Apogee Enterprises ((APOG)) has held its Q3 earnings call. Read on for the main highlights of the call.
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During the recent earnings call, Apogee Enterprises showcased a mixed sentiment, highlighting significant achievements like the acquisition of UW Solutions and robust performance in the Services segment. These positives were tempered by challenges in the glass and framing segments, pressured margins, and a cautious outlook for the nonresidential construction market. Despite these hurdles, the company remains proactive in managing capital and pursuing mergers and acquisitions.
Acquisition of UW Solutions
Apogee Enterprises announced the successful closure of the UW Solutions acquisition, showing early promising integration progress. This strategic move is expected to bolster the company’s financials, contributing approximately $100 million in net sales with a 20% adjusted EBITDA margin by fiscal year 2026.
Strong Services Segment Performance
The Services segment continues to be a bright spot for Apogee, marking its third consecutive quarter of double-digit growth. Net sales in this segment increased by 11%, with an adjusted operating margin improvement to 8.6%, underscoring the segment’s resilience and growth potential.
Healthy Backlog
Despite a slight decline from the previous year, the company maintains a healthy services backlog of $742 million. This backlog provides nearly two years of sales coverage, indicating sustained demand and revenue visibility for the near future.
Continued Focus on M&A Pipeline
Apogee remains committed to expanding its M&A pipeline, focusing on acquiring differentiated products that align with its strategic goals and enhance its financial profile. This proactive approach to mergers and acquisitions is central to its growth strategy.
Proactive Capital Management
The company executed a $250 million delayed draw term loan to fund the UW Solutions acquisition while keeping a leverage ratio of 1.3x. Apogee plans to continue reducing debt, with significant capacity available on its credit facility, reflecting sound financial stewardship.
Decline in Glass and Framing Segments
The glass segment experienced a decline in net sales due to soft end-market demand, with further pressure expected on volume and pricing. Similarly, the framing segment saw a slight sales decline of about 1%, highlighting challenges in these areas.
Volume and Margin Pressure
Apogee faced a 70 basis point decline in adjusted operating margin, attributed to unfavorable sales leverage from lower volume, a less favorable product mix, and rising costs. This pressure also led to a 3% drop in adjusted diluted EPS.
Market Challenges in Nonresidential Construction
The nonresidential construction market continues to pose challenges, particularly impacting the glass and framing segments. The market has been contracting for over 20 months, presenting ongoing hurdles for Apogee in these segments.
Forward-Looking Guidance
Apogee Enterprises has recalibrated its full-year guidance, anticipating a 5% decline in net sales. The UW Solutions acquisition is expected to contribute around $30 million in incremental net sales. Despite anticipated challenges, the adjusted operating margin for the year is projected at approximately 11%. The company aims to leverage its acquisition for future growth, targeting $100 million in net sales by fiscal 2026 and exploring organic growth opportunities in the LSO segment.
In conclusion, while Apogee Enterprises faces several sector-specific challenges, its strategic acquisitions and strong service segment performance offer a promising path forward. The company’s proactive capital management and focus on M&A underline its commitment to strengthening its financial position and driving future growth.
