Apogee Enterprises, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2025, the three months ended June 1, 2024; comparable period ended May 27, 2023. Apogee supplies architectural products and services and high-performance glass and acrylic products through four segments. All amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2025 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $331.5 million | $361.7 million | Down 8.3% |
| Gross profit / margin | $98.9 million / 29.8% | $93.0 million / 25.7% | Margin up 410 bps |
| Operating income / margin | $41.4 million / 12.5% | $33.8 million / 9.3% | Income up 22.5%; margin up 320 bps |
| Net earnings | $31.0 million | $23.6 million | Up 31.5% |
| Diluted EPS | $1.41 | $1.05 | Up 34.3% |
| Net interest expense | $0.5 million | $2.0 million | Down 77.9% |
| Operating cash flow | $5.5 million | $21.3 million | Down $15.8 million |
Gross-margin improvement reflected favorable Architectural Services project mix, material costs, lower insurance-related costs and productivity gains, partly offset by lower volume and restructuring costs. SG&A fell to $57.5 million from $59.2 million, but rose to 17.3% of sales from 16.4% due to unfavorable sales leverage. The effective tax rate was 24.5%, versus 25.0%.
Adjusted operating income, a non-GAAP measure, was $42.5 million and adjusted operating margin was 12.8%, including exclusion of $1.1 million of Project Fortify charges. Adjusted diluted EPS was $1.44 versus $1.05; adjusted EBITDA was $52.6 million versus $43.8 million.
Segments and material changes
- Architectural Framing Systems: Sales fell 18.9% to $133.2 million amid lower demand and exit from certain lower-margin offerings. Operating income declined to $18.3 million, while margin improved to 13.8% from 12.1%.
- Architectural Glass: Sales declined 10.8% to $86.7 million on lower volume, partly offset by pricing. Operating income rose to $17.1 million and margin to 19.7%.
- Architectural Services: Sales increased 10.7% to $99.0 million. The segment returned to operating income of $5.6 million from a $0.6 million loss, primarily on improved project mix. Backlog was $866.9 million, up from $807.8 million at the prior quarter-end, reflecting several large project awards.
- Large-Scale Optical: Sales decreased 5.6% to $21.2 million; operating income fell 12.3% to $4.8 million and margin declined to 22.9% from 24.6%, primarily due to lower retail-channel volume.
Cash, debt and liquidity
At June 1, 2024, cash and cash equivalents were $30.4 million, compared with $37.2 million at fiscal year-end. Long-term debt was $77.0 million, including $65.0 million drawn on the U.S. revolver and $12.0 million of industrial revenue bonds. The company had $305.0 million of U.S. revolver availability and $25.0 million available under Canadian facilities, after $15.0 million of letters of credit. It was compliant with its debt covenants.
Operating cash flow was lower mainly because of increased working-capital use and incentive compensation payments, partly offset by higher earnings. Investing cash outflow was $7.3 million, including $7.2 million of capital expenditures. Financing cash outflow was $4.9 million, including $15.1 million of share repurchases, offset in part by net revolver borrowings. The company declared $5.4 million of dividends ($0.25 per share); the amount was not yet paid at quarter-end.
Outlook, risks and unusual items
- No specific consolidated revenue or earnings guidance for fiscal 2025 is provided in the filing. Management expects liquidity and borrowing capacity to meet short- and long-term needs and expects to remain covenant-compliant over the next fiscal year.
- Project Fortify: Announced in fiscal 2024 to streamline operations, mainly in Architectural Framing Systems. The company now expects $15–$16 million of total pretax charges and $12–$14 million of annualized cost savings; actions are expected to be substantially complete by the third quarter of fiscal 2025. First-quarter charges were $1.1 million.
- Outstanding surety and performance bonds totaled $1.3 billion, including $434.7 million associated with backlog. The company reports no historical payments on bonds for its existing businesses.
- A claimant received a $20 million arbitration award in a product-related matter in December 2022. Apogee appealed and believes, considering counsel’s advice and expected insurance coverage, the award will not materially harm the company. Other construction, warranty, product-liability, employment and general-liability matters are also disclosed; management does not expect currently known matters to have a material adverse effect.
- Other commitments include $17.9 million of purchase obligations. The company notes floating-rate debt and uses derivatives to manage interest-rate, foreign-exchange and commodity-price exposures.
Important facts for investors to verify
- Whether Architectural Services backlog converts to revenue and earnings at expected margins, and whether the large project awards execute as planned.
- Whether lower demand persists in Architectural Framing Systems and Architectural Glass, and whether margin gains can offset lower volumes.
- Project Fortify’s final costs, completion timing and realized annual savings relative to the stated targets.
- Cash conversion and working-capital trends, particularly receivables, inventory and incentive-compensation payments.
- Revolver borrowings, interest-rate exposure, covenant headroom and the outcome of the appealed $20 million arbitration award.