Apogee Q1 Earnings Up Y/Y, Lag Ests - Analyst Blog

Shares of Apogee Enterprises, Inc. APOG rose 1.6% as the company reported a 50% year-over-year increase in its first-quarter fiscal 2015 earnings to 21 cents per share. However, earnings lagged the Zacks Consensus Estimate of 23 cents.

Total revenue increased 18% year over year to $211 million in the quarter, but fell short of the Zacks Consensus Estimate of $212 million.

Operational Update

Cost of goods sold increased 19% to $169 million in the quarter. Gross profit improved 14% to $41 million. Gross margin, however, decreased 60 basis points (bps) to 19.7%.

Selling, general and administrative (SG&A) expenses rose 11% year over year to $33.6 million. Operating income was $7.8 million, which grew 28% from $6.1 million earned in the year-ago quarter. Operating margin rose 30 bps to 3.7%.

Segment Performance

Revenues from the Architectural Glass segment increased 6% year over year to $79.6 million driven by growth in the U.S. and international market sectors. Operating income in the quarter grew a whopping 104% year over year to $2.8 million, aided by higher volume resulting in better capacity utilization.

Revenues from the Architectural Services segment increased 11% year over year to $51.6 million.. The segment reported an operating profit of $0.2 million, a turnaround from a loss of $1 million incurred in the year-ago quarter driven by improved project margins.

The Architectural Framing Systems segment's revenues increased 44% year over year to $64 million. Organic growth, excluding the Canadian acquisition was 22%. The three U.S. businesses in the segment delivered double-digit growth, with the window business particularly delivering strong growth. The segment's operating income decreased 6% year over year to $1.9 million, led by loss in the Canadian business.

Large-Scale Optical Technologies segment's revenues rose 3% year over year $20 million. Operating income in the reported quarter was $3.9 million, declining from $4.7 million in the year ago quarter due to increased investments in research and development for new products and new market sectors, as well as in manufacturing capacity.

Financial Position

Apogee had cash and short-term investments of $17.7 million at the end of the reported quarter compared with $28.7 million as of fiscal 2014 end. Cash flow from operations was $1.2 million in the first quarter of 2015, against cash usage of $2.2 million in the prior year quarter. Long-term debt remained flat at $20.7 million at the end of first-quarter fiscal 2015 compared with fiscal 2014 end.

Consolidated backlog at the end of the first quarter increased 28% to $385 million from $302 million in the prior-year quarter. Approximately 80% of the backlog or $307 million is expected to be delivered in fiscal 2015 and the balance 20% or around $78 million in fiscal 2016 and beyond.

Fiscal 2015 Guidance

For fiscal 2015, Apogee affirmed revenue growth in the range of 15% to 20%. The company raised the low end of its previous earnings guidance range from $1.35 to $1.40 and now expects to earn $1.40 to $1.50 per share. Apogee also expects its previous acquisitions to be accretive to its fiscal 2015 earnings.

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

Apogee confirmed capital spending for fiscal 2015 to be about $40 million. The spending will aid 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 reiterated its revenue target 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 will benefit from its strategy of international growth and new product introductions. 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 into new geographies and markets as well as product launches will drive 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 Atlas Copco AB (ATLKY), Blount International Inc. BLT and Dover Corporation DOV. All of these stocks have a Zacks Rank #2 (Buy).