Apogee Shares Up on Strong Q4 Earnings - Analyst Blog

Shares of Apogee Enterprises, Inc. APOG rose 4.5% as the company reported fourth-quarter fiscal 2014 earnings of 27 cents per share, up 80% from 15 cents earned in the prior-year quarter. However, earnings lagged the Zacks Consensus Estimate of 31 cents.

Total revenue increased 19% year over year to $214 million in the quarter but fell short of the Zacks Consensus Estimate of $217 million.

Operational Update

Cost of goods sold increased 17% to $167.5 million in the quarter. Gross profit improved 29% to $46.9 million. Gross margin increased 170 basis points (bps) to 21.9%. Selling, general and administrative (SG&A) expenses rose 16% year over year to $34.8 million. Operating income was $12.1 million, which grew a whopping 97% from $6.1 million earned in the year-ago quarter. Operating margin rose 320 bps to 6.4%.

Segment Performance

Revenues from the Architectural Glass segment increased 9% year over year to $75.7 million with growth in the U.S. and Brazil. Operating income in the quarter was $0.1 million, turning around the loss of $0.4 million in the prior year quarter, aided by improved mix and pricing, partially offset by timing of expenses and increased incentive compensation.

Revenues from the Architectural Services segment increased 22% year over year to $63.5 million. The segment reported an operating profit of $5.9 million, improving twofold from $2.8 million in the year-ago quarter. Growth in the top and bottom lines was owing to favorable project timing and cost flow, along with improving project margins.

Architectural Framing Systems' revenues increased 41% year over year to $63 million, with 16% organic growth. The segment's operating income increased to $1.9 million, turning around the year-ago quarter loss of $0.2 million. Improved performance in the window business drove the results.

Large-Scale Optical Technologies segment's revenues remained flat at $19.2 million due to softness in the retail market, which resulted from a severe winter, partially offset by sales growth in the fine art and museum market. Operating income in the reported quarter was $5.2 million, up 30% year over year due to reduced expenses and a strong mix of higher value-added framing products.

Financial Position

Apogee had cash and short-term investments of $28.7 million at the end of the reported quarter compared with $85.6 million at the end of fiscal 2013. Cash flow from operations was $52.9 million as of Mar 1, 2014, against $40.5 million as of Mar 2, 2013. Long-term debt remained flat at $20.7 million at the end of fiscal 2014 compared with the end of fiscal 2013.

Consolidated backlog at the end of the fourth quarter increased 11% to $330 million from $298 million in the prior-year comparable period. Approximately 95% of the backlog or $314 million, is expected to be delivered in fiscal 2015 and the balance 5% or around $15 million in fiscal 2016 and beyond.

Fiscal 2014 Performance

For full-year 2014, Apogee reported earnings per share of 95 cents, up 42% from 67 cents in fiscal 2013. The results fell short of the Zacks Consensus Estimate of $1.00 per share but managed to touch the lower end of management guidance range of 95 cents to $1.00 per share.

Revenues for the year 2014 increased 10% year over year to $771 million. Successful execution of growth strategies led to the rise. However, revenues lagged the Zacks Consensus Estimate of $781 million. The company reported organic growth (excluding the Canadian storefront acquisition) of 8%, benefiting from increased sales and improving pricing and project margins.

Fiscal 2015 Guidance

For fiscal 2015, Apogee guided revenues growth in the range of 15% to 20%. The company expects earnings per share for full-year 2015 to be in the band of $1.35 to $1.50. Apogee also expects that previous acquisitions to be accretive to earnings in fiscal 2015.

This guidance is based on an increasing backlog, commitments and bidding pipeline as well as the improving commercial construction market. Most of the indices are exhibiting improvement, which project growth in the construction sector. Apogee expects to increase domestic commercial construction market growth by around 5 percentage points.

Apogee anticipates capital spending for fiscal 2015 to be about $40 million. The spending will aid to product development capabilities and productivity as well as positive free cash flow. In addition, the company predicts gross margin for fiscal 2015 to be approximately 23%.

Apogee targets to garner revenues of $1 billion by the end of fiscal 2016. It also expects to achieve 10% operating margins on the back of its focus on productivity and operational improvements.

Our Take

Apogee's backlog remains strong, which bodes well for its future performance. The company intends to add new capacities and fund acquisitions. Focus on operational improvements, expansion in new geographies and markets as well as product launches will fuel Apogee's revenue growth going forward.

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 other stocks worth considering in the industrial product sector include Kadant Inc. KAI, Middleby Corp. MIDD and Altra Industrial Motion Corp. AIMC. While Kadant and Middleby sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion has a Zacks Rank #2 (Buy).