APOGEE ENTERPRISES, INC. quarterly report, Q2 FY2018

Vollständiges Dokument

Apogee Enterprises, Inc. — Form 10-Q Summary

Reporting period: Second quarter and six months ended September 2, 2017 (fiscal 2018), compared with the periods ended August 27, 2016. Amounts below are in U.S. dollars.

Business context and performance

Apogee designs, manufactures and installs glass, aluminum framing and related products and services. Its four reporting segments are Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO). Results include EFCO from its June 12, 2017 acquisition and Sotawall, acquired in December 2016.

  • Second-quarter revenue: $343.9 million, up 23.5%. Net earnings were $17.4 million, down 22%; diluted EPS was $0.60 versus $0.77.
  • First-half revenue: $616.2 million, up 17.1%. Net earnings were $33.5 million, down 16%; diluted EPS was $1.16 versus $1.39.
  • Margins: Second-quarter gross margin was 25.0% versus 26.0%; operating margin was 8.1% versus 11.8%; net margin was 5.1% versus 8.0%. First-half gross margin was 25.4% versus 26.0%, operating margin 8.4% versus 11.3%, and net margin 5.8% versus 7.4%.
  • Adjusted results (non-GAAP): Second-quarter adjusted diluted EPS was $0.75, down 3%; first-half adjusted diluted EPS was $1.37, down 1%. Adjustments exclude acquired short-lived intangible amortization and acquisition costs.

Segment results and material changes

  • Architectural Framing Systems: Second-quarter sales rose 104.9% to $189.0 million; operating income increased 27.2% to $16.5 million. Acquisitions drove most of the sales growth, while acquired amortization, Canadian foreign-exchange losses and EFCO’s lower margins reduced segment margin to 8.8% from 14.1%. Backlog was approximately $496 million.
  • Architectural Glass: Second-quarter sales declined 1.9% to $97.4 million, but operating income rose 6.7% to $10.3 million; margin improved to 10.5%. Management cited project timing and lower international sales, partly offset by U.S. mid-sized projects and productivity.
  • Architectural Services: Second-quarter sales fell 39.8% to $46.8 million and operating income fell to $0.8 million from $6.2 million. Lower project volume reduced leverage on fixed costs. Backlog rose to approximately $323 million from $255 million at fiscal year-end.
  • LSO: Second-quarter sales decreased 4.6% to $20.3 million and operating income declined 15.9% to $4.2 million, reflecting order timing, softer custom framing demand and lower fixed-cost leverage.
  • Consolidated operating income fell to $27.8 million from $33.0 million despite higher sales. SG&A increased to 16.9% of sales from 14.2%, primarily due to acquired-intangible amortization and acquisition-related costs. The effective tax rate rose to 33.9% from 32.9% in the quarter.

Cash flow, balance sheet and liquidity

  • First-half operating cash flow: $40.8 million, compared with $43.5 million. Capital expenditures were $26.8 million; management estimated approximately $60 million for full-year fiscal 2018.
  • Investing and financing: Investing used $203.8 million, primarily reflecting $184.8 million of net cash paid for EFCO. Financing provided $171.5 million, including $284.2 million of credit-facility borrowings and $94.0 million of repayments. The company also spent $10.8 million repurchasing shares and paid $8.0 million in dividends.
  • Cash and debt at September 2: Cash and cash equivalents were $29.5 million. Long-term debt was $257.8 million, including $235.2 million outstanding under the committed revolver. The facility was expanded to $335 million and matures in November 2021; $24.9 million of letters of credit reduces availability. The company reported compliance with its financial covenants.
  • Other balance-sheet changes: Total assets increased to $1.04 billion from $784.7 million, primarily reflecting EFCO acquisition assets and foreign-currency translation. Shareholders’ equity was $501.4 million. Receivables were $222.6 million and inventory $103.7 million.
  • Management said operating cash generation and revolver capacity should be adequate for working capital, planned capital expenditures and dividends for at least the next 12 months.

Guidance, risks and unusual items

  • Fiscal 2018 outlook, inclusive of EFCO: Revenue growth of approximately 24%–26%; operating margin of 10.0%–10.5%; diluted EPS of $3.05–$3.25; adjusted operating margin of 11.0%–11.5%; adjusted diluted EPS of $3.40–$3.60.
  • Adjusted guidance excludes approximately $7 million after tax ($0.24 per diluted share) of short-lived acquired-intangible amortization and approximately $3.1 million after tax ($0.11 per diluted share) of EFCO acquisition costs. These items represent an estimated combined 100-basis-point negative operating-margin impact.
  • EFCO was acquired for $192 million in cash, with $7.5 million payable over three years. Its purchase-price allocation is preliminary and includes $55.3 million of goodwill and $71.5 million of other intangible assets. EFCO contributed $63.7 million of quarterly sales and $1.3 million of operating income.
  • Disclosed exposures include $110.0 million of purchase obligations, $68.5 million of future minimum operating-lease payments, $293.6 million face value of performance bonds supporting $63.7 million of bonded backlog, and warranty reserves of $23.3 million. Management did not expect current litigation to have a material adverse effect.
  • Management identified project timing and volume, acquired-business integration and margins, foreign-exchange losses, acquisition-related costs, and construction-industry demand as factors affecting results. No material changes to the risk factors in the prior Form 10-K were reported.

Important facts for investors to verify

  • Whether the acquired businesses deliver expected growth and whether EFCO’s lower margins and integration costs improve as anticipated.
  • Whether Architectural Services rebounds from weak current-period project volume and whether its backlog converts to revenue and profit.
  • Progress against full-year fiscal 2018 guidance, especially the gap between GAAP and adjusted earnings and margins.
  • Revolver availability, covenant headroom and debt reduction following the EFCO acquisition, including the effect of letters of credit.
  • Final EFCO purchase-price allocation and the impact of acquired-intangible amortization; the filing says the allocation remains subject to revision.