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Bleak Construction Demand, Rising Costs Hurt Apogee (APOG)

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On Sep 28, we issued an updated research report on Apogee Enterprises (APOG - Free Report) . Weakness in non-residential construction owing to lower spending across its Architectural Framing and Glass segments is hurting the company. Apart from this, significant raw-material cost inflation, supply-chain disruptions, elevated freight costs and bleak construction end markets are likely to unfavorably impact the company.

Apogee recently reported second-quarter fiscal 2022 adjusted earnings per share of 53 cents, which declined 27.4% year over year. The bottom-line results were impacted by lower margins. Gross and operating margin both contracted to 14.7% and 5.4% year over year, respectively.

The company has a trailing four-quarter average earnings surprise of 19.6%.

Bleak End-Market Demand Hurt Segments

The company is witnessing softness in non-residential construction due to lower spending across its Architectural Framing Systems and Architectural Glass segments. Apogee expects top-line weakness and lower volumes across these segments, particularly in the short lead time parts business throughout fiscal 2022.

Cost Inflation to Dent Margin

Apogee is suffering significant raw-material cost inflation, which is expected to continue through the remainder of fiscal 2022. Apart from this, the company is bearing the brunt of supply-chain disruptions, elevated freight costs and weak construction end markets. These factors will dent margins in the near term. The Architectural Framing and Glass segments are likely to be the most affected by the rising costs. The company expects the reversal of temporary cost actions related to COVID-19 to adversely impact the fiscal 2022 results.

COVID-19 Uncertainty Lingers

The Large-Scale Optical segment bore the brunt of the coronavirus pandemic. It had witnessed a complete shutdown of its customer base to comply with the government’s stay-at-home orders. The segment depends on the strength of the retail picture framing market, which, in turn, is dependent on consumer confidence and the U.S. economy. Despite the recovery in retail, lately, the resurgence of coronavirus cases might impact the segment’s growth.

Price Performance

Shares of the company have gained 23.3% so far this year, as against the industry’s loss of 17.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank & Stocks to Consider

Apogee currently carries a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the Industrial Products sector include Deere & Company DE, Alcoa Corporation (AA - Free Report) and AGCO Corporation AGCO. While Deere and Alcoa flaunt a Zacks Rank #1 (Strong Buy), AGCO carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere has a projected earnings growth rate of 117.5% for fiscal 2021. So far this year, the company’s shares have gained 32.2%.

Alcoa has an estimated earnings growth rate of 573.2% for 2021. The company’s shares have rallied 121.2%, so far this year.

AGCO has an expected earnings growth rate of 70.7% for 2021. The stock has appreciated 27.1%, year to date.