings report and set a new multi-year high. This move is noteworthy because it breaks the price action out of a major consolidation range and sets it up for a large double-digit move higher and possibly new all-time highs. In our view, this stock is heading up to the $275 all-time high set in 2016 and it could be going much higher.
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