Well, that was unpleasant.

Disregarding macro statements from McGraw-Hill (NYSE:MHP) about a "bottom" beginning to form for the economy, micro macro statements from Home Depot (NYSE:HD) about a bottom becoming visible in housing, and refutations of both contained in Toll Brothers' (NYSE:TOL) earnings report, commercial building play Apogee Enterprises (NASDAQ:APOG) just kept doing what it's been doing yesterday:

  • Growing revenues 13% for the second quarter, in the middle of a miserable economy;
  • Keeping profits on the uptick as well (up 8% to $0.43 per share);
  • And beating pessimistic estimates in both regards.

Crack in the pane
While the news was by and large of the "good" variety, there were a few flaws worth highlighting that may explain the stock's 11% sell-off. Most obviously, there's the fact that profits are growing slower than sales, which suggests margin contraction.

Actually, its large-frame optical (picture framing) business improved its operating margins 290 basis points as Apogee exited less-profitable segments to focus on its best performers. However, operating margins at the flagship architectural (building) glass division -- 14 times as big as optical -- shed 60 basis points thanks to rising labor costs needed to keep up with strong demand.

Through the looking glass
For better or for worse, Apogee may be moving beyond that problem. You see, the real reason for the stock's decline was management's 8% walk-back on guidance. Thanks to "project delays" and two "cancellations" at casino construction projects, this year's profits are expected to come in between $1.65 and $1.82 per share.

Who's to blame?
Apogee did not say who canceled. I see that business is still booming at Wynn (NASDAQ:WYNN), but Las Vegas Sands (NYSE:LVS) and MGM (NYSE:MGM) are going through some tough times. Or it could be a little operator that no one's heard of.

Whoever it was, these cancellations and delays are hurting backlog growth in the key architectural segment. Exceeding sales growth as recently as the first quarter, backlog growth lagged 10% to 13% in Q2. This suggests two things, neither one good:

  • Sales growth -- previously predicted to hit perhaps 15% this year -- will probably slow to 12% or less.
  • Lower sales mean Apogee will not be able to "fill in all open capacity." This could hurt efficiency, and operating margins. It also explains why profits won't be as strong as previously thought.

Or in other words -- the economic slowdown has finally caught up to Apogee.

Revisit Apogee and its recent perigees in:

Fool contributor Rich Smith no longer owns shares of Apogee. The McGraw-Hill Companies and Home Depot are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.