Apogee Third Quarter Earnings Increase; Fiscal 2009 Earnings Guidance Maintained
THIRD QUARTER HIGHLIGHTS
-- Revenues of $240.4 million were up 14 percent from the prior-year
period.
-- Operating income was $24.8 million , up 111 percent from the prior-year
period.
-- Earnings from continuing operations were $0.63 per share versus $0.26
per share a year earlier.
o In the current period, Apogee had a gain of $0.04 per share on the
sale of its 34-percent interest in the PPG Auto Glass LLC joint
venture, and in the prior-year period took an impairment charge of
$0.11 per share on its investment in this joint venture.
o In the prior-year period, write-down of three Florida glass
installation projects reduced architectural segment earnings by $0.14
per share. In the current period, architectural segment earnings were
impacted by $0.07 per share of additional expenses for estimated final
remediation of two of the projects.
o In the current period, long-term executive compensation expense
adjustments added $0.06 per share, primarily related to lower
projected payouts of stock-based incentives.
o Net tax benefits of $0.02 per share were recognized in the current
period, primarily due to the Congressional extension of the research
and development tax credit. In the prior-year period, net tax benefits
of $0.08 per share were also recognized for research and development
tax credits.
FY09 Q3 FY08 Q3
GAAP EPS - Continuing Operations $ 0.63 $ 0.26
PPG Auto Glass JV (equity in affiliates) (0.04 ) 0.11
Glass installation write-downs 0.07 0.14
Executive compensation adjustments (0.06 ) -
R&D tax credits (0.02 ) (0.08 )
Adjusted EPS - Continuing Operations $ 0.58 $ 0.43
Adjusted EPS growth 35 %
-- Architectural segment revenues grew 16 percent, while operating income
increased 154 percent versus the prior-year period.
-- Large-scale optical segment revenues declined 2 percent, while operating
income increased 43 percent compared to the prior-year period.
-- Net earnings, including discontinued operations, were $0.63 per share
versus $0.38 per share in the prior-year period.
o In the prior-year period, conclusion of the sale of the non-strategic
recreational vehicle and bus windshield business resulted in
discontinued operations earnings of $0.12 per share.
-- Fiscal 2009 guidance: expected earnings from continuing operations are
maintained at $1.65 to $1.82 per share.
Commentary
"Apogee's strong third-quarter performance is indicative of our earnings
potential in strong market conditions," said
"Although we expect future periods to be impacted by the commercial
construction slowdown, we have entered the downturn with a very strong
balance sheet," he said. "We are generating significant positive cash
flow, our long-term debt has declined to less than
SEGMENT AND OPERATING HIGHLIGHTS
Architectural Products and Services
-- Revenues of $219.1 million were up 16 percent compared to the prior-year
period.
o Revenue growth came primarily from the architectural glass business,
the storefront and entrance business acquired in the fourth quarter of
fiscal 2008, and the installation business, somewhat offset by a
revenue decline in the window manufacturing business due to project
delays.
-- Operating income was $19.6 million , compared to $7.7 million in the
prior-year period.
o Operating margin was 9.0 percent. This compares to 4.1 percent in the
prior-year period; excluding the prior-year write-downs of the glass
installation projects, the operating margin would have been 7.5
percent.
# In the current quarter, as we had anticipated, overall installation
project margins continued to increase, and production in the
architectural glass business improved to expected operating levels
late in the quarter. These strong performances were somewhat offset
by lower earnings in the window business as revenues declined.
o Backlog declined to $373.2 million , compared to $456.7 million in the
prior-year period and $446.7 million at the end of the second quarter.
# One-half of the decline was from the architectural glass business,
with the balance split between the glass installation and window
businesses. Project delays and cancellations and slowing
bid-to-award timing are impacting backlog levels, despite strong
bidding activity and the green building trend which we believe is
increasing demand for our energy-efficient glass products.
o Approximately $141 million , or 38 percent, of the backlog is to be
delivered in the fourth quarter of fiscal 2009; approximately $205
million , or 55 percent, in fiscal 2010; and approximately $27 million ,
or 7 percent, in fiscal 2011.
Large-Scale Optical Technologies
-- Revenues of $21.3 million declined 2 percent compared to the prior-year
period.
