Apogee Enterprises Reports Fiscal 2025 Third Quarter Results

Net sales of $341 million

Operating margin of 8.4%; and adjusted operating margin of 10.4%

Diluted EPS of $0.96 and adjusted diluted EPS of $1.19

Year-to-date cash flow from operations of $95 million

Completed UW Solutions acquisition

Apogee Enterprises, Inc. reported its results for the third quarter of fiscal 2025.

Ty R. Silberhorn, Chief Executive Officer stated, “Our team remains focused on strengthening our operating foundation and positioning the company for long-term growth, despite continued pressure from soft demand in our end markets which is impacting results in the near term. During the quarter, we completed our acquisition of UW Solutions, expanding the capabilities and market opportunity in our LSO segment and creating a platform we expect to drive future growth.”

Closing of UW Solutions Acquisition

On November 4, 2024, the Company completed the acquisition of UW Interco, LLC (“UW Solutions”), a vertically integrated manufacturer of high-performance coated substrates used in graphic arts, building products, and other applications, for $242 million in cash.

Consolidated Results

(Third Quarter Fiscal 2025 compared to Third Quarter Fiscal 2024)

• Net sales increased 0.5% to $341.3 million, driven by $8.8 million of inorganic sales contribution from the acquisition of UW Solutions and a more favorable mix of projects in Architectural Services, partially offset by less favorable mix in Architectural Framing Systems and lower volume in Architectural Glass.
• Gross margin decreased 50 basis points to 26.1%, primarily driven by the unfavorable sales leverage impact of lower volume, a less favorable product mix primarily in Architectural Framing Systems, higher incentive compensation expense, and higher lease expense, partially offset by a more favorable mix of projects in Architectural Services, lower quality related expense, and lower insurance-related costs.
• Selling, general and administrative (SG&A) expenses as a percent of net sales increased 220 basis points to 17.7%, primarily due to acquisition-related expenses associated with the UW Solutions transaction, restructuring expenses related to Project Fortify, and the unfavorable sales leverage impact of lower volume.
• Operating income declined to $28.6 million, and operating margin decreased to 8.4%. Adjusted operating income was $35.4 million and adjusted operating margin decreased by 70 basis points to 10.4%. The lower adjusted operating margin was primarily driven by the unfavorable sales leverage impact of lower volume, less favorable product mix, higher incentive compensation expense, and higher lease expense, partially offset by a more favorable mix of projects in Architectural Services and lower insurance-related costs.
• Diluted earnings per share (EPS) was $0.96, compared to $1.23. Adjusted diluted EPS decreased to $1.19, primarily driven by lower adjusted operating income.

Segment Results

(Third Quarter Fiscal 2025 Compared to Third Quarter Fiscal 2024)

Architectural Framing Systems

Architectural Framing Systems net sales were $138.0 million, compared to $139.6 million, primarily reflecting a less favorable product mix, partially offset by increased volume. Operating income was $12.7 million. Adjusted operating income was $13.6 million, or 9.8% of net sales, compared to $17.0 million, or 12.2% of net sales. The lower adjusted operating margin was primarily driven by the less favorable product mix as well as higher freight and compensation costs.

Architectural Glass

Architectural Glass net sales were $70.2 million, compared to $91.0 million, primarily reflecting reduced volume due to lower end-market demand. Operating income was $10.1 million, or 14.4% of net sales, compared to $15.2 million, or 16.7% of net sales. The lower operating margin was primarily driven by the unfavorable sales leverage impact of lower volume, partially offset by improved productivity, favorable freight costs, and lower quality related expense.

Architectural Services

Architectural Services net sales grew 10.8% to $104.9 million, primarily due to a more favorable mix of projects and increased volume. Operating income improved to $9.7 million. Adjusted operating income increased to $9.0 million, or 8.6% of net sales, compared to $5.3 million, or 5.6% of net sales. The improvement in adjusted operating margin was primarily driven by a more favorable mix of projects, partially offset by higher incentive compensation and lease expenses. Segment backlog² at the end of the quarter was $742.2 million, compared to $792.1 million at the end of the second quarter.

