Business context and reporting period
Apogee Enterprises, Inc. filed this unaudited Form 10-Q for the three months ended June 1, 2013, the first quarter of fiscal 2014. The company serves commercial-building glazing and framing markets and the custom picture-framing market through Architectural Glass, Architectural Services, Architectural Framing Systems and Large-Scale Optical (LSO).
Financial performance and liquidity
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Net sales | $179.3 million | $154.1 million |
| Gross profit / margin | $36.4 million / 20.3% | $31.1 million / 20.2% |
| Operating income / margin | $6.1 million / 3.4% | $2.3 million / 1.5% |
| Net earnings | $4.2 million | $1.6 million |
| Diluted EPS | $0.14 | $0.06 |
| Effective tax rate | 29.0% | 28.4% |
| Operating cash flow | $(2.2) million | $(7.7) million |
Sales increased 16.3%; net earnings rose to $4.2 million from $1.6 million. Gross margin edged up, while SG&A declined to 16.9% of sales from 18.7%. The quarter’s seasonal operating cash outflow was primarily associated with annual incentive-plan payments. Investing activities provided $14.3 million, including releases of restricted cash; financing activities used $12.8 million, including repayment of $10.0 million of bonds and $2.7 million of dividends.
At June 1, 2013, cash was $37.1 million, total assets $497.3 million and shareholders’ equity $335.8 million. Total debt was approximately $20.8 million, down from $30.8 million at fiscal year-end; the debt-to-total-capital ratio was 5.8%. There were no revolver borrowings. The $100 million facility had $74.5 million of availability after letters of credit. Cash plus short-term available-for-sale securities totaled $66.9 million. The company was in compliance with its credit covenants.
Material changes and segment results
- Architectural Glass: Sales rose 26.6% to $74.8 million; operating income improved to $1.4 million from a $2.4 million loss, reflecting higher volume, better mix, pricing and operations.
- Architectural Services: Sales rose 19.4% to $46.5 million; operating loss narrowed to $1.0 million from $2.6 million, but the segment remained loss-making.
- Architectural Framing Systems: Sales increased 4.8% to $44.4 million, while operating income fell 33.3% to $2.1 million. Lower window-business volume and utilization, including a project-schedule gap, weighed on results.
- LSO: Sales were nearly flat at $19.5 million; operating income declined 10.8% to $4.7 million as promotional activity and investment in new geographies and markets pressured margins.
Backlog was $301.8 million, versus $298.3 million at fiscal year-end and $269.1 million a year earlier. Management expected $238.3 million, or 79%, to be recognized in fiscal 2014. The company completed a temporary shutdown of its Utah Architectural Glass operation to align capacity with anticipated demand over the next two years.
Outlook, risks and contingencies
Management’s fiscal 2014 outlook was high-single-digit revenue growth over fiscal 2013, EPS of $0.90–$1.00 and capital expenditures of $40–$45 million, including a new Architectural Glass coater. Management expected cash on hand, operating cash generation and available credit to fund working capital, planned capital spending and dividends. It cautioned that actual results may differ materially from forward-looking expectations; the filing refers investors to the fiscal 2013 Form 10-K risk factors.
- Commitments included $113.6 million of purchase obligations, $35.2 million of future operating lease payments, and $25.5 million of letters of credit. Performance bonds covered $117.1 million of backlog and had a face value of $313.3 million; the company reported no payments on such bonds for its current businesses.
- Warranty and claim accruals were $8.8 million, up from $7.2 million a year earlier. The company also reported $1.9 million of environmental liabilities and $6.5 million of unrecognized tax benefits; approximately $1.0 million of tax benefits was expected to lapse within 12 months.
- Routine construction, employment, workers’ compensation, general-liability and automobile claims were disclosed; management did not expect currently known matters to have a material adverse effect.
- A $24.3 million foreign-exchange forward contract hedged euro exposure on planned capital equipment purchases; its fair-value liability was $0.5 million.
Most important facts for investors to verify
- Whether revenue growth and the $0.90–$1.00 fiscal 2014 EPS outlook were achieved, and how much depended on backlog conversion and project timing.
- Whether Architectural Glass and Services continued improving, and whether Framing Systems’ utilization and LSO’s promotional spending recovered or remained margin pressures.
- Whether operating cash flow and working-capital efficiency improved after the seasonal outflow, especially given $113.6 million of purchase obligations and planned capital spending.
- Progress and costs associated with the Utah shutdown, the new coater investment, and other capacity or growth initiatives.
- Changes in debt, credit-facility availability and covenant headroom, along with warranty, environmental, tax and project-claim exposures.