Foolish Forecast: Apogee Peaking?

For more than three years, commercial glassmaker Apogee (Nasdaq: APOG) has consistently met or exceeded Wall Street's earnings expectations -- recently, leaning more toward the "exceeding" side of the formula. Wednesday afternoon, on the back of a strong report for its fiscal third quarter, it will declare its goal to extend its long winning streak.

What analysts say:

• Buy, sell, or waffle? Only two analysts still track Apogee, down one from last quarter, but both of them rate it a buy.
• Revenues. On average, they expect to see 7% sales growth to $224.4 million.
• Earnings. Profits are predicted to grow twice as fast, to reach $0.40 per share.

What management says:
Honestly, I have to say first that I'm a little bored with this stock. Every quarter, it's "outperformed this," "exceeded that," and "raised guidance on the other thing." It's enough to get a Fool hoping for an earnings miss, just to shake things up a bit!

Most recently, Apogee's second-quarter report had the company posting another 20%-sales growth quarter, with earnings up 50%, and guidance raised to somewhere between $1.43 and $1.53 per share for the year. [Yawn.]

What management does:
Seems Corning (NYSE: GLW) isn't the only company that knows how to spin glass into gold around here. But without fiber optics and an LCD TV phenomenon to help, how does Apogee do it? By this time, you should know the story. Apogee exited its low-margin car windshield glass business, converted the capacity to higher-margin glass used in picture-framing and commercial building windows, and in the process grew its margins dramatically.

How dramatically? This dramatically:

Margins	6/06	9/06	12/06	3/07	6/07	9/07
Gross	19.1%	19.3%	19.3%	19.1%	19.8%	20.4%
Operating	4.9%	5.1%	5.8%	6.1%	6.8%	7.3%
Net	3.6%	3.8%	3.7%	4.1%	4.8%	5.1%

Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The question, of course, is how long can Apogee keep this growth story going? Is it (pardon the obscure pun) reaching its zenith? Or will business boom long enough for the company's margins to approach those earned by rival PPG Industries (NYSE: PPG)? Compared to Apogee, PPG squeezes about 50% more operating profit out of each dollar of revenue booked.

After all, with sales struggling at companies tied to residential construction -- Home Depot (NYSE: HD) and Lowe's (NYSE: LOW), for example -- credit markets constrained, and the media preaching an impending recession every other Tuesday, you have to wonder when this turmoil will reach out and touch the commercial building industry. That would certainly hurt Apogee's business of making the windows that go into such buildings.

But CEO Russell Huffer gave not a hint of this last quarter. Instead, he highlighted revenue that "increased significantly due to strong project flow and a low level of project delays" in Q2. More importantly, Huffer observed that Apogee saw "high levels of bidding activity for future architectural business," which suggests that the good times aren't over yet.

What did we expect to see in Apogee's results last quarter? What did we get? Find out in:

• Seeing the Future at Apogee
• Foolish Forecast: Apogee Comes Around Again