Apogee Enterprises Inc (APOG) Q2 2025 Earnings Call Transcript Highlights: Navigating Revenue ...

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  • Revenue: Declined 3% year over year.

  • Adjusted Operating Margin: Improved 110 basis points to 12.6%.

  • Adjusted Diluted EPS: Grew 6% to $1.44.

  • Architectural Glass Operating Margin: Improved by 490 basis points to 23.4%.

  • Services Net Sales: Grew 11%.

  • Services Backlog: Ended the quarter at $792 million.

  • Cash from Operations: $59 million, up 42% compared to last year's second quarter.

  • Full-Year Adjusted EPS Outlook: Increased to a range of $4.90 to $5.20.

  • Full-Year Net Sales Outlook: Expected to decline 4% to 7%.

  • Full-Year Capital Expenditures: Expected to be $40 million to $50 million.

Release Date: October 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Apogee Enterprises Inc (NASDAQ:APOG) achieved a strong adjusted operating margin of 12.6%, marking the second consecutive quarter with margins above 12%.

  • The company reported exceptionally strong cash flow from operations, with a 42% increase compared to the previous year's second quarter.

  • Architectural glass outperformed expectations due to strong pricing and mix, contributing significantly to profitability.

  • The acquisition of UW Solutions is expected to be accretive to Apogee's long-term financial profile, enhancing revenue growth and adjusted EBITDA margin.

  • Apogee Enterprises Inc (NASDAQ:APOG) increased its full-year adjusted EPS outlook to a range of $4.90 to $5.20, reflecting stronger-than-expected second-quarter performance.

Negative Points

  • Revenue declined by 3% year over year, primarily due to lower volumes in framing, glass, and LSO segments.

  • The company faced continued softness in some end markets, particularly non-residential construction.

  • Framing systems experienced an 11% decline in net sales due to the strategic shift away from lower-margin product lines.

  • LSO sales declined by 16%, mainly due to lower volume in the retail channel.

  • The services backlog decreased to $792 million from $867 million in the previous quarter, although it remains up 17% compared to a year ago.

Q & A Highlights

Q: Can you elaborate on the cross-selling opportunities with the acquisition of UW Solutions? A: Ty Silberhorn, President, CEO, & Director: The HD printable materials segment presents significant cross-selling opportunities, especially since there is not much customer overlap. This segment complements our existing offerings in custom framing and museum art. The industrial flooring segment, marketed under the ResinDEK brand, is recognized for its leadership in industrial flooring, particularly in facilities using robotics. While there is potential for crossover into our building products channels, we are cautious about the extent of this integration.

Q: Could you provide more details on the market share and potential consolidation opportunities with UW Solutions? A: Ty Silberhorn, President, CEO, & Director: UW Solutions focuses on premium market segments, particularly with their ChromaLuxe and Unisub brands in HD printable materials and the ResinDEK brand in industrial flooring. While the overall markets are large, the addressable market is smaller due to our focus on differentiated solutions. We continue to explore M&A opportunities to add differentiated products to our portfolio, both in building materials and within our LSO segment.

Q: What are the expectations for the architectural glass segment in the second half of the fiscal year? A: Matt Osberg, CFO & EVP: The architectural glass segment has shown strong profitability, but we anticipate a moderation in the second half due to lower pricing and margin mix in the pipeline. While the first half benefited from favorable pricing and mix, the second half is expected to align with the upper half of the 10% to 15% margin range.

Q: Can you provide insights into the historical growth rate of UW Solutions? A: Ty Silberhorn, President, CEO, & Director: The industrial flooring segment has been the key growth driver, accounting for about half of UW's revenue. This segment experienced significant growth during the COVID-19 pandemic and has maintained strong growth rates approaching double digits. The coatings business, while mostly internally consumed, has also seen some growth.

Q: How does the ResinDEK product differentiate itself in the market, and what is its go-to-market strategy? A: Ty Silberhorn, President, CEO, & Director: ResinDEK differentiates itself through its proprietary coating on engineered wood, providing a durable and smooth surface ideal for robotics and automated equipment. The product is sold in panels, making it easy to install, particularly in mezzanine flooring applications. The go-to-market strategy involves strong partnerships with robotics companies, specifying ResinDEK in their solutions, and selling through system integrators and contractors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.