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Why Is Apogee Enterprises (APOG) Down 6.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Apogee Enterprises (APOG - Free Report) . Shares have lost about 6.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Apogee Enterprises due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Apogee Q2 Earnings Miss, Sales Top Estimates, View Cut

Apogee reported earnings per share of 72 cents in second-quarter fiscal 2019 (ended Sep 1, 2018), significantly up from the prior-year figure of 60 cents, but missed the Zacks Consensus Estimate of 75 cents.

Apogee reported total revenues of around $362 million, up 5% year over year backed by robust order activity. Revenues surpassed the Zacks Consensus Estimate of $359 million.

Notably, strong market conditions and demand for Apogee’s diverse product and services offerings drove results despite challenges in the Architectural Glass segment due to a tight labor market.

However, Apogee’s shares dipped around 12% to close at $42.48 yesterday, after the company slashed its fiscal 2019 outlook owing to lower-than-expected fiscal second-quarter results and a reduced second-half outlook for the Architectural Glass segment.

Operational Update   

Cost of sales in the reported quarter was up 8% year over year to $277.7 million. Gross profit declined 2% year over year to $84.5 million. Gross margin descended 200 basis points to 23%. Selling, general and administrative (SG&A) expenses dropped 4% year over year to $55.8 million. Adjusted operating income declined 13% year over year to $29.7 million. Operating margin shrunk 170 bps to 8.2%.

Segment Performance

In the fiscal second quarter, the Architectural Framing Systems segment’s revenues went up 0.5% year over year to $190 million. The segment’s adjusted operating income in the quarter came in at $19.4 million compared with $19.2 million witnessed in the prior-year quarter.

The Architectural Glass Systems segment’s revenues went down 10% year over year to $88 million. The segment’s operating income tanked 83% to $1.7 million from $10.3 million reported in the year-earlier quarter due to increased labor costs, lower productivity, and higher cost of quality.

Revenues in the Architectural Services segment surged 63% year over year to $76.5 million. The segment reported an operating profit of $7.6 million, significantly up from $0.8 million recorded in the year-ago quarter, driven by higher volumes and strong project execution.

The Large-Scale Optical Technologies segment’s revenues remained flat year over year at $20.3 million. Operating income in the reported quarter came in at $4.2 million, flat year over year.

Backlog

The Architectural Framing Systems segment’s backlog inched up to $428 million in the fiscal second quarter compared with $427 million a year ago. The Architectural Services’ segment backlog came in at $405 million — an improvement from $323 million in the prior-year quarter.

Financial Position

Apogee had cash and cash equivalents of $36 million at the end of the fiscal second quarter compared with $30 million as of the end of the prior-year quarter. The company generated cash flow from operations of $48 million in the reported quarter compared with $41 million reported in the prior-year quarter. Long-term debt was $225 million as of Sep 1, 2018, compared with $216 million as of Mar 3, 2018.

Fiscal 2019 Guidance Cut

For fiscal 2019, Apogee has reduced its outlook. The company expects revenue growth to be between 8% and 10% for the fiscal compared to the prior guidance of 10%, with lower projected revenues in the Architectural Glass and Architectural Framing Systems segments.

Apogee anticipates that Architectural Glass segment’s revenues will be flat to moderately down for the current fiscal. Its Architectural Framing Systems segment’s revenues will be up nearly 10% for the fiscal. However, the company expects lower sales in third-quarter fiscal 2019 due to project-related timing issues.

Architectural services will be up around 30% for the fiscal, with year-over-year growth moderating through the second half based on project schedules. Apogee continues to expect mid-single digit growth in Large-Scale Optical for fiscal 2019.

The company has also trimmed its operating margin guidance to 8.3-8.8% from the previous 8.9-9.4%. The company projects earnings per share for the fiscal at $3.13-$3.33, down from the earlier guidance of $3.48-$3.68. The guidance excludes the after-tax impact of amortization of short-lived acquired intangibles associated with the acquired backlog of Sotawall and EFCO of $3.8 million (or 13 cents per share).
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -23.85% due to these changes.

VGM Scores

Currently, Apogee Enterprises has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Apogee Enterprises has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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