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Apogee (APOG) Weighed Down By Lower Volumes & Higher Costs

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On Dec 30, we issued an updated research report on Apogee Enterprises, Inc. (APOG - Free Report) . Weak volumes in Architectural Framing Systems and Architectural Glass segments, operational difficulties in Architectural Framing Systems and start-up costs for the new Architectural Glass growth initiative remain near-term headwinds.

Weak Q3 Results

Apogee Enterprises delivered third-quarter fiscal 2020 (ended Nov 30, 2019) adjusted earnings per share of 57 cents, which missed the Zacks Consensus Estimate by a margin of 25%. The reported figure also declined 27% from the prior-year quarter. The company reported revenues of $337.9 million, lagging the Zacks Consensus Estimate of $357 million. The revenue figure also fell 6% from the prior-year quarter.

Tepid 2020 Guidance

During the third-quarter conference call, Apogee lowered fiscal 2020 guidance to reflect lower-than-expected sales volumes in Architectural Framing Systems and Architectural Glass, and operational difficulties in Architectural Framing Systems. The company now expects revenue growth between flat to down 1% compared with previous growth of 1-3%.

Adjusted earnings per share are anticipated in the band of $2.15-$2.30 compared with the previous estimate of $3.00-$3.20. The mid-point of the guidance reflects a year-over-year decline of 25% from the prior fiscal. Costs associated with supply chain initiatives, and increased corporate costs from higher legal and other advisory expenses will hurt the company’s margins in fiscal 2020.

The Zacks Consensus Estimate for fiscal 2020 revenues is at $1.44 billion, indicating growth of 2.62% from the year-ago reported figure. The estimate for earnings per share is at $2.22, suggesting a decline of 25% from fiscal 2019.

Lower Volumes Hurt Architectural Framing Systems

In the Architectural Framing Systems, revenue growth is projected to be down mid-single digit in fiscal 2020, primarily thanks to lower-than-expected revenues in the fiscal third quarter. In the fourth quarter, operational improvements in Framing Systems is expected to be offset by lower revenues from increased customer-driven schedule delays, lower orders and some seasonality. Operating margin is projected between 5% and 5.5% in fiscal 2020, which includes the impact of manufacturing cost issues in the third quarter and lower-than-expected volumes in the fourth quarter.

Lower Volumes & Costs Ail Architectural Glass

Architectural Glass revenues have been impacted by lower volumes resulting from increased competition from overseas competitors and some customer-driven delays. For the segment, Apogee expects revenue growth in the mid to upper-single digits in fiscal 2020. The company lowered full-year margin outlook for the segment to approximately 6% from prior expectation of 7%, primarily due to reduced leverage on lower volumes.

Additionally, Apogee is likely to incur approximately $4 million to $5 million of total start-up costs for the new Architectural Glass growth initiative. So far this year, the company has incurred $2.9 million of start-up costs for this initiative. Consequently, the segment’s margins in fiscal 2020 are anticipated to be affected by 100 to 150 basis points.  Further, the segment’s revenues are being impacted by a stronger U.S. dollar. The company’s U.S.-based glass operations are under considerable pressure and competition is intensifying, particularly from European competitors owing to the strengthening of the dollar compared to other currencies.

Price Performance

Shares of Apogee have gained 7.5% in the past year as against the industry’s decline of 22.2%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are CIRCOR International, Inc. (CIR - Free Report) , Tennant Company (TNC - Free Report) and Hickok Inc. . All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

CIRCOR International has an expected earnings growth rate of 7.1% for the current year. The stock has appreciated 116% over the past year.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 42% over the past year.

Hickok has an estimated earnings growth rate of 40% for the ongoing year. In a year’s time, the company’s shares have gained 88%.

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