Apogee reports FY18 second-quarter results

Apogee Enterprises, Inc. has announced fiscal 2018 second-quarter results. Apogee provides distinctive solutions for enclosing commercial buildings and framing and displays.

Revenues of USD 343.9 million were up 24%, vs. prior-year period.

Operating income of USD 27.8 million was down 16% before adjustments, vs. prior-year period.

Adjusted operating income of USD 34.1 million was up 3%, vs. prior-year period.

Operating margin was 8.1%, or 9.9% adjusted, vs. 11.9% in the prior-year period.

Net interest expense increased USD 1.6 million vs. the prior-year period, as debt was incurred for acquisitions.

Earnings per diluted share of USD 0.60 were down 22%, vs. the prior-year period.

Adjusted EPS was USD 0.75, down 3%, vs. the prior-year period.

Completed acquisition of EFCO Corporation on June 12. It is reported in the architectural framing systems segment.

“Our architectural framing systems segment, now our largest segment at more than 50% of revenues, is central to our strategy to deliver more stable future revenue streams and earnings,” said Joseph F. Puishys, Apogee chief executive officer. “During this cycle, architectural framing systems revenues have consistently grown and operating margins have been the strongest among our architectural segments. In the second quarter, this segment drove our revenue growth and more importantly, our existing framing systems businesses . . . excluding our two recent acquisitions . . . delivered double-digit top- and bottom-line growth in the quarter.

“We also had double-digit growth in architectural glass segment mid-size projects, an important step forward as we transform Apogee’s mix,” he said. “In addition, across Apogee we continue to diversify our revenues as we grow our retrofit business, introduce new products and further penetrate newer geographies in our existing businesses.

“Halfway through fiscal 2018, we’ve completed significant investments for future growth, including for acquisitions and for capabilities and productivity in existing businesses. We are well positioned for a stronger second half and fiscal 2019,” said Puishys. “Moving forward, our services segment will begin to execute its large backlog. We’ll also be making progress on our three-year goal of a double-digit operating margin at EFCO.

“We have internal visibility to continued end-market growth for the next two to three years, and we are confident Apogee is in a good position to capitalize on future opportunities,” he said. “External commercial construction market metrics remain positive, and our heavy bidding activity has driven backlog growth.”

Second-quarter segment and operating results vs. prior-year period:

Architectural Framing Systems

Revenues of USD 189.0 million were up 105%; excluding the addition of Sotawall and EFCO, revenues were up 17%.

Operating income grew to USD 16.5 million, up 27%; adjusted operating income of USD 19.2 million was up 47%.

Operating margin was 8.7%, or 10.1% adjusted, compared to 14.1%. Operating margins for existing businesses were up substantially, offset by a lower operating margin at EFCO, as expected, and a significant foreign exchange loss at the Canadian curtainwall business.

Segment backlog grew USD 240 million to USD 495.9 million from the fiscal 2018 first quarter backlog level, including USD 216 million from the acquisition of EFCO. This substantial backlog supports growth in the second half of fiscal 2018 and in fiscal 2019.

Architectural Glass

Revenues of USD 97.4 million were down 2%, as double-digit mid-size project growth was somewhat offset by the timing of larger projects.

Operating income was USD 10.3 million, up 7%.

Operating margin was 10.5%, compared to 9.7% due to improved productivity and cost management, somewhat offset by mix and price.

Architectural Services

Revenues of USD 46.8 million were down 40%, compared to the strong prior-year period.

Operating income was USD 0.8 million, down 88%.

Operating margin was 1.7%, compared to 8.0%, due to lower volume leverage on project management, engineering and manufacturing capacity.

Segment backlog grew USD 30 million to USD 323.0 million from the fiscal 2018 first-quarter backlog level.

The longer-term outlook for this segment remains positive, with additions to backlog in the last three quarters anticipated to generate strong revenue growth in fiscal 2019.

Large-Scale Optical Technologies

Revenues of USD 20.3 million were down 5% on the timing of customer orders.

Operating income of USD 4.2 million was down 16%.

Operating margin was 20.9%, compared to 23.7%, due to lower volume.

Financial Condition

Apogee’s capital allocation strategy supports future growth and margin improvement. Year-to-date capital expenditures, primarily for productivity and capabilities, were USD 26.8 million. Debt at the end of the second quarter was USD 257.8 million, and includes USD 192 million incurred for the acquisition of EFCO. Year-to-date net interest expense was USD 1.8 million, compared to net interest income of USD 0.2 million in the prior-year period.

FY18 Outlook

“We are transforming Apogee for more stable performance throughout an economic cycle,” said Puishys. “The addition of Sotawall and EFCO accelerate this transformation and complement our strategies to grow revenues through new geographies, new products and new markets, and improve margins through operations excellence, productivity, project selection and cost management initiatives.

“We expect top- and bottom-line growth in fiscal 2018, with a strong second half. Looking ahead to fiscal 2019, we anticipate double-digit revenue growth and triple-digit basis-point operating margin improvement, based on bidding, our order pipeline and backlog already booked for the year,” he said. “Our outlook is supported by internal market visibility and positive external metrics, including forecasts for mid-single digit U.S. commercial construction market growth.”

Apogee is maintaining the full-year fiscal 2018 outlook provided on August 23. This outlook incorporates the June 12 acquisition of EFCO, as well as acquisition-related charges and amortization of short-lived intangibles associated with Sotawall and EFCO acquired backlogs.

Revenue growth of 24 to 26%.

Operating margin of 10.0 to 10.5%, with the addition of EFCO revenues at a mid-single digit operating margin.

Adjusted operating margin of 11.0 to 11.5%.

Earnings of USD 3.05 to USD 3.25 per diluted share.

Adjusted EPS of USD 3.40 to USD 3.60.

Adjusted earnings guidance excludes the after-tax impact of:

Amortization of short-lived acquired intangibles associated with the acquired backlog of Sotawall and EFCO of USD 7.0 million (USD 0.24 per diluted share).

Acquisition-related costs for EFCO of USD 3.1 million (USD 0.11 per diluted share).

Capital expenditures of approximately USD 60 million.

Apogee Enterprises, Inc., headquartered in Minneapolis, is a leader in the design and development of value-added glass and metal products and services for enclosing commercial buildings, and value-added glass and acrylic for picture framing and displays. The company is organized in four segments, with three of the segments serving the commercial construction market.