Apogee Enterprises I
APOG
Delayed Nasdaq - 07/18 10:00:00 pm
49.21USD
-1.42%

APOGEE ENTERPRISES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/12/2018 | 09:17 pm

Forward-looking statements
This discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements reflect our
current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intend," "estimate," "forecast," "project,"
"should" and similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forecasts and projections in this document are "forward-looking
statements," and are based on management's current expectations or beliefs of
the Company's near-term results, based on current information available
pertaining to the Company, including the risk factors noted under Item 1A of the
Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2018.
From time to time, we may also provide oral and written forward-looking
statements in other materials we release to the public, such as press releases,
presentations to securities analysts or investors, or other communications by
the Company. Any or all of our forward-looking statements in this report and in
any public statements we make could be materially different from actual results.



Accordingly, we wish to caution investors that any forward-looking statements
made by or on behalf of the Company are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and other risk factors include, but are not
limited to, the risks and uncertainties set forth under Item 1A of the Company's
Annual Report on Form 10-K for the fiscal year ended March 3, 2018.



We wish to caution investors that other factors might in the future prove to be
important in affecting the Company's results of operations. New factors emerge
from time to time; it is not possible for management to predict all such
factors, nor can it assess the impact of each such factor on the business or the
extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. We undertake no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.



Overview



We are a world leader in certain technologies involving the design and
development of value-added glass and metal products and services for enclosing
commercial buildings and framing and displays. Our four reporting segments are:
Architectural Framing Systems, Architectural Glass, Architectural Services and
Large-Scale Optical (LSO).



The following selected financial data should be read in conjunction with the
Company's Form 10-K for the year ended March 3, 2018 and the consolidated
financial statements, including the notes to consolidated financial statements,
included therein.






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Highlights of First Quarter of Fiscal 2019 Compared to First Quarter of Fiscal
2018



Net sales
Consolidated net sales increased 23.6 percent, or $64.2 million, for the first
quarter ended June 2, 2018 compared to the prior year period, due to the
addition of EFCO, acquired in June 2017, within the Architectural Framing
Systems segment, and strong sales within the Architectural Services segment,
partially offset by a timing-related sales decline in the Architectural Glass
segment. Approximately 3.4 percent of the increase in net sales in the current
year compared to the prior year was due to the change in revenue recognition
policies as a result of the adoption of ASC 606, as described in Note 1 to the
Consolidated Financial Statements.



The relationship between various components of operations, as a percentage of
net sales, is illustrated below:



Three Months Ended
June 2, 2018 June 3, 2017
Net sales 100.0 % 100.0 %
Cost of sales 76.0 74.2
Gross profit 24.0 25.8
Selling, general and administrative expenses 17.5 17.0
Operating income 6.5 8.8
Interest and other (expense) income, net (0.5 ) -
Earnings before income taxes 6.0 8.8
Income tax expense 1.5 2.9
Net earnings 4.5 % 5.9 %
Effective tax rate 24.1 % 32.9 %



Gross profit
Gross profit as a percent of sales was 24.0 percent for the three-month period
ended June 2, 2018, compared to 25.8 percent for the three-month period ended
June 3, 2017. Gross profit as a percent of sales declined from the prior-year
primarily due to the inclusion of the lower gross margin EFCO business and
reduced volume leverage in the Architectural Glass segment.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales increased to 17.5 percent in the three-month
period ended June 2, 2018, compared to 17.0 percent in the prior year
three-month period, primarily due to increased selling costs from the inclusion
of EFCO.
Income tax expense
The effective tax rate in the first quarter of fiscal 2018 was 24.1 percent,
compared to 32.9 percent in the same period last year, primarily driven by the
provisions of the Tax Cuts and Jobs Act, enacted in December 2017.


Segment Analysis



Architectural Framing Systems



Three Months Ended
%
In thousands June 2, 2018 June 3, 2017 Change
Net sales $ 179,037 $ 110,492 62.0 %
Operating income 12,339 11,964 3.1 %
Operating margin 6.9 % 10.8 %



Architectural Framing Systems net sales increased $68.5 million, or 62.0
percent, for the three-month period ended June 2, 2018 compared to the prior
year period. The addition of the net sales of EFCO provided the large majority
of the increase, with additional growth driven by geographic expansion and new
product sales by businesses existing prior to recent acquisitions. This growth
was partially offset by a year-over-year decline in Canadian curtainwall sales,
due to timing of project activity.
Operating margin declined 390 basis points for the current quarter compared to
the same period in the prior year, resulting from the inclusion of EFCO at lower
operating margins and reduced operating leverage on lower Canadian curtainwall
sales, partially offset by operating improvements in our businesses existing
prior to recent acquisitions.



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Backlog in this segment, as of June 2, 2018, was approximately $400 million,
compared to approximately $378 million at fiscal 2018 year-end.



Architectural Glass



Three Months Ended
%
In thousands June 2, 2018 June 3, 2017 Change
Net sales $ 76,925 $ 97,735 (21.3 )%
Operating income 1,579 9,322 (83.1 )%
Operating margin 2.1 % 9.5 %



Net sales declined $20.8 million, or 21.3 percent, from the the prior year
period, due to changes in the timing of customer orders. Operating margin
declined 740 basis points for the three-month period of the current year,
compared to the prior year, due to lower volumes.



Architectural Services



Three Months Ended
June 2, June 3, %
In thousands 2018 2017 Change
Net sales $ 70,727 $ 50,150 41.0 %
Operating income 5,155 782 559.2 %
Operating margin 7.3 % 1.6 %



Architectural Services net sales increased $20.6 million, or 41.0 percent, over
the prior year, primarily due to year-on-year timing of project activity.
Operating margin increased 570 basis points for the three-month period of the
current year compared to the prior year, due to volume leverage and strong
operating performance.
As of June 2, 2018, backlog in this segment grew to approximately $439 million,
compared to approximately $426 million at fiscal 2018 year-end.



Large-Scale Optical (LSO)



Three Months Ended
%
In thousands June 2, 2018 June 3, 2017 Change
Net sales $ 20,761 $ 18,603 11.6 %
Operating income 4,981 4,050 23.0 %
Operating margin 24.0 % 21.8 %



LSO net sales increased $2.2 million, or 11.6 percent, for the three-month
period ended June 2, 2018, over the prior year, as a result of strong core
picture framing demand, product mix and growth in new markets. Operating margin
increased 220 basis points for the three-month period of the current year
compared to the prior year, driven by volume leverage and favorable product mix.


















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