apogee, n.: The farthest or highest point; the apex.
Every so often, a company lives up to its name. Like, say, when Stock Advisor pick Netflix (Nasdaq: NFLX ) announced it would begin actually sending flicks out over the Net. More pertinent to today's column, though, is the moment when shares of window maker Apogee Enterprises (Nasdaq: APOG ) climbed 11% higher than their price before last Wednesday's earnings announcement. The company's shares have risen in price to nearly match their peak in the days of the late-'90s bubble.
What drove Apogee to this apparent peak?
- 17% full-year sales growth.
- 29% growth in earnings from continuing operations.
- 100%-plus improvement in operating profits for the flagship architectural glass division.
- 150 basis points' worth of operating margin improvement.
- Full-year 2008 guidance upped 5.6%.
- A long-overdue decision to exit the money-losing business of manufacturing aftermarket car windshields.
- And finally, an almost-as-brilliant decision to exit the business of selling pre-framed art and wall decorations within the next several months.
Much like another ill-favored, construction-industry-hobbled favorite company of mine -- American Woodmark (Nasdaq: AMWD ) -- Apogee's management has stared long and hard at the obvious, and finally made the right call. As you'll recall, Apogee has heretofore been comprised of three main divisions:
- a big-revenue, moderate-margin business selling commercial building windows.
- a small-revenue, high-margin business selling picture frames.
- a small-revenue, negative-margin business selling car windshields.
In 2007, management decided to get out of its least attractive business and use the resulting spare manufacturing capacity to service its better businesses. As a result, it's now looking to expand profit margins in both of its two remaining businesses in 2008. It will also continue posting double-digit sales growth in architectural glass, and replace all of the revenues from its discontinued pre-framed art segment with double-digit-margin revenues from higher value-added framing products.
Little wonder that Wall Street is on its feet, applauding the results -- if you haven't noticed, I am, too.
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