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Apogee Enterprises Bounces Back With Solid Gains

By Dan Caplinger - Apr 6, 2016 at 5:08PM

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The glass-making specialist enjoyed better revenue and earnings growth than expected.

Image source: Apogee Enterprises.

Glassmaking goes back thousands of years, and innovations during that time have extended its use to a diverse set of different applications. Apogee Enterprises (APOG -0.44%) focuses on value-added glass products for the architectural and optical industries, and coming into Wednesday's fiscal fourth-quarter financial report, Apogee investors had high hopes that the company would be able to continue its impressive growth from recent quarters. Apogee's results were extremely encouraging, topping investors' expectations in most respects, and early guidance for the 2017 fiscal year looks promising as well. Let's take a closer look at the latest from Apogee Enterprises and what investors should look for in the year ahead.

Apogee polishes off fiscal 2016 well
Apogee's fiscal fourth-quarter results were a welcome return to the growth trajectory that investors have wanted to see, especially after last quarter's surprising weakness. Revenue climbed 6% to $262.1 million, which was slightly better than the $259 million that most investors were expecting. The bottom line was even stronger, with Apogee reporting net income of $19.9 million. That was up 44% from the year-ago quarter and produced earnings of $0.69 per share, which was $0.05 per share higher than the consensus forecast among investors.

Taking a closer look at Apogee's figures, some of the same themes were present this quarter as we've seen recently. Foreign-currency weakness cost Apogee about 2 percentage points of top-line growth, but backlogs rose 4% year over year to $508 million. Four-fifths of that backlog amount should fall into fiscal 2017, while the remainder is expected for fiscal 2018. Operating margins soared by 3 full percentage points to 11%, meeting some of Apogee's longer-term strategic goals.

Apogee's various segments showed areas of strength and weakness alike. Architectural services showed the biggest gains, posting revenue increases of 21% and a 9% rise in operating income. Bottom-line performance was even stronger in the architectural glass division, which featured a nearly 170% rise in operating income on revenue growth of 7%, thanks largely to stronger pricing and volume growth. Architectural framing systems saw more modest sales gains of 3%, but that translated into 60% higher operating income due to falling raw material costs and higher-margin projects. Only the large-scale optical segment performed poorly, suffering a 5% sales drop and operating-income declines of nearly 20% due to poor timing of customer orders.

Apogee CEO Joseph Puishys celebrated what he saw as a milestone of Apogee's success. "We did what we said we would do three years ago, essentially delivering on our fiscal 2016 goals of $1 billion in revenues [for the year] at 10% operating margin." The CEO cited pricing, product mix, higher productivity, and lower costs for the financial gains.

What's ahead for Apogee?
Moreover, Apogee is looking for economic activity to spur further gains. "We continue to expect U.S. commercial construction market growth," Puishys said, based on the bidding activity and early commitments it has seen looking ahead.

Apogee followed up its favorable assessment with guidance for fiscal 2017 that could draw mixed reactions from investors. The company expects to earn between $2.65 and $2.80 per share, which is consistent with the consensus forecast for roughly $2.71 in annual earnings in the coming fiscal year. On the revenue side, though, guidance for 10% growth would be somewhat slower than the nearly 12% rise in sales that investors are looking to see.

Still, Apogee is happy about its longer-term prospects. The company is looking to boost operating margins to 12% by fiscal 2018 and produce revenue of $1.2 billion to $1.3 billion. That isn't all that ambitious, but it does suggest Apogee's confidence that the U.S. economy won't start to slow from its current pace of expansion.

Investors were pleased with Apogee's news, sending shares up nearly 5% in the first half-hour of after-market trading following the announcement. With the glassmaker back on the right path, Apogee investors hope that the stock can regain some of its lost luster and start moving upward more aggressively for the remainder of 2016 and beyond.

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