Apogee Enterprises, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 29, 2021, the first quarter of fiscal 2022. Unless otherwise noted, comparisons are with the three months ended May 30, 2020. Financial statement amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $326.0 million | $289.1 million |
| Gross profit / margin | $67.7 million / 20.8% | $60.3 million / 20.8% |
| Operating income / margin | $16.0 million / 4.9% | $6.5 million / 2.2% |
| Net earnings | $10.8 million | $2.9 million |
| Diluted earnings per share | $0.42 | $0.11 |
| Operating cash flow | $6.9 million | $24.0 million |
| Capital expenditures | $4.7 million | $8.6 million |
- Net sales increased 12.8%, led by higher volume in Large-Scale Optical (LSO), Architectural Services, and Architectural Glass. LSO was closed for much of the prior-year quarter due to COVID-19 restrictions.
- Gross margin was unchanged at 20.8%. SG&A fell to 15.8% of sales from 18.6%; reported operating-margin improvement also reflected a $2.7 million Canadian wage subsidy.
- Cash and cash equivalents were $36.5 million at May 29, 2021, down from $47.3 million at February 27, 2021. Total debt was $165.0 million, comprising $3.0 million current and $162.0 million long-term, compared with $165.0 million at fiscal year-end.
- Current assets were $332.1 million and current liabilities $188.2 million. The company had no revolving-credit borrowings and reported compliance with its debt covenants.
Segment results and material changes
- Architectural Framing Systems: Sales rose 1.1% to $151.8 million; operating income increased 10.5% to $8.1 million. Improved pricing and cost savings helped offset less favorable project performance and higher material and freight costs.
- Architectural Glass: Sales rose 8.0% to $83.0 million; the segment returned to operating income of $2.1 million from a $0.5 million loss, supported by higher volume, mix, and productivity.
- Architectural Services: Sales rose 19.0% to $75.7 million, while operating income declined 15.1% to $4.5 million. Margin fell to 6.0% from 8.4% amid challenges on certain projects and less favorable mix.
- LSO: Sales increased to $24.2 million from $6.3 million, and the segment recorded $5.8 million of operating income versus a $3.1 million loss. The comparison reflects prior-year COVID-related closures.
- Operating cash flow declined by $17.1 million year over year, which management attributed to higher working-capital needs associated with revenue growth.
Outlook, risks, and notable items
- Full-year diluted EPS guidance is $2.20–$2.40, including an expected $7–$10 million of pretax transformation-investment costs. Management expects a full-year tax rate of approximately 24.5% and capital expenditures of approximately $45 million.
- Management expects elevated freight and materials costs to continue through fiscal 2022 and says it is taking steps to offset them. COVID-19 impacts moderated in the quarter, but future effects remain uncertain.
- Management believes liquidity is adequate for at least the next 12 months. The $235 million revolving facility matures in June 2024; $18.7 million of letters of credit reduce its available capacity.
- Outstanding surety and performance bonds totaled $1.2 billion, including $527.3 million associated with backlog. Purchase obligations for raw materials and capital expenditures totaled $235.9 million. The filing says the company has never had to pay on bonds for its existing businesses.
- The company reported routine construction, product-liability, warranty, employment, and other litigation; it said currently available facts do not indicate a material adverse loss. Warranty reserves were $14.5 million at quarter-end.
- During the quarter, the company repurchased 341,000 shares under its program for $12.2 million and paid $5.0 million in dividends. After quarter-end, it repurchased another 86,933 shares for $3.4 million.
Key facts for investors to verify
- Whether revenue growth and margin performance persist after accounting for the prior-year LSO shutdown and the $2.7 million wage-subsidy benefit.
- Whether inflation in freight and materials, project execution issues, and working-capital requirements affect full-year profitability and cash generation.
- Progress against EPS guidance, transformation spending, and the planned $45 million of capital expenditures.
- Debt covenant headroom, revolving-credit availability after letters of credit, and cash needs from purchase obligations, leases, and deferred payroll taxes.
- How Architectural Services backlog and project mix develop; the filing reports backlog of $559 million for Architectural Services and $423 million for Architectural Framing Systems.