Apogee Enterprises has announced fiscal 2018 full-year and fourth-quarter results
Record full-year performance, revenues up 19%, EPS of USD 2.76, adjusted EPS of USD 3.23; strategic progress on diversifying revenues and improving operationally, while generating strong operating cash flow to support productivity/growth investments, dividend increase and share buybacks; backlog growth in longer-lead time businesses; FY19 guidance announced; continued outlook for multiple years of growth.
Apogee Enterprises has announced fiscal 2018 full-year and fourth-quarter results. Apogee provides distinctive solutions for enclosing commercial buildings and framing and displays.
“Fiscal 2018 was a record year for revenues at Apogee, as were adjusted earnings per share. In the fourth quarter, all four segments delivered results in line with our expectations, and in addition, the benefits of tax reform were higher than we initially anticipated,” said Joseph F. Puishys, Apogee chief executive officer. “During the year, we advanced strategies to diversify revenue streams and strengthen our business, while generating USD 127 million in operating cash flow and significantly expanding backlog to build momentum as we enter fiscal 2019.
“Our strategy to stabilize our business performance throughout an economic cycle is centred on diversifying geographies, markets and project sizes served, as well as improving margins through productivity and project selection initiatives,” said Puishys. “We have been positioning each of our segments to achieve new levels of performance. We’re strategically focused on the architectural framing systems segment, which is our largest and most profitable segment; the segment now serves more of North America with a broader range of products, and we are driving organic expansion into underserved geographies.
The architectural glass segment continues to penetrate mid-size markets and is again winning more large projects, while reducing fixed costs; it also is moving forward with strategies to pursue expansion into broader architectural glass markets.
The architectural services segment has the backlog and order pipeline strength to support our outlook for growth in fiscal years 2019 and 2020.
The large-scale optical segment investments in new market sectors are expected to deliver growth for this high-margin segment in fiscal 2019.
We will leverage business opportunities in fiscal 2019 and beyond to deliver shareholder value,” he said.
Architectural Framing Systems reported full-year revenues up 75%. Excluding the EFCO and Sotawall acquisitions, revenues were up 9%, with growth in all legacy businesses from increased pricing, share gains and geographic growth in North America. Full-year operating income was up 32%, with adjusted operating income up 50%. Operating margin was 8.7%, vs. 11.6%, and adjusted operating margin was 10.3%, vs. 12.0%, as improved operating margins for legacy businesses were offset by the addition of EFCO, which currently operates at a lower margin.
Significant progress is being made on purchasing and operational synergies with EFCO, and Apogee has the expertise and resources to bring this business to segment levels of performance. Fourth-quarter revenues were up 51%; excluding acquisitions, revenues were down 4% vs. a strong prior-year period and on project timing. Fourth-quarter operating income was up 24%, and adjusted operating income was up 31%, with increases for all legacy businesses. Operating margin was 6.6%, vs. 8.0%, and adjusted operating margin was 8.2%, vs. 9.4%, primarily due to the addition of EFCO.
Segment backlog grew USD 27 million sequentially, excluding the transfer of USD 70 million from EFCO backlog to architectural services during the quarter. Fourth-quarter segment backlog was USD 405.7 million. The project pipeline and bidding remain strong.
With regards to Architectural Glass, full-year revenues were down 7%, due to large projects lost to international competition in prior years, partially offset by growth in mid-size projects. Recent investments in automation and productivity have enabled share gains in mid-size projects. The fiscal 2018 top line also was impacted as delays related to the Florida hurricane resulted in approximately USD 10 million in revenues moving into fiscal 2019.
Full-year operating income was down 27%, and adjusted operating income was down 20%, vs. the strong prior year; fiscal 2018 segment adjusted operating income was the second highest in the history of the business. Operating margin was 8.5%, vs. 10.8%, on reduced volume leverage, lower pricing/mix and the closure of the Utah facility in the fourth quarter, partially offset by productivity gains; adjusted operating margin was 9.3%. Fourth-quarter revenues were down 18%, as expected, vs. an historically record prior-year period and as a result of the revenue impacts noted for the full year. Fourth-quarter operating income was down 70%, and adjusted operating income was down 48%. Operating margin was 4.4%, and adjusted operating margin was 7.7%, vs. 12.3%, due to operating margin impacts noted for the full year.
