Business context and reporting period
Apogee Enterprises, Inc. designs, fabricates and installs architectural glass and aluminum building systems, and makes specialty glass and acrylic products. Its four segments are Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical Technologies (LSO). The filing covers fiscal 2022, the year ended February 26, 2022; it does not provide standalone fourth-quarter results. Comparisons are principally with fiscal 2021.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $1,314.0 million | $1,230.8 million |
| Gross margin | 20.9% | 22.4% |
| Operating income | $22.0 million | $25.5 million |
| Net earnings | $3.5 million | $15.4 million |
| Diluted EPS | $0.14 | $0.59 |
| Operating cash flow | $100.5 million | $141.9 million |
| Capital expenditures | $21.8 million | $26.2 million |
Management’s non-GAAP adjusted operating income was $82.6 million, down 5% from $87.1 million; adjusted diluted EPS was $2.48, up from $2.40. These measures exclude specified items and should be considered alongside GAAP results. The effective tax rate rose to 74.9% from 31.7%, largely due to a valuation allowance related to the Sotawall impairment and other tax items.
Segment performance was mixed: Architectural Framing Systems recorded a $16.7 million operating loss (−2.8% margin); Architectural Glass earned $1.8 million (0.6%); Architectural Services earned $32.7 million (9.4%); and LSO earned $23.6 million (23.2%).
Year-end cash and short-term marketable securities totaled $37.6 million. Debt was $163.0 million, including a $150.0 million term loan and $13.0 million of industrial revenue bonds; no borrowings were outstanding on the revolving facility, with $218.6 million available. The company reported compliance with its financial covenants. Fiscal 2022 cash returned to shareholders included $100.4 million of share repurchases and $20.3 million of dividends.
Material changes versus the prior period
- Sales increased 6.8%, led by Architectural Services (+18.1%) and LSO (+45.1%); Architectural Glass sales declined 6.4%.
- Despite higher sales, gross margin fell 150 basis points and GAAP operating income declined 14%. Net earnings and diluted EPS fell substantially, in part because of unusual charges and a higher tax rate.
- Operating cash flow decreased by $41.4 million, reflecting lower earnings and the prior year’s working-capital benefits and temporary pandemic-related actions.
- Architectural Services sales rose with execution of backlog, but its margin decreased 110 basis points. LSO sales recovered from pandemic-related closures, while its margin fell from an unusually high prior-year level that included a building-sale gain.
- Architectural Framing Systems improved its operating loss from the prior year, but remained loss-making; Architectural Glass profitability weakened sharply.
Outlook, commentary and risks
For fiscal 2023, Apogee guided to adjusted diluted EPS of $2.90–$3.30, revenue growth, and capital expenditures of $35–$40 million. Management expects inflation-related pricing actions to contribute to Architectural Framing Systems revenue. Its fiscal 2025 targets are ROIC above 12%, operating margin above 10%, and revenue growth greater than 1.2 times the non-residential construction market.
Management said pricing actions had largely offset fiscal 2022 raw-material and freight inflation by year-end, but supply-chain challenges persisted. Key risks include continued inflation and material availability, labor constraints, commercial-construction cyclicality, project delays and fixed-price contract cost overruns, competition, and execution of the new enterprise strategy. COVID-19 impacts had moderated by fiscal year-end but remained uncertain; the filing also cites potential effects from the war in Ukraine and related market volatility.
Unusual items include $49.5 million of intangible-asset impairment tied to integrating Sotawall into Architectural Services; $30.5 million of restructuring costs; a $19.5 million gain on sale of an Architectural Glass facility; and a $3.0 million write-down of an equity investment. The restructuring included two Architectural Glass facility closures. The company also disclosed ongoing product, warranty and construction-related claims, including claims involving a former sealant product; it said currently available facts did not indicate a material adverse loss. Environmental remediation at one facility continues, with a disclosed reserve of $0.5 million.
Important facts for investors to verify
- Reconcile GAAP earnings and margins to adjusted results, especially the impairment, restructuring and facility-sale items and the unusually high tax rate.
- Track whether fiscal 2023 guidance is achieved and whether the stated pricing actions offset continued input-cost and freight inflation.
- Monitor segment-level recovery, particularly sustained profitability in Architectural Framing Systems and Architectural Glass, and project execution margins in Architectural Services.
- Assess cash conversion, working-capital needs, debt maturities and the impact of substantial repurchases on liquidity; $74.3 million of additional repurchases were disclosed after year-end.
- Review assumptions behind long-term contract cost estimates, goodwill and intangible-asset valuations, warranty reserves and contingent claims.