Architectural product provider Apogee Enterprises (APOG) has seen its shares fall approximately 27% following less-than-stellar fourth-quarter results. Despite a year-on-year stagnation in sales and a drop in operating margin, Apogee achieved a slight increase in net sales for the period ending November 30, 2024, thanks to the acquisition of UW Solutions and a favorable project mix in the Architectural Services segment.
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However, disappointments were evident in the lower gross margin, diminished operating income, and reduced net earnings, mainly due to restructuring costs and acquisition-related expenses. Looking ahead, Apogee’s full-year EPS guidance suggests potential further near-term weakness. Yet, the downturn in share price may be creating a window of opportunity for long-term value investors.
Growing Through Acquisition
Apogee Enterprises is a prominent supplier of architectural building products and services and high-performance coated materials suitable for a wide array of applications. The company boasts a portfolio of top-tier products and services. It offers architectural glass, windows, curtain walls, storefronts, and entrance systems. Moreover, it provides integrated project management and installation services. Its high-performance coatings are known for their protective qualities, cutting-edge design, and enhanced performance.
The company recently acquired UW Solutions. This acquisition, executed for $242 million in cash, marked an important step forward and enhanced the capabilities of the company’s Large-Scale Optica (LSO) segment. This strategic acquisition is anticipated to be pivotal in driving the company’s future growth.
Top and Bottom-line Beats, But Soft Forward Guidance
The company recently released results for the third quarter, registering slightly higher consolidated net sales of $341.3 million, beating revenue expectations by $9.15 million. The increase was credited to the acquisition of UW Solutions and a beneficial project mix in the Architectural Services segment. Notably, the gross margin decreased to 26.1%, primarily due to lower volume and unfavorable product mix in the Architectural Framing Systems segment.
Operating income fell to $28.6 million from $37.6 million the previous year due to acquisition-related costs and restructuring charges under Project Fortify. Net earnings stood at $20.9 million, declining from the previous year due to higher SG&A expenses and restructuring costs. The company’s non-GAAP EPS of $1.19 exceeded expectations by $0.08.
Management has issued forward guidance, projecting a drop in net sales of around 5% for Fiscal 2025. The company’s full-year adjusted diluted EPS is projected at the lower limit of the $4.90 to $5.20 guidance range.
Ongoing Negative Price Momentum
The recent price decline in the shares has wiped out much of the gains in 2024. The stock is slightly up 0.94% over the one year. It trades near the bottom of its 52-week price range of $51.27 – $87.93 and shows ongoing negative price momentum as it trades below the major moving averages. The stock trades at a relative discount, with a P/S ratio of 0.83x, sitting below the Industrials sector average of 1.51x.
Wall Street follows the company thinly, though D.A. Davidson’s Brent Thielman, a five-star analyst according to Tipranks’ ratings, recently reiterated a Hold rating on the shares with a price target of $62, which represents a potential upside of 18.05% from current levels.
Final Analysis of APOG
Despite experiencing a 27% dip in share price following fourth-quarter results, Apogee Enterprises continues to grapple with challenges, such as lower gross margins and smaller operating income. Yet, an increase in net sales was boosted by the acquisition of UW Solutions and a favorable project mix in the Architectural Services segment, and the company looks poised to continue to leverage the newly acquired capabilities in its Large-Scale Optica (LSO) segment for future growth. Although Apogee’s forward guidance indicates potential near-term softness, the company’s low stock price could present an opportunity for those focused on long-term value.
