Apogee Enterprises, Inc. (APOG)

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Apogee Enterprises, Inc. (APOG)

F2Q10 Earnings Call

September 17, 2009 10:30 am ET


Russ Huffer - Chairman and Chief Executive Officer

Jim Porter - Chief Financial Officer

Mary Ann Jackson - Director of Investor Relations


Eric Stein – Northland Securities

Tyson Bauer - Wealth Monitors

John Braatz - Kansas City Capital

Robert Kelly - Sidoti

Eric Glover – Canaccord Adams

Mike O’Martin - Small-Cap Report

Scott Blumenthal – Emerald Advisers

Brad Kelly – Magnum Opus Financial



Welcome to the Q2 fiscal 2010 Apogee Enterprises Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Mary Ann Jackson. You may proceed.

Mary Ann Jackson

Thank you, operator. Good morning and welcome to the Apogee Enterprises fiscal 2010 second quarter conference call on Thursday, September 17, 2008. With us on the line today are Russ Huffer, Chairman and CEO and Jim Porter, CFO. Their remarks will focus on our fiscal 2010 second quarter results and the outlook for the current year.

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 February 28, 2009 and in our earnings release issued last night and filed this morning on 8-K.

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

Russ Huffer

Thanks, Mary Ann. Good morning and welcome to our conference call. We had a very strong operating performance in the second quarter and exceeded prior year earnings per share on revenues that were down consistent with the decline in the commercial construction market. We earned $0.46 per share from continuing operations, up 7% from the prior year period on revenues of $187.4 million which were down 23% from last year.

A number of positive events occurred in the quarter that allowed us to perform at this high level. We were executing architectural work largely bid in better times. We operated well and improved productivity and we managed our costs in anticipation of lower revenues. These actions show our ability to lower our break-even point and to operate profitably through this commercial construction cycle.

As a result of the combination of these positives, our operating margin was 9.5% up from 7.7% in the prior year period. We also continued to generate cash, increasing cash and short-term investments more than $20 million from the prior quarter to $52.3 million at the end of the second quarter. We achieved an architectural segment operating margin of 8.7% compared to 6.7% in last year’s second quarter. We benefited not only from those items I just noted but also from some favorable material costs. Again, on a positive note, our architectural segment backlog declined less than 5% to $295 million. This is the third quarter that the segment’s backlog has been hovering around $300 million.

Our large scale optical segment also performed well with revenues up slightly and operating income up 11% as we saw a strong mix of our best value added picture framing glass and acrylic products in the quarter. Our superior product attributes, which prevent fading and control reflection, are allowing us to continue to convert customers to our value added products despite weak retail markets.

Our strong performance aside, we continue to face commercial construction markets that are impacted by tight commercial real estate credit and decreasing employment levels. We know future periods will be tougher due to the construction slowdown but we are in a strong financial position. We have a healthy balance sheet and are generating positive cash flow.

Before turning to our outlook, I would like to provide more color on our architectural backlog. As we had expected our mix shifted more towards institutional projects in the second quarter. The institutional projects now account for 55-60% of our backlog, up from 40-45% in the first quarter. Office projects have slipped to 25-30% of the backlog from 35-40%. The conduit hotel entertainment sectors each continued to comprise 5-10% of the architectural backlog. Stimulus projects contributed to the increase in institutional backlog. We have been awarded General Services Administration and Department of Defense projects on the stimulus list such as a federal courthouse and a military hospital and are actively bidding on other projects on the list. We will see some revenues from this work this year but the majority of the work will flow into next year.

We are also seeing an increase in international work for our architectural glass business in our backlog although it is a small part of the overall backlog and we are quoting more international work than we have in past years. I am encouraged that we continue to see our competitive advantages holding for large, complex architectural glass and highly engineered window projects as well as for installation project bonding capacity. More projects are requiring performance bonds in this environment.

Next I will cover our outlook. Our solid performance to date in these challenging economic times supports our outlook for continued profitability. For fiscal 2010 we continue to expect a mid single digit operating margin on revenues that we anticipate will be down 20-25% as project timing for new orders has shifted into fiscal 2011. We had previously anticipated fiscal 2010 revenues would decline at least 15%.

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