Apogee First-Quarter Architectural Segment Earnings Decline; Backlog Remains "Flat"

As noted in its fiscal 2010 first-quarter earning, revenues for Minneapolis-based Apogee Enterprises Inc. were down 24 percent to $180.9 million. The decline comes as a result of the worsened domestic market conditions "with continued tight commercial real estate credit, decreasing employment levels and soft retail markets," says Russell Huffer, Apogee chairman and chief executive officer. "We are managing costs and productivity to achieve solid gross margins, and are generating cash in this tough environment. However, the inability to fully leverage fixed costs over lower volume impacted our architectural and large-scale optical segment operating margins."

In the architectural segment specifically, revenues declined 24 percent, and operating income decreased 28 percent. Backlog remained relatively flat at $310.0 million, compared to $316.2 million at the end of fiscal 2009.

"It is positive that we experienced a relatively flat architectural segment backlog compared to the previous quarter and minimal cancellations," says Huffer. "We have reduced costs more than $40 million on an annual basis since October and headcount continues to decrease. Although future periods will be impacted by the domestic commercial construction slowdown, we entered the downturn with a very strong balance sheet and are generating positive cash flow. Apogee remains in a strong financial position."

Revenues for the architectural products and services segment saw a 24 percent drop to $166.7 million. The decline is reported to be primarily from the architectural glass and installation businesses due to project delays, the timing of project flow and cancellations experienced in the second half of last year.

Operating income was down 28 percent to $10.8 million and operating margin was 6.5 percent, compared to 6.7 percent.

The company reported that "solid execution by the installation and window businesses of projects bid in stronger markets, along with productivity improvements and ongoing cost cutting efforts were more than offset by the impact of lower volume."

Backlog remained flat at $310.0 million, compared to $316.2 million at the end of fiscal 2009. This is down from $491.0 million in the prior-year period. The company says that as work on existing backlog is completed, slower bid-to-award timing is impacting backlog levels, despite steady bidding activity.

The institutional sector continues to be the largest portion of the backlog, followed by office projects, with condo and hotel/entertainment projects a much smaller portion of future work.

Approximately $254 million, or 82 percent, of the backlog is expected to be delivered in fiscal 2010, and approximately $56 million, or 18 percent, in fiscal 2011.

Overall, first-quarter earnings showed operating income down 30 percent to $11.7 million and operating margin at 6.5 percent, compared to 7.0 percent last year. Earnings were 27 cents per share versus 36 cents per share last year.