Apogee Short of Estimates - Analyst Blog

Glass products dealer Apogee Enterprises Inc. (APOG) announced second-quarter fiscal 2011 operating loss of 18 cents per share compared with operating earnings of 46 cents per share in the year-ago quarter. The operating loss per share in the reported quarter was wider than the Zacks Consensus Estimate of a loss of 10 cents.
 
On a GAAP basis, Apogee's earnings for the second quarter of 2011 broke even, compared with 47 cents per share recorded in the year-ago period. The difference of 18 cents between operating and GAAP earnings, during the second quarter, was due to non-cash earnings of 18 cents per share in the current period from an outstanding exposure to a foreign operation discontinued in 1998.
 
Total Revenue
 
Apogee's total operating revenue for second-quarter fiscal 2011 was $144.7 million versus $187.4 million reported in the year-ago period, reflecting a decline of 23%. The year-over-year plunge in total revenue was due to a much lower contribution from the Architectural Products and Services segment.
 
The actual results of the company fell short of the Zacks Consensus Estimate of $146 million.
 
Segmental Results
 
Architectural Products and Services: Total segment revenue for second-quarter fiscal 2011 was $127.3 million versus $170.6 million in second-quarter fiscal 2010, reflecting a decline of 25%. The shortfall was due to a decrease in volume and prices across the architectural businesses. The company sacrificed prices to win new projects and gain market share.
 
Large-Scale Optical Technologies: Total segment revenue for second-quarter fiscal 2011 was $17.4 million versus $16.9 million in second-quarter fiscal 2010, reflecting a growth of 3%.
 
Eliminations: Eliminations had a negative impact of $40 million on total revenue during the reported quarter.
 
Operational Update
 
The cost of goods sold during the quarter, as a percentage of total revenue, was 87.6% versus 74.1% in the year-ago period, resulting in a lower gross profit.
 
Selling, general and administrative expenses (SG&A) during the quarter, as a percentage of total revenue, increased 117 basis points from the year-ago period.
 
The revenue decline exacerbated by increased cost of goods sold and SG&A expenses, both as a percentage of revenue, consequently led to an operating loss in the reported quarter versus an operating income in the year-earlier period.
 
Interest expenses of the company during the second quarter of fiscal 2011 grew 8% from the year-ago quarter due to climbing debt levels over the past one year.

Financial Update
 
Apogee ended the first half of fiscal 2011 with a cash balance of $28.6 million versus $30.4 million at the end of the first half of fiscal 2010.
 
Capital expenditure and other investment during the first half of 2011 were $5.0 million compared with $5.9 million in the comparable period, a year ago, reflecting a decline of 15%.
 
Apogee ended the second quarter of fiscal 2011 with a long-term debt of $20.4 million compared with $8.4 million at the end of fiscal 2010. The increase in debt level was due to the long-term, low-interest recovery zone facility bonds of $12 million issued during the first quarter of fiscal 2011.
 
Guidance
 
Apogee expects total revenue for fiscal 2011 to be down by 15% from fiscal 2010 level. The company believes the improved performance from the Large-Scale Optical Technologies will not be sufficient to offset the losses from the Architectural Products and Services segment.
 
Architectural Products and Services ended the second quarter of fiscal 2011 with a backlog of $193 million, of which the company expects to deliver 65% or $125 million in 2011 and the remaining 35% or $68 million of the backlog in fiscal 2012.
 
Our Take
 
The company is currently exploring ways to remain competitive in these difficult market conditions. We believe that though the company has gained some ground in previously underserved smaller projects and international markets for architectural glass, it still needs to do more to improve its top line. Hence, we maintain a Neutral rating on the stock. Apogee currently retains a Zacks #4 Rank (short-term Sell rating).