Apogee Enterprises (APOG -1.07%) has benefited greatly from the rebound in construction activity recently, which has helped the architectural glass and framing specialist bounce back from difficult conditions in past years. Yet despite solid business conditions throughout 2017, Apogee stock has struggled as investors seemed to question whether its growth path was sustainable.

Coming into Thursday's fiscal fourth-quarter financial report, Apogee investors were hoping that past concerns about future growth would diminish because of better conditions in the construction industry. Fiscal 2018 did indeed turn out to be a record year for the company's top and bottom lines. Unfortunately, Apogee's quarterly sales numbers didn't show the gains that many wanted to see, and the company's outlook for fiscal 2019 didn't inspire huge amounts of confidence, either. Let's take a closer look at Apogee Enterprises and its most recent financial performance for hints about the future.

Large lobby with all-glass roof framed in metalwork.

Image source: Apogee Enterprises.

Apogee posts solid profits on sluggish sales

Apogee's fiscal fourth-quarter results were mixed in most people's eyes. Revenue came in at $353.5 million, up 13% from the previous year's quarter but falling short of the 16% growth rate that most investors were looking to see. Adjusted net income rose 11% to $27.6 million, though, and the resulting adjusted earnings of $0.96 per share were far above the consensus forecast for $0.62 per share among those following the stock. For the year, Apogee reported a 19% rise in revenue to $1.33 billion, and adjusted earnings climbed 7% to $3.23 per share. Both of the full-year numbers were all-time highs for the company.

Tax reform had a beneficial effect on Apogee's numbers. The company said that revaluation of deferred income tax liabilities helped result in a $3.7 million net benefit, which worked out to about $0.13 per share.

Yet segment sales performance was mixed. The architectural framing business saw revenue jump by more than half, but after adjusting for recent acquisitions, organic sales actually fell 4%. The architectural glass segment saw even more-dramatic declines, with sales down 18%. Only the architectural services unit saw unqualified revenue growth, and even there, gains of 3% were relatively small. Revenue from large-scale optical technologies dropped 11%, with the company citing order timing from retail customers as driving the decline.

Apogee did a better job with its bottom line. Adjusted operating income soared more than 30% in architectural framing and more than 50% for the architectural services unit, outweighing a nearly 50% drop for architectural glass. The large-scale optical tech division saw roughly flat operating income from year-ago levels.

CEO Joseph Puishys said that efforts to make Apogee's business less volatile are paying off: "Our strategy to stabilize our business performance throughout an economic cycle is centered on diversifying geographies, markets and project sizes served, as well as improving margins through productivity and project selection initiatives." Puishys noted that many of Apogee's initiatives have sought to help its various segments achieve this core strategic goal.

Can Apogee avoid a slowdown?

Apogee sees further opportunities for the future. Geographical expansion into new opportunities in architectural framing and strategic movement into more architectural glass markets should help those segments, while substantial backlogs of more than $400 million each in the framing and services divisions should support ongoing work levels across the company. By serving new areas of the world as well as coming out with new products and seeking to serve new industries that it hasn't focused on before, Apogee thinks that it has several avenues to boost its business.

Nevertheless, Apogee's guidance for the coming 2019 fiscal year didn't stand up well to investor scrutiny. The company sees revenue growth slowing to just 10% for the year, and adjusted earnings should come in between $3.43 and $3.63 per share. Both figures are below the consensus forecasts among those following the stock, and they seemed a bit inconsistent with CEO comments that forecasts for good conditions in the commercial construction market in the U.S. would help to bolster growth initiatives throughout the business.

Apogee investors were left wanting more from the company, and the stock fell 6% in pre-market trading following the announcement. Despite the architectural specialist's suggestions to the contrary, shareholders remain concerned about Apogee's ability to grow to its full potential, and they seem unwilling to regain confidence without demonstrated proof in the form of accelerating growth.