The business is growing in the mid-size project sector with attractive margins and successfully regaining large-project work, which is expected to begin generating revenue later in fiscal 2019 and beyond; it also is moving forward with strategies to pursue expansion into broader architectural glass markets.
Architectural Services saw full-year revenues down 21%, largely as expected, on project timing. Full-year operating income was down 44%, and operating margin was 4.9%, vs. 6.8%, as expected, due to lower volume. Fourth-quarter revenues were up 3%, for the third consecutive quarter of top-line growth, as the business has begun to execute new projects booked into backlog over the last year. Fourth-quarter operating income was up 52%, and operating margin was 9.3%, vs. 6.3%, due to improved operating performance on higher volume.
Segment backlog grew USD 10 million sequentially, excluding approximately USD 70 million from EFCO backlog that was transferred from architectural framing systems to the services backlog during the quarter. Fourth-quarter backlog was USD 426.3 million, which was up more than USD 100 million from the fiscal 2017 year-end level, not including the transfer from EFCO. Bidding activity remains strong for projects expected to generate revenue into fiscal 2021.
Full-year revenues for Large-Scale Optical Technologies were down 2%. Full-year operating income was down 2%, and operating margin was flat at 24.9%. Fourth-quarter revenues were down 11%, driven by the timing of orders from national retailers. Fourth-quarter operating income was up 2%, and operating margin was 29.8%, vs. 26.0%, on improved mix. Investments made in new market initiatives are expected to generate growth in fiscal 2019.
Full-year and fourth-quarter earnings reflect net tax benefits of USD 3.7 million, or USD 0.13 per share, primarily from a reduction in deferred income tax liabilities resulting from enactment of the Tax Cuts and Jobs Act of December 2017. Full-year capital expenditures, primarily for productivity and architectural glass capabilities, were USD 53 million. Full-year free cash flow was USD 74 million. Debt at the end of fiscal 2018 was USD 216 million. Full-year net interest expense was USD 5.0 million, vs. zero in the prior year, due to the increase in debt to support recent acquisitions.
“Our outlook for fiscal 2019 continues our momentum in transforming Apogee to deliver more stable revenue streams and earnings longer-term,” said Puishys. “In fiscal 2019, we will remain focused on operational improvement initiatives to realize our profitability goals, while we pursue investments that will serve as catalysts for revenue growth and operating margin improvement in fiscal 2020 and beyond. We expect to invest in geographic expansion in architectural framing systems to continue to gain share, and in architectural glass to expand revenues into broader glass markets. At the same time, we’ll leverage recent investments to grow revenues in new large-scale optical markets, and we’ll execute against the large architectural services backlog.
“In fiscal 2019, we anticipate Apogee’s top line will grow approximately 10% and operating income will increase to a record level,” he said. “Looking forward to fiscal 2020, we expect Apogee to show further revenue and income expansion.
“We have a great business that is delivering value to shareholders as we execute strategies to diversify and strengthen our business, including growth strategies around new geographies, products and markets, and productivity initiatives driven by Lean and automation,” said Puishys. “Our positive outlook is supported by external forecasts for continued solid US commercial construction markets and our internal visibility that includes a healthy backlog and pipeline of projects that we’re bidding.”
Apogee’s outlook for fiscal 2019 is:
* Revenue growth of approximately 10%.
* Operating margin of 8.8 to 9.3%.
o Adjusted operating margin of 9.1 to 9.6%.
* Earnings of USD 3.30 to USD 3.50 per diluted share.
o Adjusted EPS of USD 3.43 to USD 3.63.
* 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 USD 3.8 million(USD 0.13 per diluted share).
* Capital expenditures of USD 60 to USD 65 million.
* Tax rate of approximately 24%.
“Apogee’s backlog, bidding and pipeline of potential work support growth through fiscal 2020,” said Puishys, who added that “although visibility into fiscal 2021 is limited, the company is not seeing any slowdown in commercial construction markets.”