Apogee Enterprises Reports Fiscal 2025 Second Quarter Results

Net sales decrease 3.2% to $342 million

Operating margin improves to 12.3%; adjusted operating margin improves by 110 bps to 12.6%

Diluted EPS of $1.40; adjusted diluted EPS increases 6% to $1.44

Year-to-date cash flow from operations improves to $64 million

Raising full-year EPS outlook

Apogee Enterprises, Inc. reported its results for the second quarter of fiscal 2025. The Company reported the following selected financial results.

Ty R. Silberhorn, Chief Executive Officer stated, “Our team achieved another strong quarter of profitability, delivering improved operating margins, adjusted EPS growth, and increased operating cash flow, despite volume pressure. This quarter’s results continue to demonstrate the sustainable improvements we’ve driven through executing our strategy. Our stronger operating foundation, improved cost structure, and increased mix of differentiated offerings are all contributing to our results.”

Mr. Silberhorn continued, “The momentum we’ve established in the business, combined with the recently announced acquisition of UW Solutions, position us for continued success as we move forward. We are excited to welcome their employees to our team and look forward to working with them to build a powerful new growth engine for our Company. We expect meaningful opportunities to utilize the capabilities of the combined business to help drive our long-term growth.”

Consolidated Results

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

• Net sales decreased 3.2% to $342.4 million, primarily driven by lower volume, partially offset by improved pricing and mix.
• Gross margin improved 140 basis points to 28.4%, primarily driven by improved pricing, a more favorable mix of projects in Architectural Services, favorable material costs, and lower insurance-related costs, partially offset by the unfavorable sales leverage impact of lower volume, higher compensation and benefit expense, and $0.9 million of restructuring costs associated with Project Fortify.
• Selling, general and administrative (SG&A) expenses as a percent of net sales increased 70 basis points to 16.2%, primarily due to higher incentive compensation expense and the unfavorable sales leverage impact of lower volume.
• Operating income increased to $42.0 million, and operating margin was 12.3%. Adjusted operating income grew 6.4% to $43.1 million and adjusted operating margin improved by 110 basis points to 12.6%. The higher adjusted operating margin was primarily driven by improved pricing, a more favorable mix of projects in Architectural Services, favorable material costs, and lower insurance-related costs, partially offset by the impact of higher incentive compensation expense and the unfavorable sales leverage impact of lower volume.
• Interest expense was $1.1 million, compared to $2.2 million, primarily driven by lower average debt levels, partially offset by the impact of the write-off of unamortized financing fees related to the previous credit facility.
• Diluted earnings per share (EPS) was $1.40, compared to $1.52. Adjusted diluted EPS grew 5.9% to $1.44, primarily driven by higher adjusted operating income and lower interest expense.

Segment Results (Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024)

Architectural Framing Systems

Architectural Framing Systems net sales were $141.4 million, compared to $158.8 million, primarily reflecting reduced volume due to exiting certain lower-margin product lines as part of Project Fortify, and lower end-market demand. Operating income was $17.1 million, which included $0.9 million of restructuring charges related to Project Fortify. Adjusted operating income was $18.1 million, or 12.8% of net sales, compared to $21.1 million, or 13.3% of net sales. The lower adjusted operating margin was primarily driven by the unfavorable sales leverage impact of lower volume and a less favorable mix, partially offset by favorable material costs.

Architectural Glass

Architectural Glass net sales were $90.1 million, compared to $94.1 million, reflecting reduced volume due to lower end-market demand, partially offset by improved pricing and product mix. Operating income increased to $21.1 million, or 23.4% of net sales, compared to $17.4 million, or 18.5% of net sales. The 490 basis point improvement in operating margin was primarily driven by improved pricing and product mix, and lower operating costs, partially offset by the unfavorable sales leverage impact of lower volume.

Architectural Services

Architectural Services net sales grew 11.3% to $98.0 million, primarily due to a more favorable mix of projects and increased volume. Operating income improved to $6.1 million, or 6.3% of net sales, which included $0.3 million of restructuring charges related to Project Fortify. Adjusted operating income increased to $6.4 million, or 6.5% of net sales, compared to $3.5 million, or 4.0% of net sales. The 250 basis point improvement in adjusted operating margin was primarily driven by a more favorable mix of projects, partially offset by higher compensation-related expenses and higher lease expense. Segment backlog² at the end of the quarter was $792.1 million, compared to $866.9 million at the end of the first quarter.

Large-Scale Optical

Large-Scale Optical net sales were $19.8 million, compared to $23.6 million, primarily reflecting lower volume in the retail channel, partially offset by a more favorable mix. Operating income was $3.8 million, or 19.1% of net sales, compared to $4.7 million, or 19.7% of net sales. The 60 basis point decline in operating margin primarily reflects the unfavorable sales leverage impact of lower volume, partially offset by improved mix and cost savings.

Corporate and Other

Corporate and other expense was $6.2 million, compared to $6.1 million. The increase was primarily driven by higher compensation and benefit costs, partially offset by lower insurance-related expenses.

Financial Condition

Net cash provided by operating activities in the second quarter improved to $58.7 million, compared to $41.3 million in the prior-year period. Fiscal year to date, net cash provided by operating activities increased to $64.1 million, compared to $62.6 million last year, primarily driven by higher net earnings. Capital expenditures through the first half of the fiscal year were $15.7 million, compared to $15.1 million last year. Fiscal year to date, the Company has returned $25.9 million of cash to shareholders through share repurchases and dividend payments. Quarter-end long-term debt was $62.0 million, with a Consolidated Leverage Ratio³ (as per the Company’s credit agreement) of 0.1x.

Fiscal 2025 Outlook

The Company continues to expect a full-year net sales decline in the range of 4% to 7%. This range includes 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 is increasing its outlook for full-year diluted EPS to a range of $4.81 to $5.08 and adjusted diluted EPS to a range of $4.90 to $5.20⁴. The Company continues to expect 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.

Assuming closing of the UW Solutions acquisition on November 1, 2024, the Company expects incremental net sales of approximately $30 million and an expects a decrease in adjusted diluted EPS of approximately $0.10, primarily due to increased interest and amortization expense related to the acquisition. These impacts are not included in the updated 2025 outlook provided in this earnings release.

The Company continues to expect a total of $15 million to $16 million of pre-tax charges in connection with Project Fortify, leading to updated 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, with the plan to be substantially complete in the third quarter of fiscal 2025.

The Company continues to expect an effective tax rate of approximately 24.5%, and capital expenditures between $40 to $50 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.