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Here's Why Investors Should Ignore Apogee (APOG) Stock Now

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Apogee Enterprises, Inc. (APOG - Free Report) has been weighed down by weak volumes in Architectural Framing Systems and Architectural Glass segments. Further, operational difficulties in Architectural Framing Systems and start-up costs for the new Architectural Glass growth initiative remain headwinds. Weak price performance and lowered earnings estimates do not instill investor confidence in the stock.
The company, with a market capitalization of $867 million, carries a Zacks Rank #5 (Strong Sell) at present. It belongs to the Zacks Glass Products industry, currently at the bottom 1% (with the rank of 253) of more than 250 Zacks industries.

Notably, Apogee’s earnings missed the consensus estimate by 25% in third-quarter 2019, while sales lagged estimates by 5.4%. On a year-over-year basis, earnings declined 27% thanks to a fall of 6% in revenues.

In the past six months, the company’s shares have fallen 23.2% compared with the industry’s decline of 19.1%.

Factors Weighing on Apogee

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 anticipates revenue growth between flat to down 1%.

Adjusted earnings per share are expected in the band of $2.15-$2.30. 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.

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 volumes in the fourth quarter.

Lower Volumes & Costs Ail Architectural Glass

Architectural Glass revenues have been impacted by lower volumes stemming from increased competition from overseas competitors and some customer-driven delays. For the segment, the company expects revenue growth in the mid to upper-single digits in fiscal 2020. It 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 hurt by 100 to 150 basis points.  Further, the segment’s revenues are being plagued 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 thanks to the strengthening of the dollar compared to other currencies.

Bottom-Line Estimate Trend

The Zacks Consensus Estimate for Apogee’s fiscal 2020 earnings has gone down 26% in the past 30 days. The Zacks Consensus Estimate for earnings per share is currently pegged at $2.22 for the fiscal, which indicates a decline of 25% from fiscal 2019.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. (DXPE - Free Report) , Cintas Corporation (CTAS - Free Report) and Graphic Packaging Holding Company (GPK - Free Report) . While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), Cintas and Graphic Packaging carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In the past six months, the stock has appreciated 16%.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 16% over the past six months.

Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 19% over the past six months.

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