Apogee Enterprises, Inc. APOG posted earnings per share of 63 cents in third-quarter fiscal 2016 (ended Nov 28, 2015) that surged 34% from adjusted earnings of 47 cents per share in the prior-year quarter. The year-over-year improvement in the bottom line was driven by strong margins. Earnings were in line with the Zacks Consensus Estimate.
Operational Update
The company reported total revenue of $238 million, which dropped 2.5% year over year. Unfavorable foreign currency effect, lower volumes at international operations as well as from project timing – that pushed some revenues into fiscal 2017 – led to the decline in revenues. In constant currency, revenues were flat year over year. Revenues, however, fell way short of the Zacks Consensus Estimate of $260 million.
Cost of goods sold decreased 6% year over year to $176 million from $188 million in the year-ago quarter. Gross profit improved 10% year over year to $62 million. Gross margin also expanded 300 basis points (bps) to 26.2%. Selling, general and administrative (SG&A) expenses declined 4% year over year to $34.6 million. Operating income increased 35% year over year to $27.9 million. Operating margin grew 330 bps year over year to 11.7%.
Segment Performance
Revenues for the Architectural Glass segment decreased 5% year over year to $85.5 million due to currency exchange and lower volume at Brazil operations. Operating income in the quarter went up 44% to $8.4 million from $5.8 million in the prior-year quarter, aided by improved pricing, mix and productivity.
Revenues for the Architectural Services segment rose 9% year over year to $61.2 million. The segment reported an operating profit of $3.7 million, a substantial improvement from $0.3 million in the year-ago quarter. Income in the quarter benefited from healthy operational performance and improving project margins, while the year-ago quarter was negatively impacted by a few projects in the period.
The Architectural Framing Systems segment’s revenues decreased 5% year over year to $76 million, hurt by unfavorable currency exchange and lower volumes at the Canadian storefront business. The segment’s operating income grew 22% to $9.2 million from $7.6 million in the prior-year quarter, backed by lower raw material costs and improved pricing and productivity.
The Large-Scale Optical Technologies segment’s revenues went down 5% year over year to $24.2 million due to the timing of customer orders. Operating income in the reported quarter was $7.6 million, which dropped 3% from $7.9 million in the year-ago quarter.
Financial Position
Apogee ended the quarter with cash and cash equivalents of $91 million versus $34 million in the year-ago quarter. The company generated cash flow from operations of $86 million during the first three quarters of fiscal 2016 compared with $37 million in the prior-year period.
Apogee’s backlog increased 7% year over year to $511.9 million in the third quarter of fiscal 2016. Roughly 50% or $256 million of the backlog is expected to be delivered in fiscal 2016, and the balance 50% will be delivered in fiscal 2017 and beyond.
Apogee’s backlog was at a record $544.7 million at the end of the third quarter. Sequentially, backlog grew 6% as Apogee continues to experience strong bidding and award activity. Approximately 30% of the backlog or $167 million is expected to be delivered in fiscal 2016, and the balance 70% or $378 million in fiscal 2017 and beyond.
Outlook
Apogee expects double-digit operating margin with revenue growth in the fourth quarter of fiscal 2016. Apogee raised its fiscal 2016 earnings per share outlook range to $2.15–$2.25 from $2.10–$2.25 expected earlier. The company, however, revised its revenue growth guidance to mid-single digits from high-single digits.
Given the strong backlog, along with commitments, bidding and award activity, Apogee maintained its longer term outlook for revenues of $1.3 billion, at an operating margin of at least 12% in fiscal 2018.
Our Take
Apogee will benefit from its sound backlog, strong momentum in the architectural markets, and robust bidding and award activity. Moreover, the company continues to make significant investments for capability, capacity and productivity, including its architectural glass business where it completed installation and startup of a new coater. These investments will support growth.
Apogee Enterprises is a leader in technologies for the design and development of value-added glass products, services and systems.
Apogee currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Albany International Corp. AIN, Brady Corp. BRC and Codexis, Inc. CDXS. All these stocks sport a Zacks Rank #1 (Strong Buy).
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