Apogee: Losses Continue, Guides 2012

The leader in technologies for the design and development of value-added glass products Apogee Enterprises Inc. (APOG - Analyst Report) reported a loss of 6 cents per share for fiscal 2012 second quarter ending August 27. Results were wider than the Zacks Consensus Estimate of a loss of 3 cents, but narrower than the loss of 18 cents in the year-ago quarter.

Operational Update

Apogee’s total revenue increased 14% to $165.6 million in the reported quarter from $144.7 million in the year-earlier quarter, striding ahead of the Zacks Consensus Estimate of $157 million. The increase in revenue was largely driven by a double digit increase in Architectural Products and Services revenue.

Costs of sales increased 10% year over year to $139.6 million during the quarter, while selling, general and administrative expenses were up 13% year over year to $28.6 million.

The company’s operating loss improved to $2.7 million from $7.4 million in the year-ago quarter.

Segmental Performance

Architectural Segment: The segment reported net sales of $149.1 million in the quarter under review, up 17% year over year. The addition of Brazilian architectural glass business, increase in the window and storefront businesses as well as better architectural glass pricing aided the segment to deliver solid results.

The segment reported an operating loss of $5.1 million, lower than the loss of $10.8 million in the year-ago quarter.

The segment’s backlog increased to $231.3 million at the end of the quarter from $193 million at the end of the prior-year period. Of this 50% is expected to be delivered in fiscal 2012 and the remaining 50% in fiscal 2013.

Large-Scale Optical Segment: Segment revenue decreased 6% year over year to $16.4 million. The decline was attributable to a soft retail market.

Operating profit declined 17% year over year to $3.5 million.

Financial Position

Cash and short-term investments amounted to $45.3 million in the second quarter; much lower than $60.6 million at fiscal 2011-end. Long-term debt declined marginally to $21.1 million at the end of the quarter from $21.4 million at the end of fiscal 2011.

During the first six months of fiscal 2012, cash used in operating activities was $14.7 million, compared with $26.8 million used in the year-ago period.

Capital expenditure totaled $3.6 million, compared with $5.0 million in the year-ago period.

Looking Ahead

Apogee expects better architectural glass pricing and mix, and increased window and storefront businesses. However, the company is also expecting lower margins for its installation business.

For fiscal 2012, the company is expects revenue to grow more than 10% and report profits for the rest of the year. The company also expects to generate positive cash flow from operations in fiscal 2012.

The company also expects to generate positive cash flow in fiscal 2012.

Peer Comparison

PPG Industries Inc. (PPG - Analyst Report), which competes with Apogee, posted net income of $2.12 per share for the second quarter; lower than $1.63 per share in the year-ago quarter. The results were on par with the Zacks Consensus Estimate.

We maintain our Neutral recommendation on Apogee. The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

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