Apogee Enterprises, Inc. APOG -1.35% on Sep 18, 2013 announced fiscal 2014 second-quarter results. Apogee provides distinctive solutions for enclosing commercial buildings and framing art.
Operating income up 24 percent, EPS up 17 percent
Acquisition supports product, geographic growth strategies
--Fiscal 2014 EPS outlook narrowed to $0.93-$1.00, from $0.90-$1.00
FY14 SECOND QUARTER VS. PRIOR-YEAR PERIOD
-- Revenues of $178.3 million were up 1 percent.
-- Operating income of $9.4 million was up 24 percent.
-- Earnings per share of $0.21 were up 17 percent.
-- Architectural Glass segment had revenue growth of 11 percent and improved operating income.
-- Consolidated backlog of $304.2 million was up 1 percent.
-- Cash and short-term investments of $73.7 million were up 8 percent.
COMMENTARY "Apogee recorded another good quarter, with growth in revenues, operating income and backlog," said Joseph F. Puishys, Apogee chief executive officer. "We also grew cash and short-term investments in a quarter when we made an acquisition.
"Revenue growth in the quarter was 1 percent, as strong growth in the Architectural Glass segment and in two of the three businesses in the Architectural Framing Systems segment was held down by project timing in the Architectural Services segment and Framing Systems window business, as we had anticipated," he said. "We expect that the Services and window businesses both will have a stronger second half and will contribute to backlog growth in the third quarter.
"I remain pleased with the year-to-date revenue growth of 8 percent in markets that are slowly improving," said Puishys. "In the first half, all businesses have grown faster than our end markets, with the exception of the window business as we had anticipated.
"The biggest contributor to our strong operating income growth was our Architectural Glass segment, which benefited from improved mix, pricing and productivity," he said. "The Large-Scale Optical segment again turned in a solid performance with an operating margin of almost 27 percent."
FY14 SECOND-QUARTER SEGMENT AND OPERATING RESULTS VS. PRIOR-YEAR PERIOD
Architectural Glass
-- Revenues of $70.0 million were up 11 percent.
-- Operating income was $0.8 million, improved from an operating loss of $2.0 million. -- Operating margin was 1.1 percent, compared to negative 3.2 percent.
-- Top- and bottom-line increases resulted from improved mix, pricing and productivity.
Architectural Services
-- Revenues of $42.2 million were down 10 percent due to the timing of project flow.
-- Operating loss was $0.8 million, improved from an operating loss of $1.0 million despite the decline in current quarter revenues. -- Operating margin was negative 1.9 percent, compared to negative 2.2 percent as project margins increase from the cycle trough.
Architectural Framing Systems
-- Revenues of $49.5 million were down 5 percent.
-- Operating income was $5.2 million, compared to $6.1 million. -- Operating margin was 10.5 percent, compared to 11.6 percent.
-- Solid top- and bottom-line growth in the storefront and finishing businesses was offset by the window business results, where revenues and operating income declined with an anticipated gap in the schedule for more complex projects.
-- During the quarter, completed an acquisition that adds an historic window renovation product line.
Large-Scale Optical Technologies
-- Revenues of $19.7 million were up 1 percent.
-- Operating income was $5.3 million, compared to $5.2 million. -- Operating margin was 26.9 percent, up from 26.5 percent.
Consolidated Backlog
-- Consolidated backlog was $304.2 million up from $301.8 million in the first quarter of fiscal 2014 and $301.3 million in the prior-year period. -- Approximately $202 million, or 66 percent, of the backlog is expected to be delivered in fiscal 2014, and approximately $102 million, or 34 percent, in fiscal 2015.
Financial Condition
-- Debt was $20.8 million, compared to $30.8 million at the end of fiscal 2013. Almost all the debt is long-term, low-interest industrial revenue bonds.
-- Cash and short-term investments totaled $73.7 million, compared to $85.6 million at the end of fiscal 2013 and $68.3 million in the prior-year period.
-- Non-cash working capital was $70.3 million, compared to $54.1 million at the end of fiscal 2013 and $57.4 million in the prior-year period.
-- Capital expenditures year to date were $8.2 million, compared to $15.7 million in the prior-year period.
-- Depreciation and amortization year to date was $13.2 million.
OUTLOOK "We continue to expect strong top- and bottom-line growth in fiscal 2014 through our growth strategies and productivity initiatives," said Puishys. "We have raised the bottom end of our earnings per share range, and now expect to earn $0.93 to $1.00 per share, improved from previous guidance of $0.90 to $1.00, based on the visibility into our backlog, the project pipeline and operating performance.
"We are maintaining our outlook for fiscal 2014 revenue growth in the high single digits," he said. "We are experiencing strong bidding activity for future architectural work; our pipeline for new project awards is positive; we anticipate backlog growth in the third quarter; and margins on new orders continue to be better than prior-year margins.
"We again expect to outperform domestic commercial construction market growth by several percentage points," Puishys said. "The outlook for U.S. commercial construction markets in fiscal 2014, based on Apogee's lag to McGraw-Hill forecasts for the segments we serve, is for modest market growth.
"We continue to expect that capital spending for fiscal 2014 will be in the range of $40 to $45 million as we invest for growth, productivity and product development capabilities," he said. "We expect to be free cash flow positive after this level of investments." He added that the fiscal 2014 gross margin is anticipated to be approximately 22 percent.
"I believe that our strategies to grow through new geographies, new products and new markets will allow Apogee to reach $1 billion in revenues by the end of fiscal 2016," Puishys said. "At the same time, we believe we can achieve 10 percent operating margin in this timeframe, in part through our focus on productivity and operational improvements."
