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What Could Allow AYI to Beat Consensus EPS in Fiscal 4Q16?

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Acuity Brands’ tiered strategy

In recent years, Acuity Brands (AYI) has undertaken a tiered solutions strategy for its products. The company’s tier 1 and tier 2 solutions focus on individual products and simple controls such as dimming. They also have the simplest designs and are easy to install.

Its tier 3 and 4 solutions, on the other hand, are networked systems that offer intelligent solutions to optimize ownership costs and create maximum value. Tiers 3 and 4 solutions offer the highest margins for the company, and their sales have been increasing at a scorching pace.

In fiscal 3Q16, Acuity stated that its tier 3 solutions represented 10% of its sales and had risen at a rate of 40%. Rising sales in AYI’s tier 3 solutions are expected to provide significant traction for operating margin expansion and, consequently, adjusted earnings per share (or EPS) growth.

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Retail conversions

Acuity provides beacon-enabled LED (light-emitting diode) lighting fixtures that, through in-store positioning technology and retail loyalty apps, collect data for retailers and provide shoppers with useful actionable information on deals.

Retailers are able to assess things such as in-store traffic patterns and coupon conversion, which can be used to formulate merchandising and store layout strategies.

In its last quarter, Acuity announced that it had signed a deal with Target (TGT) and became its exclusive smart lighting solutions provider.

The company sees potential to sign similar deals with Home Depot (HD) and Lowe’s (LOW) by the end of 2016. While not immediate contributors to AYI’s fiscal 4Q16 EPS, these deals could become contributors to a fairly positive forecast for fiscal 2017.

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