- Solid execution, project backlogs
and market conditions drove strong revenue growth, earnings and
free cash flow in the quarter
- Continued progress with recent
acquisitions, revenue diversification and operational improvements
position Apogee for stable, long-term earnings and free cash flow
growth
- Apogee is raising its fiscal 2019
guidance for earnings and margins, while affirming its outlook for
full-year revenues.
- Continued backlog growth and
positive industry fundamentals
Apogee Enterprises, Inc. (Nasdaq: APOG), a leader in the design
and development of value-added glass and metal products and
services for enclosing commercial buildings, framing and displays,
today announced its fiscal 2019 first-quarter results.
FIRST-QUARTER HIGHLIGHTS
- Revenues of $336.5 million were up 24%
over the prior year period, driven by acquisition-related and
organic growth in Architectural Framing Systems and growth in
Architectural Services and in Large-Scale Optical Technologies.
This was partially offset by an expected timing-related decline in
Architectural Glass. As anticipated, on an organic basis, excluding
the EFCO acquisition, revenues were comparable year-over-year.
- Operating income was $22.0 million,
down from $24.1 million a year ago, as a result of the
timing-related decline in sales and operating leverage in
Architectural Glass, partly offset by higher contribution from
Architectural Services. Adjusted operating income was $24.9
million, compared to $26.8 million in the prior year.
- Earnings per diluted share were $0.54,
versus $0.56 in the prior year period. Adjusted EPS was $0.62,
consistent with the prior year.
- Free cash flow was $16.0 million in the
quarter.
- See Reconciliation of Non-GAAP
Financial Measures at the end of this release.
COMMENTARY
“In the first quarter, we executed our plan for a solid start to
fiscal 2019: revenues rose significantly, backlogs continued to
grow across the business, we saw on-going productivity gains and
excellent cash conversion. We also continued to make progress
positioning the company for long-term, stable earnings and cash
flow growth, regardless of the economic cycle,” said Joe Puishys,
Apogee’s chief executive officer.
“Robust 60% year-over-year top-line growth in the company’s
largest segment, Architectural Framing Systems, as well as
substantial increases in Architectural Services demonstrate how we
are executing our plan to build a larger, more stable and more
diversified - by geography, project size and market segment -
revenue base. On this strong foundation, we continued making
investments and process improvements to increase efficiencies in
project selection, manufacturing and delivery to raise long-term
operating margins and drive earnings. We’re especially focused on
the opportunity to leverage the best practices, technology and
scale of our legacy businesses to raise long-term operating margins
in recent acquisitions to those same levels of profitability. In
fact, we’re seeing quarter-over-quarter improvements in margins at
EFCO, and remain on track to achieve our synergy goals by fiscal
2020.”
Puishys concluded, “Based on the first quarter’s positive
performance, sustained backlog growth and order activity, and a
good outlook for the North American construction industry, we are
raising our fiscal 2019 earnings guidance ranges by 5 cents per
share, and can affirm our fiscal 2019 goals for revenue growth. We
also remain confident in our outlook for continuing top- and
bottom-line growth into fiscal 2020 and beyond.”
FIRST-QUARTER RESULTS
Architectural Framing Systems
The Architectural Framing Systems segment continued to be the
company’s key engine for growth, diversification and long-term
earnings growth. In spite of the expected, year-over-year margin
impact of the EFCO acquisition, solid progress was achieved toward
higher profitability for the year and long-term, with strong margin
expansion in legacy businesses and quarter-over-quarter gains in
productivity, on-time deliveries and synergies at EFCO.
- Revenues of $179.0 million were up 62%
from a year ago, reflecting sales from EFCO (acquired in the
prior-year second quarter) and robust growth in the company’s
legacy businesses. This was partly offset by a decline in Sotawall
revenues due to project timing, as expected, and a difficult
comparison to a strong fiscal 2018 first quarter. Segment revenue
growth reflected an expanding geographic presence in North America,
as well as new products. Revenues rose 3% organically, excluding
the EFCO acquisition, versus prior year.
- Operating income was $12.3 million,
compared to $12.0 million in the prior year; adjusted operating
income was $15.2 million, compared to $14.0 million. Operating
margin was 6.9%, compared to 10.8% in the prior year, as
anticipated due to the inclusion of lower margin EFCO sales. Lower
Sotawall sales also impacted margins, due to the businesses’
operating leverage, though this was offset by significant,
sustainable margin improvements in the segment’s remaining legacy
businesses.
- Segment backlog increased to $427.0
million, from $405.7 million a quarter ago and $255.1 million a
year ago, and the project pipeline and bidding continue to be
solid.
Architectural Glass
Revenues and margins were down in the Architectural Glass
segment, largely as expected, due to the timing of project work.
