Apogee Enterprises - Record FY17 results

As the company reported on April 13, fourth quarter highlights include revenues of $314.1 million, up 20 percent vs. the prior-year period. Operating income of $29.7 million was up 3 percent vs. prior-year period. Operating margin was 9.4 percent vs. 11.0 percent in the prior-year period. Earnings per diluted share of $0.80 were up 16 percent vs. prior-year period.

The company also acquired the assets of Sotawall Inc., an approximately $100 million annual revenue framing systems business serving North American commercial construction projects and increased cash dividend 12 percent.

For the full year, revenues of $1.1 billion were up 14 percent vs. prior-year period. Operating income of $122.2 million was up 25 percent vs. prior-year period. Operating margin was 11.0 percent, up 110 basis points vs. prior-year period. Earnings per diluted share of $2.97 were up 34 percent vs. the prior-year period. The company generated $121.0 million in cash flow from operations and increased credit facility to fund strategic acquisitions that expand market opportunities.

“As we execute our growth and operational excellence strategies, we delivered another year of increased revenues and earnings, with strong cash generation in fiscal 2017,” said Joseph F. Puishys, Apogee chief executive officer. “We once again drove revenue growth in all four segments by leveraging new geographies, products and markets for better than market growth. We also achieved margin improvement in our three architectural segments through our ongoing Lean, productivity, automation, project selection and pricing initiatives.

“Collectively, our four business segments performed well in the fourth quarter, with double-digit operating income growth versus last year,” said Puishys. “Their performance was partly offset by increased corporate costs for insurance, warranty and compensation, as well as costs related to our fourth-quarter acquisition and other strategic growth initiatives, including M&A where we continue to be very active; in addition, we experienced higher raw material prices.

“Our full-year results, with revenues growing 14 percent and earnings per share up 34 percent, reflect successful execution of key strategies in commercial construction markets,” he said. “We are delivering on initiatives to better position Apogee over a cycle, including growing our share of mid-size projects in architectural glass, expanding our geographic presence and product offerings, further penetrating the retrofit market and executing acquisitions. We continue to have confidence in our ability to outperform our end markets, and again intend to do what we say we will do - further grow revenues and earnings in fiscal 2018.”

FY17 Segment and Operating Results vs. Prior-Year Period

Architectural Glass
Full-year revenues were up 9 percent on strong U.S. growth especially in the mid-size project sector.
Full-year operating income was up 26 percent and operating margin grew 140 basis points to 10.8 percent on increased volume, pricing, mix and productivity.

Fourth-quarter revenues of $112.3 million were up 14 percent, on strong U.S. growth in the mid-size project sector.

Fourth-quarter operating income was $13.8 million, up 14 percent.
Operating margin was 12.3 percent, comparable to the prior-year period.
Segment backlog was $66.4 million, compared to $75.9 million in the fiscal 2017 third quarter.

Revenue growth in architectural glass does not require an increase in backlog as it is a short lead-time business with a high level of book and bill activity within quarters. The segment continues to have the greatest visibility to future projects due to its daily interaction with architects.

Architectural Framing Systems
Full-year revenues were up 25 percent on expanded geographic penetration and introduction of new products.

Full-year operating income was up 40 percent and the operating margin grew 130 basis points to 11.6 percent on increases in productivity, volume, project selection and price.

Fourth-quarter revenues of $121.8 million were up 53 percent, with volume growth in all four ongoing businesses.

Growth, excluding revenues from Sotawall which was acquired during the quarter, was 31 percent.

Fourth-quarter operating income grew to $9.7 million, up 26 percent.
Operating margin was 8.0 percent, compared to 9.7 percent, due to increased raw material costs and project mix compared to the prior-year period, as well as the addition of Sotawall at lower margins as a result of acquisition-related amortization costs.

Segment backlog grew $81 million in the fourth quarter to $245.4 million.
Acquisition of Sotawall in the fourth quarter added $69 million to the framing systems backlog.

Architectural Services
Full-year revenues were up 10 percent.
Full-year operating income was up 58 percent and the operating margin grew 200 basis points to 6.8 percent, on flow through of projects at higher margins, good execution and volume growth.

Fourth-quarter revenues of $66.0 million were down 14 percent on the timing of project activity.

Fourth-quarter operating income was $4.2 million, down 26 percent.
Operating margin was 6.3 percent, compared to 7.3 percent, due to lower volume and project mix.

Segment backlog grew $60 million in the fourth quarter to $255.1 million.
As expected, several projects entered backlog in the quarter, with the majority of these additions anticipated to generate revenue in fiscal 2019 and beyond. Segment backlog is expected to continue to grow early in fiscal 2018, although backlog trends in this segment are uneven.

Large-Scale Optical Technologies

Full-year revenues were up 1 percent, and the segment operating margin remained strong at 25.0 percent, down slightly as the segment continues to pursue new market opportunities.

Fourth-quarter revenues of $26.3 million were up 22 percent on the timing of customer orders.

Fourth-quarter operating income of $6.9 million was up 42 percent.
Operating margin expanded 370 basis points to 26.0 percent due to a mix of higher-margin products and volume leverage.

Apogee’s capital allocation strategy - rooted in strong cash flow - supports cash returns to shareholders and investments in future growth. Apogee generated $121 million in cash from operations during fiscal 2017, and has liquidity and flexibility under its expanded revolving credit facility. Apogee invested $135 million from cash and the credit facility in a fourth-quarter acquisition, and capital expenditures for the year were $68 million, primarily for increased capabilities and productivity. Also reflecting Apogee’s ongoing commitment to enhancing shareholder return, share buybacks and cash dividends totaled more than $25 million during fiscal 2017.

“For fiscal 2018, we expect continued top- and bottom-line growth as we execute our strategies to grow through new geographies, new products and new markets. We also anticipate margin improvement through our ongoing focus on operational performance, productivity and project selection,” said Puishys. “We expect to drive revenue growth of approximately 10 percent and deliver earnings of $3.35 to $3.55 per diluted share.”

Fiscal 2018 gross margin is expected to be approximately 28 percent and operating margin approximately 12.5 percent. Capital expenditures are anticipated to be $50 to $60 million, as Apogee invests primarily to increase capabilities and productivity.

“Apogee expects mid-single digit U.S. commercial construction market growth in fiscal year 2018, as market activity, the Architecture Billings Index, office employment and office vacancy rates all show positive momentum,” Puishys said. “With our internal market visibility from backlog, commitments and bidding activity and external metrics moving in the right direction, we see sustained U.S. non-residential market growth.”