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Apogee Outdoes Itself

According to glassmaker Apogee Enterprises (Nasdaq: APOG  ) , the third quarter has always been its strongest quarter of the year. But when the firm's earnings news arrived late Wednesday night, it became clear that even the company itself was surprised at just how strong this particular Q3 turned out.

Thanks to a much better than expected performance from the firm's flagship architectural glass division (up 24%), overall firm sales leapt 18% year over year, operating margins expanded nearly 200 basis points, and per-share profits that were predicted to decline in the double digits instead grew 9% year over year. All of which taken together convinced management that there was nothing left to do but raise guidance for the full year. Previous guidance of $0.92 to $0.98 per share could no longer contain the firm's success, and so Apogee lifted the ceiling on its projections to $1.04 per share.

The architectural glass division's progress continues to stand in stark contrast to Apogee's two other, smaller divisions -- "large-scale optical" (i.e., glass used in framing pictures) and "automotive replacement glass (i.e., windshields and car windows). The former saw revenues rise just 1%, but operating profits decline 25% on much weakened margins. The latter saw its revenues fall 33% year over year, and turned in yet another operating loss for the quarter.

The silver lining around the cloudy automotive segment, however, is that it has finally convinced Apogee to exit the lousy aftermarket windshields business. As mentioned in our pre-earnings Foolish Forecast, Apogee is retooling its automotive capacity to support its profitable architectural glass segment.

But the best news here concerns Apogee's prospects. According to management, the firm expects to end the year with architectural glass operating margins approaching 5.8%, which would mean that business -- which provides roughly 85% of the firm's revenues -- will be nearly twice as profitable this year as last. What's more, the company sees further improvements ahead, and expects to reach its "goal of reaching our prior peak architectural operating margin of 7.0 percent in two years." So two more years of rising sales, and perhaps as much as an additional 20% worth of profitability extracted from those sales. Sounds good to me.

What did we expect to see at Apogee last quarter, and what did it produce? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above.

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10/21/2016 4:00 PM
APOG $41.17 Down -1.11 -2.61%
Apogee Enterprises CAPS Rating: ****