Order activity grew substantially during the quarter, and the
company continues to expect higher year-over-year revenue and
operating income for the remainder of the year, beginning in the
second quarter.
- Revenues of $76.9 million were down 21%
from a year ago, with soft volumes early in the quarter based on
the timing for customer orders.
- Operating income was $1.6 million and
operating margin was 2.1%, declining from $9.3 million and 9.5%,
respectively, in the prior year. This was a result of lower
volumes.
Architectural Services
The Architectural Services segment achieved substantial revenue
growth and margin expansion. Based on a solid backlog, the outlook
for the remainder of fiscal 2019 remains positive.
- Revenues of $70.7 million were up 41%
versus the prior year, as the business executed on the substantial
backlog booked over the past year, as expected, and against easier
prior year comparisons.
- Operating income was $5.2 million and
operating margin was 7.3%, up significantly from $0.8 million and
1.6%, respectively, in the prior year period, due to volume
leverage and strong operating performance.
- Segment backlog increased to $439.1
million, from $426.3 million a quarter ago and $292.9 million a
year ago.
Large-Scale Optical Technologies
The Large-Scale Optical Technologies segment showed solid growth
and higher operating margins, with a positive outlook for the
remainder of the year that is in line with the company’s plan.
- Revenues of $20.8 million were up 12%
versus the prior-year period, on strong core picture framing
demand, product mix and growth in new markets.
- Operating income was $5.0 million, up
23% from a year ago. Operating margin rose to 24.0% from 21.8% a
year ago, driven by volume leverage and favorable product mix.
Financial Condition
Year-to-date capital expenditures, primarily to improve
productivity and capabilities, were $9.3 million. Free cash
flow in the first quarter was $16.0 million, versus a free
cash use of $5.5 million in the prior year period, primarily
reflecting strong working capital management and lower capital
expenditures. During the quarter, the company paid a dividend of
$4.4 million. Total debt at the end of the first quarter
was $214.5 million.
FY19 OUTLOOK
The company’s updated outlook for fiscal 2019 includes:
- Revenue growth of approximately 10
percent.
- Operating margin of 8.9 to 9.4
percent.
- Adjusted operating margin of 9.2 to 9.7
percent.
- Earnings of $3.35 to $3.55 per diluted
share, up from $3.30 to $3.50 previously.
- Adjusted EPS of $3.48 to $3.68, up from
$3.43 to $3.63 previously.
- Adjusted fiscal 2019 earnings 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 ($0.13 per diluted share).
- Capital expenditures of $60 to $65
million.
- Tax rate of approximately 24
percent.
TELECONFERENCE AND SIMULTANEOUS WEBCAST
Apogee will host a teleconference and webcast at 8 a.m. Central
Time today, June 28. To participate in the teleconference, call
(866) 525-3151 toll free or (330) 863-3393 international, access
code 9698829. To access the accompanying slides and listen to the
live conference call over the internet, go to the Apogee investor
relations website at ir.apog.com then
click on the webcast link under "upcoming events". The webcast and
accompanying slides will also be archived for replay on the
company’s website.
ABOUT APOGEE ENTERPRISES
Apogee Enterprises, Inc., headquartered in Minneapolis, is a
leader in the design and development of value-added glass and metal
products and services for enclosing commercial buildings, framing
and displays. The company is organized in four segments, with three
of the segments serving the commercial construction market:
- Architectural Glass segment consists of
Viracon, the leading fabricator of coated, high-performance
architectural glass for global markets.
- Architectural Framing Systems segment
businesses design, engineer, fabricate and finish the aluminum
frames for window, curtainwall and storefront systems that comprise
the outside skin of buildings. Businesses in this segment are:
Wausau, a manufacturer of custom aluminum window systems and
curtainwall; Sotawall, a manufacturer of unitized curtainwall
systems; EFCO, a manufacturer of aluminum window, curtainwall,
storefront and entrance systems; Tubelite, a manufacturer of
aluminum storefront, entrance and curtainwall products; Alumicor, a
manufacturer of aluminum storefront, entrance, curtainwall and
window products for Canadian markets; and Linetec, a paint and
anodizing finisher of window frames and PVC shutters.
- Architectural Services segment consists
of Harmon, one of the largest U.S. full-service building glass
installation companies.
- Large-Scale Optical segment, which
leverages the same coating technologies used in the company’s
Architectural Glass segment, consists of Tru Vue, a value-added
glass and acrylic manufacturer primarily for framing and display
applications.
