Apogee Enterprises’ architectural framing systems and architectural glass segments saw dips in third quarter revenue year-over-year while the architectural services and large-scale optical segments saw growth, according to the company’s fiscal 2020 third-quarter results. Third-quarter revenue was $337.9 million, compared to $357.7 million in the third quarter of fiscal year 2019. Earnings per diluted share were $0.57, down from $0.78 in the prior year period, primarily driven by lower revenue and margins in the architectural framing systems segment.
Architectural Framing Systems
Revenue for the architectural framing systems segment, which includes Alumicor, EFCO Corp., Linetec, Sotawall, Tubelite and Wausau Window and Wall Systems, in the third quarter was $165.5 million, down from $181.3 million in the prior year period, primarily due to lower volumes from customer driven schedule delays and operational difficulties, which have been identified and are being addressed, according to the company. Operating income was $6.3 million, compared to $12.9 million in the prior year quarter, reflecting lower revenue, and higher than expected manufacturing costs in two of the segment’s businesses. Segment backlog stands at $378 million, compared to $388 million a quarter ago.
Architectural Glass
Revenue for the architectural glass segment, which includes Viracon, in the third quarter was $89.4 million, down from $98.5 million in the prior year quarter, primarily due to lower volumes driven by increased competition from foreign competitors leveraging the strength of the U.S. dollar, according to the company. Operating income was $4.1 million and operating margin was 4.6%, compared to $5.9 million and 5.9% respectively in last year’s third quarter, due to start-up costs related to the new manufacturing facility for the small projects growth initiative, and decreased volumes, partially offset by improved factory productivity.
Architectural Services
The architectural services segment, which includes Harmon, continued to have strong order flow during the quarter, with segment backlog increasing by 21% to a record $607 million, from $502 million last quarter, according to the company. As expected, the segment’s revenue decreased to $69.0 million in the third quarter, compared to $72.8 million in the prior-year quarter, on lower volumes due to the timing of project activity. Third-quarter operating income was $6.5 million with operating margin of 9.5%, compared to $8.7 million and 11.9% respectively in the prior year period, reflecting reduced operating leverage on the decreased volume and less favorable project maturity.
“Third quarter results came in below our expectations, reflecting lower volumes and operational difficulties in certain of our architectural framing systems businesses,” says Joseph F. Puishys, chief executive officer. “Though we are reducing our current year outlook as a result, we remain confident that the company is well positioned for growth and margin expansion next year and beyond. In addition to actions to drive Apogee’s long-term success, we recognize the imperative for improved near-term performance. We are moving quickly but deliberately to address the issues in framing systems, including leadership changes and accelerating our efforts to drive integration and cost reductions within the segment.”
“There were several positives in the quarter that demonstrate the underlying strength of our business,” adds Puishys. “Architectural services continued to deliver strong project execution. We were also awarded several new projects during the quarter, increasing the segment’s already record backlog by over $100 million. Large-scale optical delivered growth and strong profitability. We saw improved factory productivity in architectural glass and we successfully opened our new glass fabrication facility in Texas. Finally, our financial position remains strong, with solid cash flow in the quarter, which we used to reduce our debt.”
Large-Scale Optical
Revenue for the large-scale optical segment, which includes Tru Vue, was $24.4 million, up from $23.4 million in the third quarter last year, primarily due to improved sales mix. Operating income was $6.8 million, up slightly from the prior year period, and operating margin was 27.7%, compared to 28.4% in last year’s third quarter.
Cost Savings Plan
The company provided additional information on its previously announced cost reduction plans. Having retained an advisory firm earlier this year, the company has made progress identifying procurement cost savings opportunities across the enterprise, in all categories of spend. As a result, Apogee has begun moving to a centralized procurement model that better leverages the organization’s scale and drives synergies in its supply chain, according to the company. Additionally, the company has initiated actions to improve operational performance and reduce costs in the architectural framing systems segment.
Taken together, these cost reduction and performance improvement actions are expected to generate annual savings of $30 to $40 million when fully implemented. The company plans to utilize these savings to improve its overall operating margin. In addition, the company expects the cost reduction plan, when fully implemented, will significantly improve working capital and cash flow performance.
Financial Condition and Other Matters
Fiscal year-to-date, cash provided by operating activities is $53.6 million, compared to $70.6 million in the same period last year. The year-over-year difference primarily reflects increased working capital related to legacy EFCO projects, as disclosed in previous quarters. Capital expenditures through the first nine months of the fiscal year were $41.2 million, compared to $33.9 million in the prior year period, as the company continued to make investments in growth and productivity improvement initiatives. Fiscal year-to-date, the company has returned $33.8 million of cash to shareholders through share repurchases and dividend payments. During the quarter, the company reduced its total debt by $21.5 million to $251 million, compared to $273 million at the end of the second quarter of fiscal 2020.
Also, third quarter results included $2.6 million of net recoveries related to acquired project matters and $2.8 million of expense for legal and advisory costs related to the cooperation agreement announced earlier in the quarter.
Outlook
The company is adjusting its guidance for fiscal 2020, reflecting lower than expected sales volumes in architectural framing systems and architectural glass, as well as the operational difficulties in architectural framing systems in the third quarter and continued impact in the fourth quarter. The company now anticipates:
- Full-year revenue flat to down 1%, compared to previous guidance of 1-3% growth;
- Diluted earnings per share in the range of $2.15 to $2.30, compared to previous guidance of $3.00 to $3.20 per share;
- Full-year tax rate of approximately 24.5%; and
- Capital expenditures of approximately $55 million, compared to previous guidance of $60 to $65 million.
