Apogee Enterprises, Inc. APOG reported earnings per share of 82 cents in third-quarter fiscal 2018 (ended Dec 2, 2017), up 5% from 78 cents per share recorded in the prior-year quarter. Adjusted earnings of 90 cents per share, however, missed the Zacks Consensus Estimate of $1.04.
The company reported total revenues of around $357 million, surging 30% year over year. However, revenues lagged the Zacks Consensus Estimate of $376 million.
Operational Update
Cost of sales in the quarter flared up 32% year over year to $265 million. Gross profit improved 26% year over year to $91.6 million. Gross margin contracted 90 basis points (bps) to 25.7%. Selling, general and administrative (SG&A) expenses escalated 44% year over year to $57 million. Operating income grew 4% year over year to $34.5 million. Operating margin dipped 240 bps to 9.7%.
Apogee Enterprises, Inc. Price, Consensus and EPS Surprise
Apogee Enterprises, Inc. Price, Consensus and EPS Surprise | Apogee Enterprises, Inc. Quote
Segment Performance
Revenues at the Architectural Framing segment soared a whopping 114% year over year to $194 million, driven by recent acquisitions of Sotawall and EFCO. Excluding the acquisitions, revenues rose 17%. Further, revenue growth was backed by elevated sales in the company’s legacy business. The segment’s operating income in the quarter advanced 56% to $18.5 million from $11.8 million registered in the prior-year quarter.
The Architectural Glass Systems segment revenues declined 9% year over year to $97 million, due to delays caused by the Florida hurricane as well as lower volume of large projects. The segment’s operating income descended 22% to $9.1 million from $11.7 million reported in the year-earlier quarter.
Revenues at the Architectural Services segment were down 24% year over year to $49 million. The segment reported an operating profit of $2.5 million, significantly down from $4.9 million recorded in the comparable quarter last fiscal.
The Large-Scale Optical Technologies segment’s revenues went up 18% year over year to $26 million, driven by strong customer orders for holiday framing. Operating income in the reported quarter came in at $6.7 million, increasing 14% from $5.9 million recorded in the year-earlier period.
Backlog
In the Architectural Framing Systems segment, backlog increased to $448.8 million in the fiscal third quarter, up from $164 million reported in the prior-year period. This substantial backlog will likely support growth in the second half of fiscal 2019 and beyond. The Architectural Services’ segment backlog came in at $346.3 million — a $150-million improvement from the year-ago quarter.
Financial Position
As of Dec 2, 2017, Apogee had cash and cash equivalents of $12.8 million compared with $51.6 million recorded as of Nov 26, 2016. The company generated $66 million in cash from operating activities during the nine-month period ending Dec 2, 2017, compared with $72.8 million recorded in the prior-year period. Long-term debt was $231.3 million as of Dec 2, 2017, compared with $65.4 million as of Mar 4, 2017.
Fiscal 2018 Outlook Trimmed
Apogee lowered its fiscal 2018 guidance due to lesser-than-expected volume and pricing, primarily in the architectural glass segment, and higher-than-expected health care costs. In addition, the trimmed outlook reflects charges that will result from restructuring activities in the fourth-quarter fiscal 2018.
Apogee also narrowed its revenue growth guidance to around 20% from the previous growth range of 24-26% for fiscal 2018. The company now expects its adjusted operating margin to lie between 8.6% and 8.9% compared to the prior view of 11-11.5%. It also trimmed its earnings per share guidance for the fiscal year to the range of $2.58-$2.68 from the previous band of $3.05-$3.25.
Fiscal 2019 View
For fiscal 2019, Apogee anticipates double-digit revenue growth and triple-digit basis-point improvement in operating margin. The company expects to incur around $4.5 million for restructuring projects, which is likely to yield roughly $4 million in annual savings in fiscal 2019 and beyond.
Moreover, the company is poised to gain on solid U.S. commercial construction markets, healthy backlog and a solid pipeline of projects, as well as encouraging external market metrics. Further, Apogee’s focus on executing growth strategies and productivity initiatives will fortify its business. Its focus on cost-reduction actions will also stoke growth.
Share Price Performance
Apogee has underperformed the industry with respect to price performance over the past year. The stock has lost around 18.4%, while the industry recorded growth of 8.4% during the same time frame.
Zacks Rank & Stocks to Consider
Apogee currently has a Zacks Rank #3 (Hold).
Better-ranked stocks in the same sector include Deere & Company DE, Kennametal Inc. KMT and Caterpillar Inc. CAT. While Deere and Kennametal sport a Zacks Rank #1 (Strong Buy), Caterpillar carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Deere has a long-term earnings growth rate of 8.2%. Its shares have rallied 52.9%, year to date.
Kennametal has a long-term earnings growth rate of 8.3%. The company’s shares have been up 55.4% during the same time frame.
Caterpillar has a long-term earnings growth rate of 10.3%. So far this year, shares of the company have gained 67.9%.
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