APOG

Apogee Enterprises, Inc. (APOG)

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Apogee Enterprises (APOG)

Q4 2013 Earnings Call

April 11, 2013 11:00 am ET

Executives

Mary Ann Jackson

Joseph F. Puishys - Chief Executive Officer, President, Member of The Board of Directors and Member of Strategy & Enterprise Risk Committee

James S. Porter - Chief Financial officer and Principal Accounting officer

Analysts

Taryn Kuida - D.A. Davidson & Co., Research Division

Jonathan P. Braatz - Kansas City Capital Associates

Robert J. Kelly - Sidoti & Company, LLC

Scott B. Blumenthal - Emerald Research

Jeffrey Bernstein

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 Apogee Enterprises Inc. Earnings Conference Call. My name is Marie, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I would like to turn the conference over to Mary Ann Jackson. Please go ahead.

Mary Ann Jackson

Thank you, Marie. Good morning, and welcome to the Apogee Enterprises fiscal 2013 fourth quarter and full year conference call on Thursday, April 11, 2013. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2013 fourth quarter and full year and our outlook for fiscal 2014.

During the course of this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environments and are, of course, subject to risks and uncertainties which are beyond the control of management.

These statements are not guarantees of future performance, and actual results may differ materially. Important risk and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the company's annual report on Form 10-K for the fiscal year ended March 3, 2012, and in our press release issued yesterday afternoon and filed on Form 8-K.

Joe will now give you a brief overview of the results, and then Jim will cover the financials. After they conclude, Joe and Jim will answer your questions. Joe?

Joseph F. Puishys

Okay. Thank you, Mary Ann. Good morning, everyone. Welcome to Apogee's fourth quarter and fiscal 2013 conference call. We delivered outstanding results in fiscal '13 as our earnings per share more than tripled to $0.67, reported $0.66 on continuing ops, on revenue growth of 6%, in commercial markets or commercial construction markets that continued to be flat in the year. I was pleased that we grew our gross margin by more than 300 basis points to 20.8% in the fiscal '13 and that our conversion rate on that incremental revenue growth to income was more than 60%. Both of our architectural and Large-Scale Optical segments reflected top line growth and excellent profit conversion.

Our Architectural segment revenues grew 6% for the year and operating income improved by more than $21 million. This Architectural segment revenue growth was primarily generated by our initiatives to expand domestically in our installation and in our store front businesses. The significant Architectural segment operating income increase resulted from architectural glass pricing discipline, improved product mix, productivity enhancement, operational improvements and the earnings on the revenue growth in virtually every business.

Large-scale optical segment continued its strong performance, with revenues up 2% and operating income growing 7%, with the introduction of new glass and acrylic products and the launch of our international framing markets in spite of very weak end market conditions.

Apogee productivity improvements in fiscal '13, a focus for me since joining the company 18 months ago, contributed approximately 100 basis points of our more than 300 basis point gross margin enhancement in the fiscal year. I am pleased that our Architectural segment backlog grew 25% in the fiscal 2013 year compared to the prior year end. It is encouraging that we are seeing growing and improving margins on and to work that is added to the backlog. Jim will provide further granularity to the timing in the improved margin in backlog.

Other fiscal 2013 achievements included generating $41 million of operating cash flow to support our $35 million in capital investments. These CapEx investments are focused on future growth. You've heard me say we are stepping on the accelerator before we come out of curve. Our 2013 capital expenditures for growth, productivity, new products, new capabilities, all included upgrading operations to significantly improve productivity at our second largest Viracon architectural glass fabrication facility, investing in new product capabilities and efficiencies in our largest Viracon facility via new state-of-the-art coater, buying equipment to support growth in the installation in store front businesses and increasing in productivity investments and new product development and introductions throughout Apogee. These investments are yielding upgraded operational improvements, significant productivity enhancements and allowing us to better manage capacity.

Other growth strategies include our new marketing initiatives. We are winning some incremental renovation projects, working with building owners and ESCOs, and we are starting to penetrate the European picture framing market.

Looking at the fiscal 2013 fourth quarter, we continued our quarterly year-over-year improvement in the period. Revenues grew 7%, operating income more than doubled over $6 million compared to the prior year period, which also was a very strong quarterly improvement for us. Architectural segment revenue was led by our installation, window and architectural glass businesses and segment earnings benefited from increased revenues and improved architectural glass pricing.

I was truly pleased in spite of the fact that we had 1 less week in our fiscal quarter and the timing of the December holiday's operating income in our Large-Scale Optical segment was equal to the fourth quarter of fiscal '12 due to strong operational performance and a nice mix of value-added framing products, resulting in a 140 basis point improvement in operating margin.

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