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Apogee (APOG) Misses Q2 Earnings & Sales, Affirms FY18 View

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Apogee Enterprises, Inc. (APOG - Free Report) reported earnings per share of 60 cents in second-quarter fiscal 2018 (ended Sep 2, 2017), down 22% from 77 cents per share recorded in the prior-year quarter. Also, earnings missed the Zacks Consensus Estimate of 72 cents, by a wide margin of 16.7%.

The company reported total revenues of $344 million, up around 24% year over year, mainly driven by growth in Architectural Framing Systems revenues. However, revenues lagged the Zacks Consensus Estimate of $351 million.

Cost of goods sold in the quarter flared up 25% year over year to $256 million. Gross profit improved 19% year over year to $86 million. Gross margin contracted 100 basis points (bps) to 25%. Selling, general and administrative (SG&A) expenses escalated 47% year over year to $58 million. Operating income declined 16% year over year to $27.8 million. Operating margin dipped 380 bps to 8.1%.

Segment Performance

Revenues at the Architectural Glass segment went down 2% year over year to $97.4 million. Operating income in the quarter advanced 7% to $10.3 million from $9.6 million registered in the prior-year quarter.

Revenues at the Architectural Services segment plummeted 40% year over year to $46.8 million. The segment reported an operating profit of $0.8 million, significantly down from $6.2 million recorded in the year-ago quarter.

The Architectural Framing Systems segment revenues soared a whopping 105% year over year to $189 million. The segment’s operating income climbed 27% to $16.5 million from $13 million witnessed in the prior-year quarter.

The Large-Scale Optical Technologies segment’s revenues dropped 5% year over year to $20.3 million. Operating income in the reported quarter came in at $4.2 million, declining 16% from $5.1 million recorded in the comparable period last year.

Financial Position

As of Sep 2, 2017, Apogee had cash and cash equivalents of $29.5 million compared with $47 million recorded as of Aug 27, 2016. The company generated $40.8 million in cash from operating activities in the six-month period ending Sep 2, 2017, compared with $43.5 million in the year-earlier period. Long-term debt was $257.8 million as of Sep 2, 2017, compared with $65.4 million as of Mar 4, 2017.

On Jun 12, Apogee completed the acquisition of EFCO. It has been reported in the Architectural Framing Systems segment.

In the Architectural Framing Systems segment, backlog increased to $496 million in the fiscal second quarter, up from $255.9 million recorded in the fiscal first quarter, including $216 million from the acquisition of EFCO. This substantial backlog will likely support growth in the second half of fiscal 2018 and fiscal 2019 as well. The Architectural Services’ segment backlog came in at $323 million, a $30-million improvement from the fiscal first quarter.

Fiscal 2018 Outlook Affirmed

Apogee reaffirmed its fiscal 2018 outlook announced last month, when the company revised the fiscal 2018 guidance downward, underlining lower revenues and margins from the EFCO acquisition, as well as acquisition-related charges and amortization of short-lived intangibles associated with Sotawall.

Apogee maintained its revenue growth guidance of 24-26% for fiscal 2018 and adjusted operating margin is expected to lie between 11% and 11.5%. Adjusted earnings per share for the fiscal 2018 are projected to lie between $3.40 and $3.60, reflecting year-over-year growth of around 12%.

The 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 $7 million or 24 cents per share and acquisition-related costs for Sotawall and EFCO of approximately $3 million, or 11 cents per share. The company projects capital expenditures of approximately $60 million in fiscal 2018.

However, Apogee has underperformed the industry with respect to price performance over the last year, mainly because of unfavorable foreign currency impact and growing competitive pressures in the architectural glass mid-size project market. The stock gained around 0.7%, while the industry recorded growth of 27.4% over the same time frame. 



Our Take

Apogee is poised to gain from its consistent focus on executing strategies to grow revenues through new geographies, products and markets. The company is also putting in efforts to improve its margins through operational excellence, productivity, project selection and cost-management initiatives.

Looking ahead to fiscal 2019, Apogee anticipates double-digit revenue growth and triple-digit basis-point operating margin improvement, backed by strong bidding activity and order pipeline. This upbeat sentiment is also supported by internal market visibility and positive external metrics, including forecasts for mid-single digit commercial construction market growth in the United States this year.

Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the sector include Caterpillar Inc. (CAT - Free Report) , Terex Corporation (TEX - Free Report) and AGCO Corporation (AGCO - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has an expected long-term earnings growth rate of 9.5%.

Terex has an expected long-term earnings growth rate of 19.7%.

AGCO has an expected long-term earnings growth rate of 13.5%.

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