Apogee Beats EPS, Misses Sales

Apogee Enterprises, Inc. (APOG - Analyst Report) delivered first quarter fiscal 2013 earnings of 6 cents per share, in stark contrast to the prior year loss of 8 cents. Earnings surpassed the Zacks Consensus Estimate of 3 cents per share.

Total Revenue improved just 1% year-over-year to $154.1 million, missing the Zacks Consensus Estimate of $164 million. The improvement was driven mainly by the growth in Large-Scale Optical Technologies segment.

Operational Update

Cost of sales declined 5% year-over-year to $123.1 million in the quarter. Gross profit improved 31% to $31.1 million. Gross margin in the quarter improved 480 basis points to 20.2%.

SG&A expenses increased 6% in the quarter to $28.8 million. Operating income was $2.3 million compared to a loss of $3.4 million in the year ago quarter.

Segment Performance

Revenues in the Architectural Products and Services segment remained flat at $134.9 million. The growth from storefront share gains along with installation business was offset by a lag in architectural project timing during the first quarter of fiscal 2013.

Operating loss in the quarter narrowed to $1.9 million from the year ago loss of $7.1 million. The improvement was driven by higher pricing of architectural glass and volume growth in the storefront, partially offset by lower margins in installation businesses.

Backlog in the segment was $267.3 million compared to $237 million in the year ago quarter. The company expects to deliver roughly $188 million or 70% of the backlog in fiscal 2013 and $79 million or 30% in fiscal 2014.

Large-Scale Optical Technologies segment’s revenues increased 7% to $19.3 million. Operating income in the reported quarter improved 14% to $5.3 million. The improvement stemmed from higher value-added picture framing glass and acrylic mix.

Financial Position

Apogee ended the quarter with cash and short-term investments of $57.5 million, compared to $79.3 million at fiscal 2012 end. Long term debt amounted to $30.9 million compared to $20.9 million at fiscal 2012 end.

Capital expenditure in the quarter was $9.5 million compared to $1.6 million. Cash used in operating activities was $7.6 million compared to $20.5 million during the first quarter of fiscal 2012.

Looking Ahead

For fiscal 2013, Apogee has increased its earnings guidance to the range of 48 cents-58 cents per share from the previous guidance of 40 cents-50 cents. It expects revenue growth in the mid-single digits, driven by its strategy of expanding its geographical footprint of both the installation and storefront businesses.

Further, the company expects to generate positive free cash flow after spending $25 million to improve productivity and capacity, besides introducing new products along with maintaining the requirements.

Our Take

Apogee has a robust architectural backlog for the balance of the year. It intends to invest a considerable amount in new products to boost its product portfolio. Furthermore, Apogee considers spending on capacity as well as productivity improvements.

However, Apogee faces competition from privately held companies like AGC Flat Glass North America, Inc, Guardian Glass Company and Pilkington Group Limited. Apogee retains a short-term Zacks #3 Rank (Hold). We have a Neutral recommendation on the stock.