-- Operating income was $6.5 million , up 43 percent compared to the
prior-year period.
o Operating margin was 30.4 percent, compared to 20.8 percent in the
prior-year period.
# Sales to retail chains and distributors were stronger than expected
in part due to the timing of customer promotional activities, with a
higher mix of our best value-added products more than offsetting
weak market conditions.
Financial Condition
-- Long-term debt was $28.4 million , down from $63.7 million at the end of
the second quarter and from $58.2 million at the end of fiscal 2008.
Proceeds of $27.1 million from the sale of Apogee's interest in the PPG
Auto Glass joint venture were used to reduce debt, and the company
continued to drive lower working capital requirements.
-- Non-cash working capital (current assets, excluding cash, less current
liabilities) was $67.1 million , compared to $72.8 million at the end of
the second quarter and $69.7 million at the fiscal 2008 year end.
-- Year-to-date depreciation and amortization were $21.0 million , up 24
percent from the prior year period, due to new capacity depreciation and
acquisition amortization.
-- Year-to-date capital expenditures were $49.5 million , compared to $39.0
million in the prior-year period; $10.2 million was incurred in the
third quarter. For the full year, there has been spending on
productivity improvements and capacity expansions in both operating
segments.
-- Third-quarter share repurchases totaled approximately 675,000 shares at
an average price of $9.73 per share, for a total of $6.6 million .
OUTLOOK
"Our fiscal 2009 guidance for earnings from continuing operations
remains at
"To manage through the downturn, we have already implemented and continue to evaluate further cost cutting initiatives, ranging from reduction of headcount and discretionary spending to productivity improvements," he said. "We remain strongly focused on cash flow and managing working capital, and will tightly control capital expenditures. In addition, we are pursuing opportunities to generate revenues by penetrating underserved markets.
"Delays, cancellations and slower conversion of bid projects into awards have impacted the size of our backlog and have led to uncertainty regarding our outlook for fiscal 2010," Huffer said. "At this time, we estimate that our fiscal 2010 revenues are likely to be down at least 10 percent.
"As our third-quarter performance demonstrated, we have good businesses with strong brands and operations that are positioned to serve the growing demand for green, energy-efficient commercial buildings. In addition, we have a very strong balance sheet," he said. "We anticipate that with our focus on quality, service and productivity improvements, our architectural segment will emerge stronger than ever after the economy strengthens."
The following statements are based on current expectations for fiscal 2009. These statements are forward-looking, and actual results may differ materially.
-- Overall revenues for the year are expected to increase 6 to 8 percent
(prior guidance was 9 to 12 percent).
o Architectural segment revenues are expected to increase 8 to 10
percent, driven by the architectural glass business and the storefront
and entrance business acquisition (prior guidance was 11 to 14
percent).
o Large-scale optical segment revenues are expected to be down 8 to 10
percent (prior guidance was down 6 to 7 percent).
-- Annual gross margins are expected to be approximately 21 percent;
increased pricing and project margins are expected to offset increases
in wages, health care, energy costs, materials and freight.
-- Selling, general and administrative expenses as a percent of annual
sales are projected to be slightly more than 13 percent.
-- Expected annual operating margins by segment are: architectural, 6.6 to
7.2 percent (prior guidance was 6.4 to 7 percent); and large-scale
optical, approximately 22 percent.
-- Equity in affiliates will have pre-tax earnings of approximately $1.9
million , including the sale of Apogee's interest in the PPG Auto Glass
joint venture.
-- Full-year capital expenditures are projected to be approximately $60
million , including capacity expansions and productivity improvements in
both operating segments.
-- Depreciation and amortization are estimated at approximately $30 million
for the year.
-- Debt is expected to be approximately $20 million at year end.
-- The effective tax rate for the full year is anticipated to be
approximately 34 percent (prior guidance was 34 to 35 percent).
-- Fiscal 2009 earnings per share from continuing operations are expected
to range from $1.65 to $1.82 .
