Apogee Enterprises, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2022, ended August 28, 2021. Apogee designs and supplies glass and metal products and services for commercial buildings, and glass and acrylic products for framing and display applications.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $325.8 million, up 2.0% | $651.8 million, up 7.1% |
| Gross profit / margin | $48.0 million / 14.7%; prior year 23.8% | $115.7 million / 17.8%; prior year 22.4% |
| Operating income (loss) | $(3.1) million; prior year $23.2 million | $13.0 million; prior year $29.7 million |
| Net earnings (loss) | $(2.1) million; diluted EPS $(0.08) | $8.7 million; diluted EPS $0.34 |
| Operating cash flow | Not provided for the quarter | $54.9 million; prior year $85.3 million |
Quarterly gross margin fell primarily due to restructuring charges and inflation in raw-material and freight costs, partly offset by recovery in Large-Scale Optical (LSO). Selling, general and administrative expense was $51.1 million for the quarter, down from $53.0 million; the effective tax rate was a 47.6% benefit, including a $1.2 million valuation-allowance release.
At August 28, 2021, cash and cash equivalents were $61.8 million, total debt was $163.0 million, and shareholders’ equity was $476.6 million. There were no borrowings on the $235 million revolving credit facility; $16.6 million of letters of credit reduced its available capacity. The company reported compliance with its debt covenants. Six-month capital expenditures were $10.1 million, dividends paid were $10.1 million, and share repurchases and retirements were $22.4 million.
Material changes and segment results
- Architectural Framing Systems: Quarterly sales declined 1.9% to $150.0 million; operating income fell 29.2% to $8.3 million, reflecting material and freight costs, lower volume, and restructuring costs. Backlog was approximately $406 million.
- Architectural Glass: Quarterly sales declined 8.3% to $79.4 million; the segment recorded a $17.0 million operating loss, primarily reflecting restructuring charges, higher material and freight costs, and lower volume and price.
- Architectural Services: Quarterly sales rose 12.7% to $83.0 million, driven by project execution; operating income was $7.2 million. Backlog was approximately $572 million, down from $665 million a year earlier.
- LSO: Quarterly sales increased 39.6% to $23.5 million and operating income rose to $5.5 million, reflecting volume and mix improvements as demand recovered from prior-year COVID-related closures.
The company recorded $20.8 million of second-quarter restructuring costs, including $15.4 million in asset impairment charges, principally related to closing two Architectural Glass facilities in Dallas and Statesboro and focusing the segment on premium, high-performance products. It expects approximately $5 million of additional restructuring costs by fiscal year-end. The filing also reports $15.4 million of impairment charges in first-half operating cash-flow adjustments.
Outlook, risks, and contingencies
Management now guides to fiscal 2022 adjusted diluted EPS of $2.20–$2.40, excluding restructuring costs; the prior guidance was the same range for GAAP EPS. The updated guidance includes $7–$10 million of expected pre-tax costs for transformation initiatives. Management expects a second-half tax rate of approximately 24.5% and full-year capital expenditures of approximately $35 million. It believes available cash generation and borrowing capacity will meet liquidity needs for at least the next 12 months.
Key uncertainties include aluminum, lumber, and freight inflation and the ability to pass higher costs through to customers; project mix and execution; and possible continuing COVID-19 effects, including new variants. The company disclosed $203.8 million of purchase obligations, $1.2 billion of outstanding surety and performance bonds (including $490.1 million in backlog), and routine construction, warranty, product-liability, and other litigation. Management stated that currently known legal matters are not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the Architectural Glass closures and broader restructuring deliver the expected cost and margin benefits, and whether additional charges remain near management’s estimate.
- How quickly material and freight inflation can be offset through pricing, and whether margins recover in Framing Systems and Architectural Glass.
- Whether Services backlog converts to revenue with acceptable project profitability, and how much of LSO’s growth reflects recovery from its prior-year shutdowns.
- The reconciliation of adjusted EPS guidance to GAAP EPS and the assumptions underlying transformation costs, tax rate, and capital spending.
- Cash-flow and liquidity needs against purchase obligations, debt maturities, letters of credit, and construction-related contingencies.