Apogee Enterprises, Inc. — Form 10-Q Summary
Business and period: Apogee designs, fabricates and installs architectural glass, building-envelope systems and aluminum framing, and manufactures specialty glass and acrylic products. The filing covers the three months ended May 28, 2016 (first quarter of fiscal 2017), compared with the three months ended May 30, 2015. Results are unaudited.
Financial performance
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Net sales | $247.9 million | $240.0 million |
| Gross profit / margin | $64.4 million / 26.0% | $55.6 million / 23.2% |
| Operating income / margin | $26.2 million / 10.6% | $18.2 million / 7.6% |
| Net earnings | $17.7 million | $12.1 million |
| Diluted EPS | $0.61 | $0.41 |
| Operating cash flow | $(0.9) million | $20.9 million |
| Capital expenditures | $17.7 million | $8.8 million |
Sales rose 3.3% reported and 4.1% on a constant-currency basis. Cost of sales declined to 74.0% of sales from 76.8%; SG&A rose $0.8 million but declined as a share of sales to 15.4% from 15.6%. The effective tax rate was 33.4%, versus 33.9%.
Operating cash flow fell by $21.7 million year over year, primarily because of increased working-capital investment, partly offset by stronger earnings. Receivables and inventory uses of cash and payments of accounts payable and accrued expenses weighed on cash flow.
Balance sheet, liquidity and debt
- At May 28, 2016, cash and cash equivalents were $37.0 million; short-term available-for-sale securities were $30.5 million. The company reported $67.5 million of cash and short-term securities and $101.5 million available under its committed revolving facility.
- Total assets were $667.7 million, current assets $331.8 million and current liabilities $170.1 million.
- Total debt was $22.3 million: $20.4 million of industrial revenue bonds and $1.9 million borrowed under a Canadian revolving facility. No borrowings were outstanding under the $125 million committed revolver. The company reported compliance with its financial covenants.
- Cash and cash equivalents declined from $60.5 million at fiscal year-end to $37.0 million. The company paid $3.6 million in dividends, or $0.125 per share.
Material changes and segment results
- Architectural Glass: Sales fell 7.7% to $93.4 million, reflecting lower domestic, export and Brazilian volumes. Operating income rose 15.1% to $9.5 million; margin improved to 10.2% from 8.2% on U.S. pricing, mix and operating performance, partly offset by weak Brazilian conditions.
- Architectural Services: Sales increased 12.9% to $62.8 million, and operating income rose to $3.2 million from $0.9 million. Margin improved to 5.1% from 1.7%, attributed to project timing, volume, execution and project selection.
- Architectural Framing Systems: Sales increased 12.8% to $81.1 million; operating income rose 94.5% to $10.2 million. Margin improved to 12.6% from 7.3%, driven by volume growth and operating leverage.
- Large-Scale Optical: Sales declined 0.9% to $20.0 million and operating income fell 4.5% to $4.7 million. Unfavorable product mix and investment in adjacent markets reduced margin to 23.2% from 24.1%.
- Backlog was $509.7 million, up from $470.8 million a year earlier. Management expects approximately 71% to be recognized in the remainder of fiscal 2017; shorter-lead-time book-and-ship sales are not included in backlog.
Outlook, risks and contingencies
Management’s fiscal 2017 outlook is revenue growth of approximately 10%, gross margin above 26%, operating margin of at least 11%, diluted EPS of $2.70–$2.85 and capital expenditures of approximately $60 million. Planned investment includes oversize-glass production capability and productivity and capacity improvements. Management said available liquidity should fund working capital, planned capital expenditures and dividends for the next 12 months.
In June 2016, after quarter-end, the company received $5.2 million in a New Markets Tax Credit transaction related to its planned Architectural Glass equipment investment; the filing says it will be reflected in the second-quarter statements. Other obligations and exposures include $203.2 million of purchase commitments, $36.6 million of operating-lease payments, $23.5 million of letters of credit and performance bonds supporting $120.6 million of backlog, with bond face value of $317.2 million. The company reported no current legal proceedings expected to materially affect its results, cash flows or financial condition. It cited no material changes to the risk factors in its latest annual report.
Important facts for investors to verify
- Whether the strong margin and earnings improvement persists, particularly in Architectural Services and Architectural Framing Systems.
- Whether working-capital investment reverses and operating cash flow supports the higher planned capital spending and dividend payments.
- Progress and returns from the approximately $60 million fiscal 2017 capital-expenditure program, including the oversize-glass investment.
- Backlog conversion, project execution and the effects of project timing, Brazilian market weakness and product mix.
- How the $5.2 million subsequent-period tax-credit transaction and outstanding purchase commitments affect future cash flows and reported results.