Apogee Enterprises, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended November 27, 2021. Apogee designs and supplies glass and metal products and installation services for commercial buildings, as well as glass and acrylic products for framing and display applications.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $334.2 | $313.6 | $986.0 | $922.2 |
| Gross profit / margin | $64.7 / 19.4% | $69.6 / 22.2% | $180.4 / 18.3% | $206.0 / 22.3% |
| Operating income | $17.7 | $49.8 | $30.7 | $79.4 |
| Net earnings | $11.1 | $37.3 | $19.8 | $57.8 |
| Diluted EPS | $0.44 | $1.42 | $0.78 | $2.19 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $86.3 | $120.5 |
Quarterly sales rose 6.6%, and nine-month sales rose 6.9%. Lower earnings and margins reflected restructuring charges, inflation in raw materials and freight, higher corporate transformation and health-care costs, and prior-year nonrecurring benefits. The nine-month effective tax rate was 19.6%, versus 23.8% a year earlier.
Segments and material comparisons
- Architectural Framing Systems: Q3 sales increased 11.0% to $151.7 million; operating margin improved to 7.0% from 5.3%, with pricing and restructuring benefits partly offsetting higher material, freight, and labor costs. Backlog was approximately $419 million.
- Architectural Glass: Q3 sales fell 12.4% to $74.3 million. The segment recorded a $1.3 million operating loss, including restructuring costs; nine-month operating loss was $16.1 million. Lower volume and restructuring were key factors. The segment is shifting toward premium, high-performance products.
- Architectural Services: Q3 sales rose 19.9% to $92.0 million, driven by execution of backlog, while margin declined to 10.0% from 11.2%, mainly due to project mix. Backlog was $572 million.
- Large-Scale Optical: Q3 sales rose 8.2% to $27.4 million. Operating income was $6.0 million versus $26.1 million a year earlier; the prior-year comparison included a $19.3 million sale-leaseback gain. Prior-year sales and earnings were also affected by COVID-related closures.
Liquidity, debt, and capital allocation
At November 27, 2021, cash and cash equivalents were $78.3 million, current assets $366.9 million, and current liabilities $217.9 million. Debt totaled $163.0 million, including $162.0 million long-term debt and $1.0 million current debt. There were no borrowings under the $235 million revolving credit facility; $16.4 million of letters of credit reduced its available capacity. The company was in compliance with its debt covenants.
Nine-month operating cash flow was $86.3 million. Capital expenditures were $13.1 million; share repurchases totaled $29.2 million and dividends paid were $15.1 million. Management said available cash generation and borrowing capacity should be adequate for working capital, planned capital spending, and dividends for at least the next 12 months.
Outlook, risks, and unusual items
- Full-year adjusted diluted EPS guidance was narrowed to $2.25–$2.40, excluding restructuring and impairment costs. Management continued to expect a long-term average tax rate of approximately 24.5% and FY2022 capital expenditures of approximately $25 million.
- Management expected $2–$3 million of additional restructuring costs in Q4 FY2022. Restructuring costs recorded through nine months were $24.2 million, primarily related to facility closures, asset impairments, employee termination costs, and organizational realignment.
- After quarter-end, the company sold its Statesboro, Georgia Architectural Glass facility for $29.1 million and expected to record an approximately $19.0 million gain, net of transaction costs, in Q4; the gain was to be excluded from adjusted earnings. It also repurchased 484,646 shares for $22.3 million after quarter-end.
- Q3 other expense included a $3.0 million impairment that wrote down a minority equity investment in full. The filing also identifies exposure to raw-material and freight inflation, supply availability, construction-project execution, and ongoing uncertainty around COVID-19 and its variants.
- Outstanding surety and performance bonds were $1.2 billion, including $448.0 million in backlog; the company reported no history of payments under bonds for its existing businesses. Purchase obligations were $239.5 million. The company said current litigation was not expected to have a material adverse effect, based on information available.
Important facts for investors to verify
- Whether the stated adjusted EPS guidance excludes all restructuring and impairment impacts consistently, and how the expected Statesboro sale gain is treated in reported results.
- Whether Architectural Glass’ restructuring and premium-product strategy restore segment profitability, and whether inflation and freight costs can be passed through to customers.
- Whether Architectural Services project mix and execution improve, and how backlog converts to revenue and earnings.
- How cash generation, repurchases, and dividends affect liquidity and debt, particularly given contractual purchase obligations and bond commitments.
- Whether the Q3 investment impairment or other valuation and contingency exposures lead to further charges or cash requirements.