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Apogee Enterprises Wins Big As Construction Booms

By Dan Caplinger – Sep 14, 2016 at 7:14PM

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The architectural-glass specialist did better than expected and boosted its guidance for the rest of the year.


Image source: Apogee Enterprises.

Many investors have worried recently about how much staying power the U.S. economic recovery has left. For glassmaker Apogee Enterprises (APOG 0.90%), levels of commercial building activity are critical, because the company specializes in providing the glass products that go into modern buildings. Coming into Wednesday's fiscal second-quarter financial report, Apogee investors were poised to see substantial growth in the company's sales and profits. But even they were shocked at just how well the company fared during the quarter. Let's take a closer look at the latest from Apogee Enterprises and whether things can continue at this breakneck pace into the future.

Apogee puts up a pretty picture

Apogee's fiscal second-quarter results emphasized just how strong the environment for commercial building is right now. Revenue soared 16% to $278.5 million, easily outpacing the 11% growth rate that most investors following the stock had expected to see. Net income climbed by more than half to $22.4 million, and that produced earnings of $0.77 per share. That figure was a dime better than the consensus forecast among investors and represented a new record figure for the company.

Many of the favorable trends for Apogee continued during the quarter. The company showed how its operating efficiency has kept climbing, with operating income also hitting a new record of $33 million. That was up by 47% from the year-ago quarter, and Apogee's operating margin once again posted a big gain, rising more than two and a half percentage points to finish at 11.9%.

Looking at Apogee's divisions, the big news was a return to revenue growth for the architectural glass division. Volume growth and better pricing sent the segment's top line up 7%, and operating income was up by more than two-fifths thanks to considerable margin improvement. The architectural services division saw sales climb by nearly half, with operating income more than tripling, and architectural framing systems also performed strongly with a 14% jump in sales and a one-third gain in its operating income. Only the large-scale optical business posted top- and bottom-line declines, and Apogee blamed customer order timing for most of that shortfall.

Apart from that, just about the only concerning figure was the fact that backlog levels were down 13%. At $447.7 million, Apogee's backlog mostly covers business that it expects to complete during the current fiscal year. However, about three-eighths of the total -- roughly $167 million -- won't get delivered until fiscal 2018.

Apogee CEO Joseph Puishys tied the company's performance to industry conditions. "The strength we are seeing in our non-residential construction end markets is evident in the results from our architectural segments," Puishys said. The CEO also noted that on the architectural side, backlogs improved from year-ago levels, showing continued momentum.

Can Apogee break new ground?

Apogee also expects the good times to continue. In Puishys' words, "We continue to see strong non-residential construction market conditions and order activity, and have extensive visibility to future work, giving us confident in our outlook."

As a result, Apogee once again boosted its fiscal 2017 guidance. The company added between a nickel and a dime to its range of expected earnings, with a current call for between $2.80 and $2.90 per share. Revenue growth should remain around 10%, showing that Apogee expects productivity gains to provide most of the bottom-line growth. Long-run guidance remains upbeat, and Apogee repeated its call for revenue of $1.2 billion to $1.3 billion and operating margin figures of 12% to 13%.

Apogee investors were happy with the report, and the stock climbed more than 6% in after-hours trading following the announcement. With a big vote of confidence for the construction industry in the U.S., Apogee appears poised to keep profiting from favorable conditions as long as they last.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Apogee Enterprises. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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