APOG

Apogee Enterprises, Inc. (APOG)

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Apogee Enterprises (APOG)

Q1 2014 Earnings Call

June 26, 2013 11:00 am ET

Executives

Mary Ann Jackson

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

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

Analysts

Robert J. Kelly - Sidoti & Company, LLC

Brent Thielman - D.A. Davidson & Co., Research Division

Jonathan P. Braatz - Kansas City Capital Associates

Alan Brochstein

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fiscal 2014 Apogee Enterprises, Inc. Earnings Conference Call. My name is Sheena, and I will be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I'd like to turn the call over to your host, Mary Ann Jackson. Please proceed, ma'am.

Mary Ann Jackson

Thank you, Sheena. Good morning, and welcome to the Apogee Enterprises Fiscal 2014 First Quarter Conference Call on Wednesday, June 26, 2013. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2014 first quarter 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 environment 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 risks 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 2, 2013, 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

Thank you, Mary Ann. Good morning, everyone. Welcome to Apogee's Q1 conference call. In our fiscal 2014 first quarter, we delivered another strong quarter of growth, with revenues up 16% and our operating income up over 2.5x the prior period. Our operating margin increased by 190 basis points, to 3.4%, driven by improvements in volume, mix and productivity in certain segments. We earned $0.14 a share, up from $0.06 per share in last year's first quarter.

Our revenue and operating income growth primarily came from our Architectural Glass and our Architectural Services segments. We had expected good performance here, since these segments have more operating leverage than the other 2 segments. We benefited from improved volume, mix, productivity and pricing in the Architectural Glass, and improved margins in the Architectural Services segment, where we are continuing to work off lower margin work bid in the cycle trough.

Our average gross margins of projects in our Architectural Services backlog are more than 200 basis points higher than a year ago, reflecting improved project profitability as we exit the downturn and as we have been explaining in the past. Revenues grew on our other 2 reporting segments as well, Architectural Framing Systems and Large-Scale Optical. Our Architectural Framing Systems segment operating income was negatively impacted by a gap in timing of more complex window work, which we expected and planned. And Large-Scale Optical segment operating income was impacted by investments in promotion and for growth in new geographies and new markets.

In our first quarter, we continued to execute our strategies to grow through new geographies, new products and new markets. In both our Architectural Services and Architectural Framing Systems segment, we opened facilities to service new U.S. geographies and focus sales effort on targeted new regions. We continued to have significant push on new products and introduced several new Architectural Glass and Framing Systems products in the first quarter.

Regarding new markets, we continue to make inroads in, as an example, selling picture framing glass in Europe, which Jim and I saw in a recent sweep through Europe with our sales team. We also continue to make progress with our architectural retrofit initiative with energy performance contract work through the energy service companies called, ESCOs, which service the federal, state and municipal governments, as well as the school and hospital markets. We are working with building owners and developers as well to retrofit older buildings.

I am pleased that Apogee's consolidated backlog grew to $302 million in conjunction with very strong revenue growth. The consolidated backlog, which reflects the backlog across all 4 reporting segments is up 12% for the fiscal 2013 first quarter at a time when revenues grew almost double-digit over the last 12 months. We continue to see improving margins on our backlog as we grow the business, as I noted earlier. And our balance sheet is also strong, with our cash and short-term investments positioned at $70 million, up from $58 million a year ago.

Before turning to our outlook for 2014, I'd like to provide more color on the growth drivers for each of our 4 reporting segments, the reporting structure in effect since our fiscal 2013 10-K was filed back in May. As you have noticed, we now have 3 architectural reporting segments, and the Large-Scale Optical segment remains unchanged. The 3 architectural segments are: number one, Architectural Glass, which consists of our Viracon architectural glass fabrication unit. Growth strategies for Viracon include new coatings, products and capabilities, and increased international penetration. Our operating margin drivers for this, our largest business, which also has the greatest opportunity to leverage fixed costs, are higher value-added mix, capacity utilization and productivity.

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