Apogee Enterprises, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2021, ended August 29, 2020; comparison periods ended August 31, 2019. Amounts are in millions except per-share data.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $319.5 | $357.1 | $608.6 | $712.4 |
| Gross profit | $76.2 | $86.2 | $136.4 | $167.2 |
| Gross margin | 23.8% | 24.1% | 22.4% | 23.5% |
| Operating income | $23.2 | $27.6 | $29.7 | $50.6 |
| Operating margin | 7.3% | 7.7% | 4.9% | 7.1% |
| Net earnings | $17.7 | $19.3 | $20.5 | $34.7 |
| Diluted EPS | $0.67 | $0.72 | $0.77 | $1.30 |
- Q2 sales declined 10.5% year over year; six-month sales declined 14.6%. Management attributed lower volume primarily to COVID-19 disruption, project delays and market softness.
- Q2 SG&A was $53.0 million, or 16.6% of sales, versus 16.4% a year earlier. Six-month SG&A was 17.5% of sales versus 16.4%; lower sales reduced operating leverage, partly offset by temporary cost reductions and procurement savings.
- Six-month cash from operations was $85.3 million, versus $17.8 million a year earlier, reflecting strong working-capital management. Capital expenditures were $14.2 million versus $22.6 million.
- Cash was $19.0 million at quarter-end, up from $15.0 million at fiscal year-end. Total debt was $167.7 million, down from $217.9 million. Debt included $152.0 million current, principally the term loan maturing in April 2021; no borrowings were outstanding on the $235 million U.S. revolver. Canadian facilities had $2.7 million outstanding.
- The company reported $526.2 million of shareholders’ equity. Current assets were $311.7 million versus current liabilities of $361.8 million; current liabilities included the $152.0 million current debt portion. Management said available cash and borrowing capacity should fund working capital, planned capital expenditures and dividends for at least 12 months. The company was in compliance with its debt covenants.
Segments and changes versus prior year
| Segment | Q2 sales | Q2 operating income | Key comparison |
|---|---|---|---|
| Architectural Framing Systems | $152.9 million | $11.7 million | Sales down 18.4%; margin 7.6% versus 8.3%. Backlog was about $404 million, down from $421 million at the prior quarter-end. |
| Architectural Glass | $86.6 million | $5.0 million | Sales down 12.7%; margin 5.7% versus 6.5%. |
| Architectural Services | $73.7 million | $6.6 million | Sales up 19.6%; margin 8.9% versus 6.5%, supported by project execution and cost reductions. Backlog was about $665 million versus $685 million at the prior quarter-end. |
| Large-Scale Optical | $16.9 million | $2.1 million | Sales down 18.9%; margin 12.7% versus 22.3%. The segment had a six-month operating loss of $1.0 million after temporary factory shutdowns. |
For the first six months, Architectural Framing Systems and Architectural Glass sales fell 17.6% and 18.0%, respectively; Architectural Services sales rose 8.3%; and LSO sales fell 44.9%. Segment results reflect varied COVID-19 and market effects.
Outlook, risks and notable items
- No quantified earnings or revenue guidance is provided. Management said the pandemic’s continuing effects on revenue and results cannot be reliably predicted. By quarter-end it reported signs of improvement, including reopened retailers, moderating project delays and fewer workforce absences.
- Risks include further construction delays or site closures, weaker project demand, workforce absences and capacity constraints, supply interruptions or higher input prices, and delayed customer payments. Management did not expect a significant near-term liquidity effect, while acknowledging uncertainty.
- Goodwill impairment was not indicated in the first-quarter assessment, but EFCO and Sotawall had limited valuation headroom. A 100-basis-point increase in their discount rates would put estimated fair values below carrying values; weaker forecasts or sustained market deterioration could also trigger impairment. No new second-quarter indicators were identified.
- In June, the company settled claims relating to a legacy EFCO project for the amount accrued; project-contingency liabilities fell to $8.7 million from $49.0 million at fiscal year-end. Outstanding surety and performance bonds totaled $1.1 billion, including $589.1 million in backlog; the company said it had never made payments on such bonds for its existing businesses.
- Purchase obligations were $180.9 million. The company had $18.7 million of letters of credit under its revolver and a separate $25 million letter of credit outside the facility associated with a replacement project bond.
- After quarter-end, Apogee sold its McCook, Illinois building for $25.1 million and reported an approximately $14.8 million gain net of taxes and transaction costs; it leased the facility back, adding about $8.2 million of future lease commitments. The CEO announced retirement effective February 27, 2021.
- Six-month dividends paid were $9.8 million, or $0.375 per share. The company repurchased $4.7 million of shares in March and made no program repurchases in Q2.
Important facts for investors to verify
- Whether COVID-related project timing, demand and workforce conditions continue to improve, and how those trends affect sales, margins and segment backlogs.
- The plan and funding terms for the $152 million term loan due in April 2021, including revolver availability and covenant headroom.
- Whether EFCO or Sotawall forecasts, discount rates or market conditions change enough to require goodwill impairment.
- The final economics and lease commitments associated with the McCook sale-leaseback, and the accounting and timing of its gain.
- Exposure and developments related to legacy project claims, performance bonds, purchase commitments and customer or supplier disruptions.