USE OF NON-GAAP FINANCIAL MEASURES
This news release and other financial communications may contain
the following non-GAAP measures:
- Adjusted operating income, adjusted
operating margin, adjusted net earnings and adjusted earnings per
diluted share (“adjusted earnings per share or adjusted EPS”) are
used by the company to provide meaningful supplemental information
about its operating performance by excluding amounts that are not
considered part of core operating results when assessing
performance to improve comparability of results from period to
period. Examples of items excluded to arrive at these adjusted
measures include the impact of acquisition-related costs,
amortization of short-lived acquired intangibles associated with
backlog, and non-recurring restructuring costs.
- Backlog represents the dollar amount of
revenues Apogee expects to recognize in the near-term from firm
contracts or orders. The company uses backlog as one of the metrics
to evaluate near-term sales trends in its business.
- Free cash flow is defined as net cash
provided by operating activities, minus capital expenditures. The
company considers this measure an indication of its financial
strength.
- Days working capital is defined as
average working capital (current assets less current liabilities)
multiplied by the number of days in the period and then divided by
net sales in the period. The company considers this a useful metric
in monitoring its performance in managing working capital.
Management uses these non-GAAP measures to evaluate the
company’s historical and prospective financial performance, measure
operational profitability on a consistent basis, and provide
enhanced transparency to the investment community. These non-GAAP
measures should be viewed in addition to, and not as an alternative
to, the reported financial results of the company prepared in
accordance with GAAP. Other companies may calculate these measures
differently, limiting the usefulness of the measures for comparison
with other companies.
FORWARD-LOOKING STATEMENTS
The discussion above contains “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements reflect Apogee management’s expectations
or beliefs as of the date of this release. The company undertakes
no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. All forward-looking statements are qualified by
factors that may affect the operating results of the company,
including the following: (A) global economic conditions and the
cyclical nature of the North American and Latin American commercial
construction industries, which impact our three architectural
segments, and consumer confidence and the conditions of the U.S.
economy, which impact our large-scale optical segment; (B)
fluctuations in foreign currency exchange rates; (C) actions of new
and existing competitors; (D) ability to effectively utilize and
increase production capacity; (E) product performance, reliability
and quality issues; (F) project management and installation issues
that could result in losses on individual contracts; (G) changes in
consumer and customer preference, or architectural trends and
building codes; (H) dependence on a relatively small number of
customers in certain business segments; (I) revenue and operating
results that could differ from market expectations; (J)
self-insurance risk related to a material product liability or
other event for which the company is liable; (K) dependence on
information technology systems and information security threats;
(L) cost of compliance with and changes in environmental
regulations; (M) commodity price fluctuations, trade policy
impacts, and supply availability; (N) loss of key personnel and
inability to source sufficient labor; and (O) integration of recent
acquisitions. The company cautions investors that actual future
results could differ materially from those described in the
forward-looking statements, and that other factors may in the
future prove to be important in affecting the company’s results of
operations. New factors emerge from time to time and it is not
possible for management to predict all such factors, nor can it
assess the impact of each factor on the business or the extent to
which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements. For a more detailed explanation of the
foregoing and other risks and uncertainties, see Item 1A of the
company’s Annual Report on Form 10-K for the fiscal year ended
March 3, 2018.
Apogee Enterprises, Inc. Consolidated Condensed
Statements of Income (Unaudited)
Thirteen Thirteen Weeks Ended Weeks Ended %
In thousands, except per share
amounts
June 2, 2018
June 3, 2017
Change
Net sales $ 336,531 $ 272,307 24 % Cost of sales 255,801
202,013 27 % Gross profit 80,730 70,294 15 % Selling,
general and administrative expenses 58,735
46,188 27 % Operating income 21,995 24,106 (9 )% Interest income
