Apogee Enterprises (NASDAQ:APOG) has had to deal with a sluggish construction market over the past several years in its efforts to foster faster growth in its architectural glass and framing divisions, which make up a substantial part of its overall business. In response, Apogee has sought to amplify future increases in sales by turning to the merger and acquisition arena, making several strategic purchases to try to expand and take advantage of new opportunities in the industry.

Coming into Tuesday's fiscal second-quarter financial report, Apogee investors were prepared to see falling earnings, but they wanted evidence of strong sales growth along with signs that the company's merger-based strategy would work out well. Apogee's results were once again mixed, as we've seen in past quarters, and investors seem uncertain about whether the company is truly taking maximum advantage of the current environment. Let's take a closer look at what Apogee Enterprises said and what's ahead for the rest of the year and beyond.

Interior glass ceiling with metal framework in a large hall.

Image source: Apogee Enterprises.

Apogee polishes itself up

Apogee's fiscal second-quarter results showed strong top-line performance along with the negative effects of bottom-line headwinds. Revenue came in at $343.9 million, which was up 24% from year-ago levels, but that was weaker than the $350 million in sales that most of those following the stock were hoping to see. Net income fell 22% to $17.4 million, although after accounting for extraordinary items related largely to acquisitions, adjusted earnings of $0.75 per share were $0.04 higher than the consensus forecast, albeit down slightly from the fiscal second quarter of last year.

Taking a closer look at Apogee's report, the architectural framing systems division most clearly showed the impact of recent acquisitions. Segment sales more than doubled to $189 million, but excluding the gains from the merger with Sotawall and EFCO, Apogee posted a 17% rise in framing system revenue. The division did well from a bottom-line perspective, posting gains of nearly half in adjusted operating income. Segment backlogs also nearly doubled from year-earlier levels thanks largely to the EFCO acquisition.

Other segments had more mixed performance. Architectural glass saw a 2% drop in revenue, with the company citing timing issues on larger projects as holding back gains on mid-sized projects. The struggling architectural services unit once again saw declines, with sales falling 40% and operating income down almost 90% due to lower project volume. Yet backlog for services was up, and Apogee remains optimistic about its prospects. The large-scale optical technologies unit suffered a 5% drop in revenue, hitting operating income by about a sixth.

CEO Joseph Puishys was generally pleased with the performance. "Our architectural framing systems segment is central to our strategy to deliver more stable future revenue streams and earnings," Puishys said. The CEO pointed to other efforts to refine Apogee's mix of business to maximize profit while also extending into new areas of the world.

Can Apogee keep building higher?

Apogee has a lot of optimism about the current state of affairs in the industry. As Puishys put it, "We have internal visibility to continued end-market growth for the next two to three years, and we are confident Apogee is in a good position to capitalize on future opportunities."

Some investors might still be getting used to the company's guidance after announcing revised figures related to the EFCO acquisition in August. Apogee reiterated that revised guidance, which included revenue growth of 24% to 26% and adjusted earnings of $3.40 to $3.60 per share. Those figures are down by two percentage points on the top-line growth rate and about $0.25 per share on the earnings front, and they reflected in part Apogee's concerns about "growing pressures in the architectural glass mid-size project market."

Apogee stock was down between 1.5% and 2% at midday on Tuesday following the company's announcement earlier in the morning. It will take time for Apogee's acquisitions to play out fully, and until they do, it could be difficult for the stock to make much headway in the near future.