Large-Scale Optical

Large-Scale Optical net sales grew 27.6% to $33.2 million, compared to $26.0 million, which included $8.8 million of inorganic sales contribution from the acquisition of UW Solutions. Operating income was $4.8 million, or 14.6% of net sales, which included $1.3 million of acquisition-related costs. Adjusted operating income was $6.2 million, or 18.6% of net sales, and included $1.1 million related to UW Solutions. Adjusted operating income in the prior year period was $7.1 million, or 27.3% of net sales. The lower adjusted operating margin was primarily driven by the unfavorable sales leverage impact of lower organic volume and the dilutive impact of lower adjusted operating margin from UW Solutions.

Corporate and Other

Corporate and other expense increased to $8.8 million, compared to $6.9 million, primarily driven by $4.5 million of acquisition-related costs and $0.8 million of restructuring charges, partially offset by lower incentive compensation costs and lower insurance-related expenses.

Financial Condition

Net cash provided by operating activities in the third quarter was $31.0 million, compared to $66.7 million in the prior year period. The decrease was primarily driven by an increase in cash used for working capital. Fiscal year-to-date, net cash provided by operating activities was $95.1 million, compared to $129.3 million last year, primarily reflecting increased cash used for working capital. Net cash used by investing activities increased to $257.1 million for the first nine months of fiscal 2025, primarily related to $233.1 million used for the acquisition of UW Solutions. Fiscal year-to-date, capital expenditures were $24.7 million, compared to $27.0 million last year, and the Company has returned $31.3 million of cash to shareholders through share repurchases and dividend payments.

Quarter-end long-term debt increased to $272.0 million, as the Company increased borrowings on its existing credit facility to fund the acquisition of UW Solutions, which increased the Consolidated Leverage Ratio³ (as defined in the Company’s credit agreement) to 1.3x at the end of the quarter.

Fiscal 2025 Outlook

The Company now expects full-year net sales to decline approximately 5%, which includes an expected $30 million contribution from the acquisition of UW Solutions and the impact of lower-than-expected volume in the fourth quarter. This outlook continues to include approximately 2 percentage points of decline related to fiscal 2025 reverting to a 52-week year, and approximately 1 percentage point of decline related to the actions of Project Fortify to eliminate certain lower-margin product and service offerings.

The Company now expects full-year adjusted diluted EPS will be at the bottom of its guidance range of $4.90 to $5.20. This expectation includes the impact of approximately $0.05 of dilution related to the acquisition of UW Solutions and lower-than-expected volume in the fourth quarter. This outlook continues to include the expectation that the impact of the reversion to a 52-week year will reduce adjusted diluted EPS by approximately $0.20 compared to fiscal 2024 and that there will be no material impact to adjusted diluted EPS related to the adverse net sales impact of Project Fortify.

The Company now expects a total of $16 million to $17 million of pre-tax charges in connection with Project Fortify, leading to annualized cost savings of $13 million to $14 million. The Company continues to expect approximately 60% of these savings will be realized in fiscal 2025, and the remainder in fiscal 2026, with approximately 70% of the savings to be realized in Architectural Framing Systems, 20% in Architectural Services, and 10% in Corporate and Other. The Company now expects the plan to be substantially complete in the fourth quarter of fiscal 2025.

The Company continues to expect an effective tax rate of approximately 24.5%, and now expects capital expenditures between $40 million to $45 million.

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About Apogee Enterprises

Apogee Enterprises, Inc. (Nasdaq: APOG) is a leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used for preservation, energy conservation, and enhanced viewing. Headquartered in Minneapolis, MN, our portfolio of industry-leading products and services includes high-performance architectural glass, windows, curtainwall, storefront and entrance systems, integrated project management and installation services, as well as value-added glass and acrylic for custom picture framing and displays. For more information, visit www.apog.com.

Contact:

Jeff Huebschen – Vice President, Investor Relations & Communications – ir@apog.com – (952) 487-7538

Source: Apogee Enterprises, Inc.