Apogee Enterprises, Inc. (APOG) delivered first-quarter fiscal 2014 earnings of 14 cents per share, more than double than 6 cents per share earned in the prior-year quarter. However, earnings fell short of the Zacks Consensus Estimate of 17 cents per share. The year-over-year rise was driven by improved volume, mix, productivity and pricing in Architectural Glass, and improved margins in Architectural Services.
Total revenue improved 16% year over year to $179.3 million in the quarter, surpassing the Zacks Consensus Estimate of $174 million. The improvement was driven by growth in all segments, particularly Architectural Glass and Architectural Services.
Operational Update
Cost of goods sold increased 16% to $143 million in the quarter. Gross profit improved 17% to $36.4 million. Gross margin in the quarter remained flat at 20%. SG&A expenses went up 5% to $30.3 million. Operating income was $6.1 million, more than double of $2.3 million earned in the year-ago quarter. Operating margin expanded 190 basis points to 3.4% driven by improvements in volume, pricing and productivity.
Segment Performance
Revenues from the Architectural Glass segment jumped 27% year over year to $74.8 million. Operating income in the quarter was $1.4 million, a stellar improvement from a loss of $2.4 million in the year-ago quarter. The segment benefited from improved mix, volume, productivity and pricing.
Revenues from the Architectural Services segment went up 19% year over year to $46.5 million on the back of volume growth and the timing of project cost flow. The segment reported an operating loss of $1 million, an improvement from the loss of $2.6 million in the prior-year quarter helped by volume increases and improvement in project margins.
The Architectural Framing Systems’ revenues increased 5% year over year to $44.4 million. The segment’s operating income declined 33% to $2.1 million from the year-ago quarter due to the negative impact of a gap in timing for more complex window work. Improved performance in the storefront and finishing businesses was offset by a weaker window business, where revenues and operating income were affected by an anticipated gap in the schedule for more complex projects.
Large-Scale Optical Technologies segment’s revenues inched up 1% to $19.5 million. Operating income in the reported quarter was $4.7 million, down 11% from $5.3 million in the year-ago quarter. Volume growth and a positive mix of higher value-added products were offset by investments in promotion and for growth in new geographies and markets.
Financial Position
Apogee ended the quarter with cash and short-term investments of $69.7 million compared with $85.6 million as of fiscal 2013 end. Long-term debt amounted to $20.8 million, in line with fiscal 2013 end. Cash used in operating activities was $2.2 million during the first quarter of fiscal 2014 compared with $7.6 million in the prior-year quarter.
Consolidated backlog at the end of the first quarter was $302 million, up from $298 million at the end of fiscal 2013 and $269 million in the prior-year quarter. Approximately 79% of the backlog, or $238 million, is expected to be delivered in fiscal 2014, and the balance 21%, or $64 million, in fiscal 2015.
Looking Ahead
For fiscal 2014, Apogee expects earnings to be in the range of 90 cents to $1.00 per share on the back of high single-digit revenue growth. Gross margin is anticipated to be at least 22% in fiscal 2014. Geographic growth in the domestic markets and introduction of new products are expected to contribute to revenue growth. Furthermore, improvements in volume, mix, project margins and operating leverage will drive earnings.
Capital spending for fiscal 2014 is projected in the range of $40 to $45 million as Apogee continues to invest in growth, productivity and product development capabilities, including the new architectural glass coater.
Apogee targets $1 billion in revenues by the end of fiscal 2016. Apogee also expects to achieve 10% operating margins on the back of its focus on productivity and operational improvements.
Our Take
Apogee’s backlog remains strong, which bodes well for its future performance. The company intends to add new capacities and fund acquisitions. Focus on operational improvements, expansion in new geographies and markets, and new product launches will fuel Apogee’s revenue growth going forward.
Apogee has faced challenging commercial construction market conditions so far. However, the U.S. construction is finally stabilizing and is on the road to the much-awaited recovery, which looks promising for Apogee.
However, macroeconomic conditions might continue to be a headwind for Apogee. Moderating global economic growth and uncertainty in the global economic scenario can limit Apogee’s near-term revenue visibility.
Apogee Enterprises is a leader in technologies for the design and development of value-added glass products, services and systems. Apogee retains a Zacks Rank #3 (Hold). Other stocks in the same industry with favorable Zacks Rank are Mueller Water Products, Inc. (MWA), with a Zacks Rank #1 (Strong Buy), and Century Aluminum Co. (CENX) and Kaiser Aluminum Corporation (KALU), both carrying a Zacks Rank #2 (Buy).
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