The discussion above, including all statements in the Outlook section,
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements reflect
Apogee management's expectations or beliefs as of the date of this
release. The company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. All forward-looking statements
are qualified by factors that may affect the operating results of the
company, including the following: operational risks within (A) the
architectural segment: i) competitive, price-sensitive and changing
market conditions, including unforeseen project delays and
cancellations; ii) economic conditions, material cost increases and the
cyclical nature of the North American commercial construction industry;
iii) product performance, reliability, execution or quality problems
that could delay payments, increase costs, impact orders or lead to
litigation; and iv) the segment's ability to fully and efficiently
utilize production capacity; and (B) the large-scale optical segment: i)
markets that are impacted by consumer confidence and trends;
ii) dependence on a relatively small number of customers; iii) changing
market conditions, including unfavorable shift in product mix; and iv)
ability to utilize manufacturing facilities. Additional factors include:
i) revenue and operating results that are volatile; ii) financial market
disruption which could impact company, customer and supplier credit
availability; iii) self-insurance risk related to a material product
liability event and to health insurance programs; iv) management of
discontinued operations exiting activities; v) cost of compliance with
governmental regulations relating to hazardous substances; and vi)
foreign currency risk related to certain discontinued operations. The
company cautions investors that actual future results could differ
materially from those described in the forward-looking statements, and
that other factors may in the future prove to be important in affecting
the company's results of operations. New factors emerge from time to
time and it is not possible for management to predict all such factors,
nor can it assess the impact of each such factor on the business or the
extent to which any factor, or a combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements. For a more detailed explanation of the
foregoing and other risks and uncertainties, see Item 1A of the
company's Annual Report on Form 10-K for the fiscal year ended
TELECONFERENCE AND SIMULTANEOUS WEBCAST
Apogee will host a teleconference and webcast at
-- Architectural products and services companies design, engineer,
fabricate, install, maintain and renovate the walls of glass and windows
comprising the outside skin of commercial and institutional buildings.
Businesses in this segment are: Viracon , the leading fabricator of
coated, high-performance architectural glass for global markets; Harmon,
Inc. , one of the largest U.S. full-service building glass installation,
maintenance and renovation companies; Wausau Window and Wall Systems, a
manufacturer of custom aluminum window systems and curtainwall; Linetec,
a paint and anodizing finisher of window frames and PVC shutters; and
Tubelite, a fabricator of aluminum storefront, entrance and curtainwall
products.
-- Large-scale optical segment consists of Tru Vue, a value-added glass and
acrylic manufacturer for the custom picture framing market and
commercial optics.
Apogee Enterprises, Inc. & Subsidiaries Consolidated Condensed Statement of Income (Unaudited) Thirteen Thirteen Thirty-nine Thirty-nine Weeks Ended Weeks Ended % Weeks Ended Weeks Ended % Dollar amounts in thousands, November 29, December 1, Change November 29, December 1, Change except for per 2008 2007 2008 2007 share amounts Net sales $ 240,397 $ 210,975 14 % $ 723,836 $ 638,533 13 % Cost of goods 185,309 170,761 9 % 571,212 508,568 12 % sold Gross profit 55,088 40,214 37 % 152,624 129,965 17 % Selling, general and 30,269 28,437 6 % 92,374 85,957 7 % administrative expenses Operating 24,819 11,777 111 % 60,250 44,008 37 % income Interest 325 263 24 % 795 710 12 % income Interest 444 444 0 % 1,270 1,585 -20 % expense Other (expense) (299 ) 92 N/M (178 ) 80 N/M income, net Equity in income (loss) 1,954 (3,967 ) N/M 1,868 (2,491 ) N/M of affiliated companies Earnings from continuing operations 26,355 7,721 241 % 61,465 40,722 51 % before income taxes Income taxes 8,678 155 5499 % 21,218 11,645 82 % Earnings from continuing 17,677 7,566 134 % 40,247 29,077 38 % operations (Loss) earnings from (32 ) 3,430 N/M (183 ) 5,089 N/M discontinued operations Net earnings $ 17,645 $ 10,996 60 % $ 40,064 $ 34,166 17 % Earnings per share - basic: Earnings from continuing $ 0.64 $ 0.27 137 % $ 1.44 $ 1.03 40 % operations (Loss) earnings from $ - $ 0.12 -100 % ($0.01 ) $ 0.18 N/M discontinued operations Net earnings $ 0.64 $ 0.39 64 % $ 1.43 $ 1.21 18 % Average common shares 27,553,871 28,472,436 -3 % 27,919,786 28,335,950 -1 % outstanding Earnings per share - diluted: Earnings from continuing $ 0.63 $ 0.26 142 % $ 1.42 $ 1.00 42 % operations (Loss) earnings from $ - $ 0.12 -100 % ($0.01 ) $ 0.17 N/M discontinued operations Net earnings $ 0.63 $ 0.38 66 % $ 1.41 $ 1.17 21 % Average common and common equivalent shares 27,905,072 29,205,179 -4 % 28,372,212 29,095,959 -2 % outstanding Cash dividends per common $ 0.0815 $ 0.0740 10 % $ 0.2295 $ 0.2090 10 % share Business Segments Information (Unaudited) Thirteen Thirteen Thirty-nine Thirty-nine Weeks Ended Weeks Ended % Weeks Ended Weeks Ended % November 29, December 1, Change November 29, December 1, Change 2008 2007 2008 2007 Sales Architectural $ 219,060 $ 189,134 16 % $ 668,412 $ 575,445 16 % Large-Scale 21,343 21,840 -2 % 55,432 63,090 -12 % Optical Eliminations (6 ) 1 N/M (8 ) (2 ) -300 % Total $ 240,397 $ 210,975 14 % $ 723,836 $ 638,533 13 % Operating income (loss) Architectural $ 19,629 $ 7,718 154 % $ 49,718 $ 33,695 48 % Large-Scale 6,497 4,546 43 % 13,242 12,078 10 % Optical Corporate and (1,307 ) (487 ) -168 % (2,710 ) (1,765 ) -54 % other Total $ 24,819 $ 11,777 111 % $ 60,250 $ 44,008 37 %
Consolidated Condensed Balance Sheets
(Unaudited)
November 29, March 1,
2008 2008
Assets
Current assets $ 243,624 $ 259,229
Net property, plant and equipment 205,942 176,676
Other assets 95,128 127,603
Total assets $ 544,694 $ 563,508
Liabilities and shareholders' equity
Current liabilities $ 165,701 $ 177,315
Long-term debt 28,400 58,200
Other liabilities 44,633 43,411
Shareholders' equity 305,960 284,582
Total liabilities and shareholders' equity $ 544,694 $ 563,508
N/M = Not meaningful
Apogee Enterprises, Inc. & Subsidiaries Consolidated Condensed Statement of Cash Flows (Unaudited) Thirty-nine Thirty-nine Weeks Ended Weeks Ended Dollar amounts in thousands November 29, 2008 December 1, 2007 Net earnings $ 40,064 $ 34,166 Net loss (earnings) from discontinued 183 (5,089 ) operations Depreciation and amortization 21,039 16,971 Stock-based compensation 2,067 5,615 Results from equity investments (1,868 ) 2,491 Other, net 958 (2,353 ) Changes in operating assets and liabilities 8,562 (2,709 ) Net cash provided by continuing operating 71,005 49,092 activities Capital expenditures and acquisition of (49,460 ) (38,977 ) intangible assets Proceeds on sale of property 120 236 Proceeds from sale of investment in 27,111 - affiliated company Acquisition of businesses, net of cash (24 ) - acquired Net sales (purchases) of marketable 2,374 (1,957 ) securities Net cash used in investing activities (19,879 ) (40,698 ) Payments on long-term debt and revolving (29,800 ) (14,800 ) credit agreement Stock issued to employees, net of shares (2,286 ) 3,286 withheld Repurchase and retirement of common stock (14,646 ) - Dividends paid (6,529 ) (6,063 ) Other, net 1,220 2,215 Net cash used in financing activities (52,041 ) (15,362 ) Cash (used in) provided by discontinued (558 ) 8,417 operations (Decrease) increase in cash and cash (1,473 ) 1,449 equivalents Cash and cash equivalents at beginning of 12,264 6,187 year Cash and cash equivalents at end of period $ 10,791 $ 7,636
CONTACT:
Investor Relations:
mjackson@apog.com
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