Apogee Enterprises, Inc. (APOG)

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Apogee Enterprises, Inc. (APOG)

Q4 2010 Earnings Call

April 8, 2010 11:00 am ET


Mary Ann Jackson – Director, Investor Relations

Russell Huffer – Chairman, Chief Executive Officer

James Porter – Chief Financial Officer


Eric Stine – Northland Securities

Brent Thielman – D. A. Davidson

Robert Kelly – Sidoti & Co.

Ryan Levenson - Privet Fund

Rod Hinze - KeyPoint Capital



Welcome to the fourth quarter 2010 Apogee Enterprises conference call. (Operator Instructions) I will now turn the presentation over to your host for today’s call to Ms. Mary Ann Jackson.

Mary Ann Jackson

Good morning and welcome to the Apogee Enterprises fiscal 2010 fourth quarter and year end conference call on Thursday, April 8, 2010. With us on the line today are Russ Huffer, Chairman and CEO, and Jim Porter, CFO. Their remarks will focus on our fiscal 2010 fourth quarter and full year results and the outlook for fiscal 2011.

During the course of this conference call, we’ll 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 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 February 28, 2009 and in our earnings release issued last night and filed on Form 8-K.

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

Russell Huffer

Thank you, Mary Ann. Good morning and welcome to our conference call. Apogee achieved solid operating performance and our third highest earnings ever during fiscal 2010, even though we experienced difficult domestic commercial construction market conditions.

We executed well as we worked off Architectural segment backlog booked in a stronger market and focused on improving productivity and aggressively managing costs in the face of the most difficult market in my career.

It was a year that saw pricing and margins decline as the year progressed. Despite the challenges, I’m proud of our success at positioning Apogee with a strong balance sheet, leading products, services and brands and people focused on the company’s future opportunities.

Apogee earned $1.13 per share from continuing operations on revenues of $696 million, which was down 25%. I’m pleased that we further strengthened our balance sheet as cash and short-term investments grew to $102.6 million at the end of fiscal 2010.

Architectural segment revenues declined 27% while operating income decreased 51%. Architectural segment revenues were down comparable to our markets served which have been impacted by tight commercial real estate credit and depressed employment levels.

The fiscal 2010 market for large projects, those projects greater than ten storeys which are especially important to our Architectural glass business was down 50% to 60%; this twice the decrease for overall market for Apogee project types. Our success and growth in institutional market share were not enough to offset the decline in large office projects.

We have also been successful with our strategy to grow share in underserved architectural glass markets. We grew international export revenues 45% to $36 million in fiscal 2010 and made significant inroads serving new and existing customers in the smaller project market.

Earnings declined with low Architectural segment capacity utilization, declining pricing, as we completed work bid in stronger commercial construction markets. In the fourth quarter, only about 20% of the Architectural revenue was from work that had been booked in stronger markets.

During fiscal 2010, our Large-Scale Optical segment maintained revenues and operating income in weak retail market conditions as new an ongoing value added product customers continued to convert to our best picture framing products.

Turning to the fourth quarter, we generated cash and again reduced costs as the Architectural segment fully felt the impact of the commercial construction downturn, with further volume and pricing declines, resulting in a quarterly loss for the segment.

Company wide fourth quarter revenues were $148.6 million or down 26% and earnings from continuing operations were $0.01 per share versus $0.40 per share in the prior year period. Architectural segment revenues declined 30% with an operating loss of $3.6 million. Revenues declined due to the challenging domestic commercial construction market conditions, as the new business from institutional small projects and international work, couldn’t offset the core market decline, especially for large and office projects which are important to the architectural glass business.

Regarding the Architectural segment operating loss, lower revenues and pricing along with low capacity utilization notably in our Architectural glass business, more than offset productivity improvements, cost reductions and good installation project margins.

The Architectural segment backlog ended at $227.5 million compared to $246.4 million at the end of the third quarter and $316.2 million in the prior year period. Bidding activity has increased slightly, although average project values have declined and bid to award timing continues to be slow.

Institutional work, institutional including stimulus work, remains the largest sector of potential work for Apogee, which is ideally suited to meet the sector’s demand for energy efficient and value added products and services.

As we had expected, our backlog mix shifted even more toward institutional projects in the fourth quarter. Institutional projects now account for 65% to 70% of our backlog, up from 60% to 65% in the third quarter. We also saw a slight increase in the dollar value of the institutional projects from the third quarter to the fourth quarter.

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