Apogee Falls On Earnings And Improved Financial Condition

Mixed Results Drives Apogee Lower

At first glance, you might think Apogee Enterprises (NASDAQ:APOG) is well-positioned as a manufacturer of windows but then again, maybe not. The company is focused almost exclusively on the industrial end of the construction business and there is some weakness in that area. Industrial furniture-maker Steelcase (NYSE:SCS) is another example of this problem. The furniture industry is rebounding strongly but Steelcase isn’t participating because the strength is all residential. But there is a difference here. Apogee operates in four segments and two are growing, and the company is in a much better position to leverage its rebound, and it pays a much-safer dividend.

“We delivered another strong quarter, with adjusted earnings growth and improved cash flow, despite continued challenges from COVID and soft conditions in our architectural end markets,” said Joseph F. Puishys, Chief Executive Officer. “We focused aggressively on managing costs and improving execution across our business and remain on track to achieve our full-year cost reduction goal of over $40 million.

Apogee Up On Mixed Results

Apogee delivered a mixed quarter in terms of revenue and earnings but there is a mitigating factor. The company missed on the top line but beat on the bottom line because of ongoing cost-savings that are driving YOY earnings increases. The topline revenue of $313.58 million is down 7.2% from last year and missed consensus by 580 basis points. The weakness is attributed to project delays and weak-end-markets related to the COVID-19 pandemic.

On a segment basis, Architectural Framing and Architectural Glass segments both saw declines on a YOY basis while Services and Large-Scale Optical both grew. The Architectural Services segment grew by double-digits (a little more than 11%)  while Optical returned to growth with a 4.0% increase. Together, these segments are about 30% of net revenue.

Moving down the report, the company says it is on track to meet its goal of greater than $40 million in cost savings for the fiscal year. This can be seen in the EPS, both adjusted and GAAP, which both beat the consensus by wide margins and grew on a YOY basis. The GAAP EPS of $1.42 includes proceeds from the sale-leaseback of a property that generated a significant gain along with $24 million in cash. The more-important and comparable adjusted EPS came in at $0.91 or $0.21 better than expected and up 58% from the last year.

Apogee Has A Fortress Balance Sheet And Safe Yield

Apogee is attractive for its dividend if nothing else. The stock is yielding about 2.3% with shares near $32 and there is every expectation for distribution growth. The payout ratio is less than 30% of earnings, the balance sheet is a fortress, cash is good and free-cash-flow is growing. Based on the 9-year history of increases investors should expect another increase with the next declaration due out within the next month.

“During the quarter, we took several actions to further strengthen the company’s financial position and drive value,” continued Mr. Puishys. “We completed a sale-leaseback transaction for one of our facilities, generating a significant gain on the sale and $24 million in cash. We amended our term loan, extending the maturity by three years, and we resumed repurchases of our stock. We also initiated an effort to reduce our fixed cost base, which should add to the cost savings efforts we already had underway.”

The Technical Outlook: Apogee Is In Rally Mode

The Q3 report was taken well by the market but did not spark a major move higher. In light of the recent uptrend, the post-release pullback is welcome and may lead to consolidation at this level or a pullback to firmer support. In either case, the bulls are still in control of this stock and the outlook is optimistic if not positive. If share prices pull back it will be an opportunity to buy this stock at a deeper value and higher yield. The targets for support are near $30 and $28