Apogee Enterprises, Inc. — Q1 FY2024 10-Q Summary
Reporting period: Three months ended May 27, 2023, compared with the three months ended May 28, 2022. Apogee designs and manufactures glass and metal building products and provides related architectural project and installation services; it reports four segments.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Net sales | $361.7 million | $356.6 million |
| Gross profit / margin | $93.0 million / 25.7% | $85.6 million / 24.0% |
| Operating income / margin | $33.8 million / 9.3% | $33.2 million / 9.3% |
| Net earnings | $23.6 million | $22.7 million |
| Diluted EPS | $1.05 | $1.00 |
| Operating cash flow | $21.3 million provided | $30.5 million used |
SG&A rose to $59.2 million from $52.4 million, reflecting higher compensation, consulting costs, and credit-loss allowance. Net interest expense increased to $2.0 million from $1.2 million, primarily due to higher interest rates. The effective tax rate was 25.0%, versus 26.0%.
Liquidity and debt: Cash was $24.6 million at May 27, 2023. Long-term debt was $170.7 million, including $155.0 million drawn on the Wells Fargo revolver and $3.7 million on Canadian facilities. The company reported $217.7 million available under the Wells Fargo facility after letters of credit; it was compliant with debt covenants. Capital expenditures were $7.4 million. Dividends paid were $5.2 million, and share repurchases totaled $5.2 million.
Segments and material changes
| Segment | Sales | Operating income (loss) | Year-over-year highlights |
|---|---|---|---|
| Architectural Framing Systems | $164.2 million | $19.9 million | Sales +0.5%; margin declined to 12.1% from 14.5%. |
| Architectural Glass | $97.2 million | $16.5 million | Sales +27.5%; margin improved to 17.0% from 6.8%. |
| Architectural Services | $89.4 million | $(0.6) million | Sales -13.5%; margin fell to (0.7)% from 2.8%. |
| Large-Scale Optical | $22.5 million | $5.5 million | Sales -10.8%; margin declined to 24.6% from 25.8%. |
Consolidated sales increased 1.4%, with strong Architectural Glass growth partly offset by lower Architectural Services sales. Gross margin improved primarily on Architectural Glass performance. Architectural Services’ loss reflected lower sales, reduced estimated profitability on certain projects, and severance costs related to a facility closure. Architectural Framing Systems’ margin also faced comparison with favorable prior-year inventory and aluminum-price timing. LSO cited lower volume from order timing and customer inventory destocking.
Operating cash flow improved from a prior-year use of cash, primarily due to lower working-capital requirements. Prior-year cash flows included New Markets Tax Credit transaction activity; current-quarter cash flows did not. The company repurchased 119,916 shares under its program, versus approximately 1.57 million shares in the prior-year quarter.
Outlook, risks, and contingencies
The filing provides no specific quarterly or full-year earnings guidance. Management said it expects liquidity sources to meet short- and long-term needs and believes it can remain within existing debt covenants over the next fiscal year. Its stated strategy emphasizes higher-margin offerings, operational productivity, portfolio management, and common operating processes.
- Architectural Framing Systems backlog was approximately $221 million, down from $310 million a year earlier; Architectural Services backlog was approximately $709 million, up from $681 million. The company cautions backlog is not a measure of contract profitability and excludes some short-lead-time business.
- Fixed-price project execution, installation, warranty, and product-liability claims can affect results. A claimant received a $20 million arbitration award in December 2022 related to a former commercial sealant product; Apogee appealed and said, considering available information and potential insurance, it did not expect a material adverse effect.
- Outstanding surety and performance bonds totaled $1.3 billion, including $503.4 million associated with backlog. The company said it had never been required to pay on bonds for its existing businesses.
- Purchase obligations totaled $31.6 million. Supplier financing was introduced during the quarter; $2.1 million remained unpaid to the bank at period-end and was included in accounts payable. The company said supplier participation does not affect its payment terms, amounts paid, or liquidity.
Important facts for investors to verify
- Whether Architectural Services project estimates and margins stabilize, given the quarterly operating loss and lower sales.
- Whether Architectural Glass’ substantial sales and margin improvement is sustainable, and how lower Framing Systems backlog develops.
- Cash conversion and working-capital trends, particularly receivables, contract assets, and contract liabilities.
- Debt levels, borrowing costs, covenant headroom, and availability under revolving credit facilities.
- Developments in the appealed $20 million arbitration award and potential insurance coverage.