Apogee Enterprises Inc. (APOG, Financial) recently reported strong third-quarter results. The company updated its EPS guidance for fiscal 2017. Revenues grew 15% year over year. The quarter was marked by strong top and bottom line growth.
Strong third-quarter results
Headquartered in Minneapolis, Apogee Enterprises is engaged in the design and development of value-added glass products and services operating in the following four segments: Architectural Glass, Architectural Services, Architectural Framing Systems and Large-Scale Optical.
On Dec. 14, 2016, the company reported its financial results for the third quarter ended Nov. 26. The company’s net sales increased 15% to $274.02 million from $238.32 million for the comparable prior-year period. Sales from the architectural glass, architectural framing systems and architectural services segments increased 25.2% to $107 million, 18.88% to $90.85 million and 5.13% to $64.38 million from the third quarter of 2015. On the other hand, sales from the large-scale optical segment decreased 8.8% to $22.08 million from $24.21 million the year before.
Gross profit for the reported quarter was $72.87 million, a 16.67% increase from $62.43 million in the prior-year period. The gross profit margin increased to 26.59% from 26.19% in the same period last year.
Apogee’s operating income increased 19.38% to $33.26 million from $27.86 million in the year-ago quarter. Operating income as a percentage of net sales increased 12.13% from 11.69% in the same period last year. Operating income from the architectural glass, architectural framing systems and architectural services segments increased 39.74% to $11.71 million, 27.92% to $11.82 million and 32.97% to $4.92 million. The large-scale optical segment’s operating income decreased 22.44% to $5.91 million from $7.62 million in the year-ago quarter.
Net income increased 21.76% to $22.55 million, or 78 cents per diluted share, compared to $18.52 million or 64 cents per diluted share for the comparable year period. Net income as a percentage of net sales increased 8.23% from 7.77% in the prior-year period. The company’s EBITDA increased 19.01% to $33.37 million from $28.04 million in the comparable period the year before.
Apogee’s cost of sales increased 14.38% to $201.2 million from $175.9 million. On the other hand, cost of sales as a percentage of net sales decreased to 73.41% compared to 73.81% in the prior-year period. Selling, general and administrative expenses increased 14.58% to $39.61 million. Net interest expense for the reported quarter decreased 6.25% to $0.15 million from $0.16 million.
Apogee ended the quarter with cash and short-term investments, including restricted cash, of $97.1 million. Long-term debt remained flat to $20.4 million and net property, plant and equipment for the reported quarter was $229.56 million, a 13.38% increase from $202.46 million in the comparable prior-year period.
First nine months overview
The following chart shows Apogee’s financial results for first nine months of 2016.
| Metrics | Nine months ended November 2016 | Nine months ended November 2015 | % change |
| Net sales | $800.41 million | $719.04 million | 11.32% |
| Gross profit | $209.83 million | $174.71 million | 20.10% |
| Operating income | $92.56 million | $68.5 million | 35.12% |
| Net income | $62.67 million | $45.41 million | 38% |
| EBITDA | $93.7 million | $69.15 million | 35.5% |
| Cost of sales | $590.58 million | $544.33 million | 8.5% |
| Selling, general and administrative expenses | $117.27 million | $106.21 million | 10.41% |
| Net interest expense | $0.49 million | $0.48 million | 2.08% |
| Net cash provided by operating activities | $70.48 million | $86.17 million | (18.21)% |
Expectations
| Metrics | Range |
| EPS | To be between $2.85 and $2.95 |
| Capex | To be around $70 million |
| Gross margin | To be around 26.7% |
| Operating margin | To be around 11.5% |
Focus
- Grow through new markets
- Better project selection
- Productivity and operational improvements
- Leveraging its strategies
Conclusion
Fiscal 2016 was a record year for this company as it scaled to the highest level of revenues and EPS in its 67-year history. From 2014 through 2016, the company grew its revenues at a 13% compound annual growth rate or by $280 million. It is also expanding through acquisitions.
It plans to invest in new products, markets and geographies while maintaining consistent dividend increases, making the stock a good long-term pick. Management expects market growth through 2020. It hopes to grow revenues by $1.2 to $1.3 billion at an operating margin of at least 12% in fiscal 2018.
It currently has a lot of growth opportunities as, for the next three years, U.S. non-residential construction markets are expected to grow. The present success is contributed to improved pricing, product mix and lower material costs. Strong cash flows and its capital allocation strategy are plus points. The company is constantly introducing new products. It is performing well and I think adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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