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Apogee (APOG) Q2 Earnings Miss, Sales Top Estimates, View Cut

Apogee Enterprises, Inc.APOG reported earnings per share of 72 cents in second-quarter fiscal 2019 (ended Sep 1, 2018), significantly up from the prior-year figure of 60 cents, but missed the Zacks Consensus Estimate of 75 cents.

Apogee reported total revenues of around $362 million, up 5% year over year backed by robust order activity. Revenues surpassed the Zacks Consensus Estimate of $359 million.

Notably, strong market conditions and demand for Apogee's diverse product and services offerings drove results despite challenges in the Architectural Glass segment due to a tight labor market.

Apogee Enterprises, Inc. Price, Consensus and EPS Surprise

Apogee Enterprises, Inc. Price, Consensus and EPS Surprise | Apogee Enterprises, Inc. Quote

However, Apogee's shares dipped around 12% to close at $42.48 yesterday, after the company slashed its fiscal 2019 outlook owing to lower-than-expected fiscal second-quarter results and a reduced second-half outlook for the Architectural Glass segment.

Operational Update

Cost of sales in the reported quarter was up 8% year over year to $277.7 million. Gross profit declined 2% year over year to $84.5 million. Gross margin contracted 200 basis points (bps) to 23%. Selling, general and administrative (SG&A) expenses dropped 4% year over year to $55.8 million. Adjusted operating income declined 13% year over year to $29.7 million. Operating margin shrunk 170 bps to 8.2%.

Segment Performance

In the fiscal second quarter, the Architectural Framing Systems segment's revenues went up 0.5% year over year to $190 million. The segment's adjusted operating income in the quarter came in at $19.4 million compared with $19.2 million witnessed in the prior-year quarter.

The Architectural Glass Systems segment's revenues went down 10% year over year to $88 million. The segment's operating income tanked 83% to $1.7 million from $10.3 million reported in the year-earlier quarter due to increased labor costs, lower productivity, and higher cost of quality.

Revenues in the Architectural Services segment surged 63% year over year to $76.5 million. The segment reported an operating profit of $7.6 million, significantly up from $0.8 million recorded in the year-ago quarter, driven by higher volumes and strong project execution.

The Large-Scale Optical Technologies segment's revenues remained flat year over year at $20.3 million. Operating income in the reported quarter came in at $4.2 million, flat year over year.

Backlog

The Architectural Framing Systems segment's backlog inched up to $428 million in the fiscal second quarter compared with $427 million a year ago. The Architectural Services' segment backlog came in at $405 million - an improvement from $323 million in the prior-year quarter.

Financial Position

Apogee had cash and cash equivalents of $36 million at the end of the fiscal second quarter compared with $30 million as of the end of the prior-year quarter. The company generated cash flow from operations of $48 million in the reported quarter compared with $41 million reported in the prior-year quarter. Long-term debt was $225 million as of Sep 1, 2018, compared with $216 million as of Mar 3, 2018.

Fiscal 2019 Guidance Cut

For fiscal 2019, Apogee reduced its outlook. The company expects revenue growth to be between 8% and 10% for the fiscal compared to the prior guidance of 10%, with lower projected revenues in the Architectural Glass and Architectural Framing Systems segments.

Apogee anticipates that Architectural Glass segment's revenues will be flat to moderately down for the current fiscal. Its Architectural Framing Systems segment's revenues will be up nearly 10% for the fiscal. However, the company expects lower sales in third-quarter fiscal 2019 due to project-related timing issues.

Architectural services will be up around 30% for the fiscal, with year-over-year growth moderating through the second half based on project schedules. Apogee continues to expect mid-single digit growth in Large-Scale Optical for fiscal 2019.

The company also trimmed its operating margin guidance to 8.3-8.8% from the previous 8.9-9.4%. The company projects earnings per share for the fiscal at $3.13-$3.33, down from the earlier guidance of $3.48-$3.68. The guidance excludes the after-tax impact of amortization of short-lived acquired intangibles associated with the acquired backlog of Sotawall and EFCO of $3.8 million (or 13 cents per share).

Share Price Performance

Shares of Apogee have lost around 5% over the past year against the industry 's decline of 14%.

Zacks Rank & Key Picks

Apogee carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Atkore International Group Inc. ATKR , iRobot Corporation IRBT and Caterpillar Inc. CAT . While Atkore and iRobot sport a Zacks Rank #1 (Strong Buy), Caterpillar carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Atkore has a long-term earnings growth rate of 10%. The stock has rallied 41% in a year's time.

iRobot has a long-term earnings growth rate of 21%. Its shares have gained 43% in the past year.

Caterpillar has a long-term earnings growth rate of 15.6%. The company's shares have been up 19% over the past year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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