On Oct 1, we issued an updated research report on Apogee Enterprises, Inc. (APOG - Free Report) . The company’s performance will be thwarted by a lower guidance, concerns in the Architectural Glass segment, margin woes and inflationary pressures resulting from tariffs.
Let’s illustrate these factors in detail.
Guidance Cut to Dampen Apogee’s Performance
For fiscal 2019, Apogee reduced its outlook due to lower-than-expected second-quarter fiscal 2019 results and a reduced second-half outlook for the Architectural Glass segment. The company expects revenue growth to be between 8% and 10% for the fiscal, with lower projected revenues in the Architectural Glass and Architectural Framing Systems segments. The company has also cut its earnings per share guidance for the fiscal to $3.13-$3.33.
Concerns in Architectural Glass Segment
Apogee anticipates that the Architectural Glass segment’s revenues will be flat to moderately down for the current fiscal, as the segment faced significant challenges. The major issue was the challenge of hiring and training new employees in an extremely tight labor market. During the fiscal second quarter, Apogee added more than 300 new employees in Glass factories, marking a 20% increase to the workforce. Due to this, the company experienced a decline in margins and higher scrap rates, lower throughput and more expedited orders.
Inflation to Hurt Margins
The company trimmed its operating margin guidance for the current fiscal to 8.3-8.8%. In the Architectural Glass segment, it expects operating margin between 6% and 7%, lower than the previous margin expectation of 10%, mainly due to elevated labor costs, lower productivity, and higher cost of quality.
Apogee has witnessed inflationary pressures and uncertainty in trade policy affecting aluminum, and cost increases in freight and lumber. Also, tariffs on aluminum and steel goods will affect the company’s margins. Apogee, along with other players in the same industry, such as Caterpillar Inc. (CAT - Free Report) , Terex Corporation (TEX - Free Report) and TriMas Corporation (TRS - Free Report) , are expected to bear the brunt of tariffs.
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