Apogee Enterprises, Inc. has announced fiscal 2017 third-quarter results.
“Apogee delivered another quarter of strong top- and bottom-line growth, driven by our architectural businesses, which are executing strategies for growth and operational excellence,” said Joseph F. Puishys, Apogee chief executive officer. “Our results, with earnings per share up 24 percent, reflect the position of strength we’ve established in commercial construction markets. We continue to have confidence in our ability to perform and have once again increased our earnings per share guidance for fiscal 2017.
“In the quarter, we again delivered on strategic initiatives to better position Apogee over a cycle, including growing our share of mid-size projects in architectural glass and expanding penetration of the retrofit market,” he said. “In addition, we increased our credit facility to allow us to sustain our growth momentum by making acquisitions that expand our market opportunities.
“To that end, this morning we closed on the acquisition of a $100 million revenue business that supports two of our growth strategies,” said Puishys. “Sotawall Limited increases our geographic presence in Canada and the U.S., and adds unique curtainwall products to our offerings. Its EBITDA margins will be accretive to Apogee and our architectural framing systems segment, and it will be accretive to Apogee’s earnings in fiscal 2018.”
FY17 THIRD-QUARTER SEGMENT AND OPERATING RESULTS VS. PRIOR-YEAR PERIOD
Architectural Glass
•Revenues of $107.0 million were up 25 percent, on strong U.S. growth in the mid-size sector.
•Operating income grew to $11.7 million, up 40 percent.
◦Operating margin expanded 110 basis points to 10.9 percent, on volume growth and improved pricing, mix and productivity.
•Segment backlog was $84.7 million, compared to $90.7 million in the fiscal 2017 second quarter.
◦Architectural glass segment continues to have the greatest visibility to future projects due to its daily interaction with architects, but has become a quicker lead-time business with a higher level of book and bill activity within quarters; therefore, revenue growth doesn’t require an increase in backlog.
Architectural Framing Systems
•Revenues of $90.9 million were up 19 percent, on volume growth in all four businesses.
•Operating income grew to $11.8 million, up 28 percent.
◦Operating margin expanded 90 basis points to 13.0 percent, as a result of volume growth and productivity.
•Segment backlog was $164.1 million, compared to $130.5 million in the fiscal 2017 second quarter.
◦Today’s acquisition is expected to add $75 to $100 million to fourth-quarter framing segment backlog.
Architectural Services
•Revenues of $64.4 million were up 5 percent.
•Operating income grew to $4.9 million, up 33 percent.
◦Operating margin expanded 160 basis points to 7.6 percent, due to good execution on projects with better margins and volume growth.
•Segment backlog was $195.5 million, compared to $236.1 million in the fiscal 2017 second quarter.
◦Since the third quarter ended, there have been substantial architectural services awards, leading to an expectation that the fourth-quarter services segment backlog will increase significantly from the third-quarter level.
Large-Scale Optical Technologies
•Revenues of $22.1 million were down 9 percent, due to softer than expected custom picture framing end markets; revenues are expected to grow in the fourth quarter.
•Operating income of $5.9 million was down 22 percent.
◦Operating margin was 26.8 percent, compared to 31.5 percent, as a somewhat stronger product mix was more than offset by lower volume; operational performance remains strong.
Financial Condition
Apogee’s capital allocation strategy – rooted in strong cash flow – supports cash returns to shareholders and investments in future growth. In the third quarter, the company increased and extended its credit facility to support its acquisition strategy.
Apogee generated $70.5 million in cash from operations year to date, compared to $86.2 million in the prior-year period. Cash and short-term investments, including restricted cash, totaled $97.1 million at the end of the third quarter, compared to $90.6 million at the end of fiscal 2016. Apogee’s debt was $20.4 million, comparable to the level at the end of fiscal 2016. Reflecting Apogee’s ongoing commitment to enhancing shareholder return, in the third quarter the company paid cash dividends of $3.6 million and repurchased 250,000 shares of common stock at a cost of $10.8 million to offset dilution from compensation programs.
FY17 OUTLOOK
“For full-year fiscal 2017, we expect continued top- and bottom-line growth, and have increased our earnings per share outlook for the year to $2.85 to $2.95, from $2.80 to $2.90, as a result of solid execution of strategies to improve operational performance, productivity and project selection,” said Puishys. “We are maintaining our outlook for revenue growth of approximately 10 percent.”
He said that fiscal 2017 capital expenditures are anticipated to be approximately $70 million, as Apogee invests primarily to increase capabilities and productivity. Gross margin is expected to be approximately 26.7 percent and operating margin approximately 11.5 percent.
Puishys noted that this guidance does not include the impact of the acquisition completed today; the new curtainwall business is expected to add approximately $15 million to fourth-quarter revenues at a break-even operating margin due to purchase accounting costs.
“Apogee expects mid-single digit U.S. commercial construction market growth in fiscal years 2017 and 2018, as market activity, the Architecture Billings Index, office employment and office vacancy rates all show positive momentum,” he said. “With our internal market visibility and external metrics moving in the right direction, we see sustained U.S. non-residential market growth at least through fiscal 2020.
“Our strategies to grow through new geographies, new products and new markets, along with our focus on better project selection, productivity and operational improvements are yielding strong results,” Puishys said.