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Why Did Acuity Brands Drop 8.1% Despite Q2 Beat?

Acuity Brands (NYSE: AYI) reported stronger-than-expected fiscal Q2 results. Driven by robust demand and sales growth across both segments, AYI exceeded both earnings and revenue estimates.

Despite the beat, shares of the American lighting and building management firm dropped 8.1% on April 5.

Q2 Beat

In Q2, adjusted earnings of $2.57 per share grew 21.1% year-over-year, and beat analysts’ expectations of $2.37 per share. The company reported earnings of $2.12 per share for the prior-year period.

Net sales jumped 17.1% year-over-year to $909.1 million, and also exceeded consensus estimates of $884.62 million.

Despite growth in sales, gross margin declined 170 bps to 41.7% as increased pricing was not able to offset the hike in material and freight costs.

CEO Comments

Acuity Brands, Inc. CEO, Neil Ashe, commented, “Our focus on service and product vitality has allowed us to meet current customer demand while also investing in the long-term growth and transformation of our Company.”

Wall Street’s Take

Following the results, CFRA decreased its price target on Acuity Brands to $186 (9.3% upside potential) from $235 and reiterated a Hold rating.

Overall, the stock has a Strong Buy consensus rating based on five Buys and one Hold. The average Acuity Brands price forecast of $231.83 implies 36.27% upside potential from current levels.

TipRanks’ Smart Score

AYI scores an 8 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Takeaway

Despite earnings beat, the current weakness in the stock price reflects investors’ concerns over compressed margins. Acquity will need to address the declining margins issue to rekindle investors confidence in the overall growth story.

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