Apogee Enterprises Inc (APOG) Q3 2025 Earnings Call Highlights: Navigating Market Challenges ...

• Net Sales: $341 million, including $8.8 million from UW Solutions.
• Organic Net Sales Decline: Approximately 2%, driven by lower volume in glass.
• Adjusted Operating Margin: Declined 70 basis points.
• Adjusted Diluted EPS: $1.19, down 3%.
• Framing Net Sales: Declined approximately 1% to $138 million.
• Framing Adjusted Operating Margin: 9.8%.
• Services Net Sales Growth: 11%.
• Services Adjusted Operating Margin: 8.6%.
• Services Backlog: $742 million, down from $792 million last quarter.
• LSO Sales Growth: 28% to $33.2 million.
• LSO Adjusted Operating Margin: 18.6%.
• Cash from Operations: $31 million for the quarter, $95 million year-to-date.
• Consolidated Leverage Ratio: 1.3 times.
• Full Year Net Sales Outlook: Expected to decline by approximately 5%.
• Full Year Adjusted Operating Margin Outlook: Approximately 11%.
• Full Year Adjusted Diluted EPS Outlook: At the bottom of the range of $4.90 to $5.20.
• Effective Tax Rate: Approximately 24.5%.
• Full Year Capital Expenditures: $40 million to $45 million.

• Warning! GuruFocus has detected 5 Warning Signs with AIR.

Release Date: January 07, 2025

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

Positive Points

• Apogee Enterprises Inc (NASDAQ:APOG) closed the acquisition of UW Solutions, which is expected to drive growth and provide exposure to higher growth areas and higher margins.
• The company's balance sheet remains strong even after funding the acquisition, allowing for continued capital deployment to drive shareholder value.
• Services segment delivered its third straight quarter of double-digit net sales growth, with an adjusted operating margin of 8.6%.
• Apogee Enterprises Inc (NASDAQ:APOG) is actively cultivating its M&A pipeline, evaluating opportunities to add differentiated products that fit with its strategy.
• The company has built a stronger operating foundation, driving sustainable improvements and demonstrating the ability to deliver margin expansion and earnings growth even without meaningful market growth.

Negative Points

• Revenue was in line with last year, but there is continued pressure from soft end market demand in nonresidential construction, impacting the framing and glass segments.
• Adjusted operating margin declined by 70 basis points due to unfavorable sales leverage from lower volume, a less favorable product mix, and higher incentive compensation and lease expense.
• Net sales in the glass segment declined due to soft end market demand impacting volume, with expectations of continued pressure in the fourth quarter.
• The services backlog declined by 4% compared to a year ago, reflecting softness in the overall construction market.
• The company expects full-year net sales to decline by approximately 5%, with lower-than-expected volume in the fourth quarter, primarily in the framing and glass segments.

Q & A Highlights

Q: Can you discuss the in-market weakness in the glass segment and how price and mix are holding up? Also, how should we model 4Q sales dollars in glass relative to 3Q? A: The glass segment is experiencing pressure primarily on volume, with prices holding up for now but expected to come under pressure. For 4Q, we anticipate continued volume pressure, particularly in framing, but also in glass. The 4Q sales are expected to be around the same level as 3Q, with some potential for slight variation.

Q: Can you expand on the positive momentum in industrial flooring from the UW acquisition and touch on the other product lines? A: Industrial flooring, which is a significant part of UW Solutions, is performing better than expected, with strong pipeline growth. This segment provides exposure to R&R and new warehouse opportunities, contributing positively to revenue and margins. The other product lines, HD printable materials and Engineered Coatings, are also integral to our strategy, but specific guidance on these is not provided.

Q: What are your plans for capital deployment in fiscal '26, considering the robust M&A pipeline and debt repayment? A: We are focused on paying down debt to reduce interest expenses while actively pursuing M&A opportunities. We have the capacity for deals similar in size to UW Solutions without additional debt. Our priority is to deploy capital towards strategic acquisitions and organic investments that drive growth.

Q: How do the trends in your services business align with third-party market forecasts, and what are you seeing in terms of demand? A: The services business trends align with market forecasts, showing some softness and choppiness. However, we expect to outperform the market slightly, even if flat year-over-year, due to a flight to quality and productivity improvements. The business is operating within its 7% to 9% target margin range.

Q: What factors could drive EPS performance towards the upper end of the guidance range in Q4? A: The primary variable affecting EPS guidance is volume pressure. We are directing expectations towards the bottom of the $4.90 to $5.20 range due to this pressure. However, any improvement in volume could potentially drive performance towards the upper end.

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