230 167 38 % Interest expense 1,949 444 339 % Other (expense)
income, net (22 ) 179 N/M Earnings before income
taxes 20,254 24,008 (16 )% Income tax expense 4,881
7,904 (38 )% Net earnings $ 15,373 $ 16,104 (5 )%
Earnings per share - basic $ 0.55 $ 0.56 (2 )% Average
common shares outstanding 28,189 28,851 (2 )% Earnings per share -
diluted $ 0.54 $ 0.56 (4 )% Average common and common equivalent
shares outstanding 28,437 28,861 (1 )% Cash dividends per common
share $ 0.1575 $ 0.1400 13 %
Business Segment
Information (Unaudited)
Thirteen Thirteen Weeks Ended Weeks Ended % In thousands
June 2, 2018
June 3, 2017
Change
Sales Architectural Framing Systems $ 179,037 $ 110,492 62 %
Architectural Glass 76,925 97,735 (21 )% Architectural Services
70,727 50,150 41 % Large-Scale Optical 20,761 18,603 12 %
Eliminations (10,919 ) (4,673 ) 134 % Total $ 336,531
$ 272,307 24 %
Operating income (loss)
Architectural Framing Systems $ 12,339 $ 11,964 3 % Architectural
Glass 1,579 9,322 (83 )% Architectural Services 5,155 782 559 %
Large-Scale Optical 4,981 4,050 23 % Corporate and other
(2,059 ) (2,012 ) 2 % Total $ 21,995 $ 24,106
(9 )%
Apogee Enterprises, Inc. Consolidated
Condensed Balance Sheets (Unaudited) In thousands
June 2,2018
March 3,2018
Assets Current assets $ 344,150 $ 336,278 Net property,
plant and equipment 304,350 304,063 Other assets 386,815
381,979 Total assets $ 1,035,315 $ 1,022,320
Liabilities and shareholders' equity Current liabilities $
204,823 $ 208,152 Long-term debt 214,540 215,860 Other liabilities
91,365 86,953 Shareholders' equity 524,587
511,355 Total liabilities and shareholders' equity $ 1,035,315
$ 1,022,320
Consolidated Condensed
Statement of Cash Flows (Unaudited)
Thirteen Thirteen Weeks Ended Weeks Ended In thousands
June 2,
2018 June 3, 2017 Net earnings $ 15,373 $ 16,104
Depreciation and amortization 14,050 11,423 Share-based
compensation 1,514 1,403 Other, net 3,654 1,317 Changes in
operating assets and liabilities (9,248 ) (24,335 )
Net cash provided by operating activities 25,343
5,912 Capital expenditures (9,327 ) (11,430 ) Change
in restricted cash — 5,151 Net (purchases) sales of marketable
securities (6,124 ) 1,685 Other, net (779 ) 1,742
Net cash used in investing activities (16,230 )
(2,852 ) Borrowings on line of credit, net (2,000 ) 6,000
Shares withheld for taxes, net of stock issued to employees (1,433
) (1,596 ) Dividends paid (4,410 ) (4,002 ) Other, net 712
— Net cash (used in) provided by financing
activities (7,131 ) 402 Increase in cash and
cash equivalents 1,982 3,462 Effect of exchange rates on cash 279
47 Cash and cash equivalents at beginning of year 19,359
19,463 Cash and cash equivalents at end of
period $ 21,620 $ 22,972
Apogee
Enterprises, Inc. Reconciliation of Non-GAAP Financial
Measures Adjusted Net Earnings and Adjusted Earnings per
Diluted Common Share (Unaudited) Thirteen
Thirteen Weeks Ended Weeks Ended In thousands
June 2, 2018
June 3, 2017
% Change
Net earnings $ 15,373 $ 16,104 (5 )% Amortization of short-lived
acquired intangibles 2,870 2,054 40 % Acquisition-related costs —
680 (100 )% Income tax impact on above adjustments (1) (692
) (899 ) (23 )% Adjusted net earnings $ 17,551 $
17,939 (2 )% Thirteen Thirteen Weeks Ended Weeks
Ended
June 2, 2018
June 3, 2017
% Change
Earnings per diluted common share $ 0.54 $ 0.56 (4 )% Amortization
of short-lived acquired intangibles 0.10 0.07 43 %
Acquisition-related costs — 0.02 (100 )% Income tax impact on above
adjustments (1) (0.02 ) (0.03 ) (33 )% Adjusted
earnings per diluted common share $ 0.62 $ 0.62 — %
(1) Income tax impact on adjustments was calculated using the
estimated quarterly effective income tax rate of 24.1% in the
current year and 32.9% in the prior year.
Adjusted
Operating Income and Adjusted Operating Margin (Unaudited)
Thirteen Weeks Ended June 2, 2018 Framing
Systems Segment Corporate
Consolidated Operating Operating Operating
Operating Operating In thousands income margin income
(loss) income margin Operating income (loss) $ 12,339 6.9 % $
(2,059 ) $ 21,995 6.5 % Amortization of short-lived acquired
intangibles 2,870 1.6 % — 2,870 0.9 %
Adjusted operating income (loss) $ 15,209 8.5 % $ (2,059 ) $ 24,865
7.4 %
Thirteen Weeks Ended June 3, 2017 Framing
Systems Segment Corporate Consolidated Operating
Operating Operating Operating Operating In thousands income margin
income (loss) income margin Operating income (loss) $ 11,964 10.8 %
$ (2,012 ) $ 24,106 8.9 % Amortization of short-lived acquired
intangibles 2,054 1.9 % — 2,054 0.8 % Acquisition-related costs
— — % 680 680 0.2 % Adjusted operating
income (loss) $ 14,018 12.7 % $ (1,332 ) $ 26,840 9.9 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180628005240/en/
Apogee Enterprises, Inc.Investor Relations,
952-487-7699ir@apog.com
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