Apogee Reports Steep Fall in Q1 Sales

Apogee Enterprises, Inc. (APOG - Analyst Report) recently reported fiscal first-quarter earnings of $0.27 per share, slightly lower than our expectations of $0.28 per share. However the company’s revenue fell sharper than expected. Revenue was down 24% year-over-year at $180.9 million, compared to our expectations of $195 million due to significant decline in sales at both the company’s businesses.

Revenue in the Architectural segment was down 24%, compared to the first quarter of FY09. This business derives revenue primarily from the North American commercial construction industry. The segment is witnessing project delays/cancellations and slower conversion of bid projects into awards on the back of lower corporate profits. Backlog at the end of first quarter of FY10 stood at $310.0 million, compared to $316.2 million at the end of the previous quarter and $491.0 million at the end of 1Q09. We do not see recovery in the segment’s end markets for the remainder of the year.

At the Large-scale Optical Technologies segment, revenue was down 20% on a year-over-year basis. The sales in the segment are highly dependent on the U.S. consumer confidence and the economic conditions. To ease the impact of the current economic downturn on the segment’s margins, the company is focusing on increasing the proportion of higher-margin value-added framing glass. However, a significant decline in sales volumes has more than offset the impact of a strong product-mix in the quarter. With the current level of weakness in the U.S economy, the revenue outlook for the segment remains highly uncertain.

Given the high level of uncertainty in the economy, Apogee did not provide earnings guidance for FY10. The company forecasts a revenue decline of at least 15% for FY10, compared to FY09 level. Given the continuous deterioration in the company’s backlog and no expectations of substantial recovery in its end markets in FY10, we expect Apogee to post a revenue decline of over 20% compared to FY09.

We maintain our HOLD recommendation on Apogee.

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