Shares of Apogee Enterprises, Inc. (APOG) have gained since the company reported second-quarter fiscal 2015 results on Sep 16, trading in the above $40 range in contrast to the prior $30 range. The upbeat results led the shares to gain 8% in a day, hitting a 52-week high of $39.49 on Sep 17. The shares have amassed 39% year-to-date return.
This leader in technologies for design and development of value-added glass products, services and systems, reported a 67% year-over-year improvement in earnings per share to 35 cents in the quarter aided by a strong architectural market. Earnings also benefitted from an IRS 48C energy-efficiency investment tax credit, with startup and commercial production of coatings on the new architectural glass coater.
Backlog increased across the board and was at the highest level in the last 6 years at $480 million. Approximately 59% of the backlog or $285 million, is expected to be delivered in fiscal 2015 and the balance 41% or around $195 million in fiscal 2016 and beyond.
In addition, based on the robust bidding activity, the company guided revenue growth in a range of 20% (up from the previous 15% to 20% range) and earnings per share in the range of $1.62 to $1.72 for fiscal 2015.
During the conference call, Apogee’s Chief Financial Officer, Jim S. Porter, pointed out that Apogee’s architectural businesses are gaining share as revenues for all of them increased 34%. Organic growth at 25% was well above the expected 10% market growth this year. The architectural markets have strengthened earlier than anticipated by the company; hence it is experiencing some costs and ramp up to meet demand. Porter mentioned that gross margin for the year will be 22% to 23%, down from the previous outlook of 23%, due to these factors.
Apogee’s Chief Executive Officer, Joe F. Puishys, stated that strong results so far along with a growing backlog and strength in architectural markets has set the momentum for improved results in 2015. Puishys added that this is a stepping stone to achieving the company’s previously-stated goal of $1 billion in revenues and 10% operating margin by the end of fiscal 2016.
Regarding capacity additions, Puishys mentioned that Apogee has reopened its Architectural Glass facility in Utah. The facility, which has been closed since Apr 2013, will resume operations by Jan 2015. This will help the company to meet the growing demand for Architectural Glass. Apogee will also expand its Architectural Finishing facility in Wausau, WI by the second half of fiscal 2016. This will add more than 50% capacity to a critical growth operation.
Coming to the segments, Puishys pointed out that Viracon architectural glass fabrication business, in its Architectural Glass segment, continues to benefit from the U.S. tall-building sector, which is at its peak since 2007. The segment continues to benefit from improved operating leverage and pricing.
In the Architectural Framing Systems segment, the U.S. storefront business will benefit from the recently announced price increases and will continue to be a profit driver for Apogee moving forward. Despite delivering a decline in revenues and profits in the second quarter, Puishys remains positive that demand for the Large-Scale Optical segment will pick up in the third quarter for holiday picture framing glass and acrylic requirements.
Puishys is confident that the company will outperform its commercial construction markets. He highlighted that McGraw Hill Financial, Inc. (MHFI) has increased to approximately 10% for the fiscal year. Furthermore, the Architectural Billing Index is at its highest level since 2007, delivering consistent monthly gains in the last 24 months. Despite the weak start in Canada, commercial construction markets are now expected to grow for the rest of the year. Moreover, Apogee’s Canada backlog is now at a historical high.
Puishys confirmed the company’s strategy, to grow through new geographies, new products and new markets, has put it on the track to achieve its 2016 targets.
Given the growth prospects, earnings estimates for Apogee also have been on the rise in the last 30 days. The current Zacks Estimate for fiscal 201 represents a 57.9% year-over-year growth and for fiscal 2015 reflects a 43.3% year-over-year climb.
Along with Apogee, companies like NCI Building Systems Inc. (NCS) and Armstrong World Industries, Inc. (AWI) will gain from strength in architectural markets.
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