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Article Excerpt
OPERATOR: Good day, ladies and gentlemen, and welcome to the quarter four 2009 Apogee Enterprises earnings conference call. My name is Shane and I will be your operator for today. At this time, all participants are in listen-only mode. We will be holding a question-and-answer session towards the end of this conference. (Operator Instructions)
I would now like to turn the call over to your host for today, Ms. Mary Ann Jackson. Please proceed.
MARY ANN JACKSON, DIRECTOR IR, APOGEE ENTERPRISES, INC.: Thanks, Shane. Good morning and welcome to the Apogee Enterprises' fiscal 2009 fourth quarter and full year conference call on Tuesday, April 7, 2009. With us on the line today are Russ Huffer, Chairman and CEO, and Jim Porter, CFO. Their remarks will focus on our fiscal 2009 fourth-quarter and full-year results and the outlook for fiscal 2010.
During the course of this conference call we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are, of course, subject to risks and uncertainties which are beyond the control of management. Statements are not guarantees of future performance and actual results may differ materially. Important risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the Company's annual report on Form 10-K for the fiscal year ended March 1, 2008, and in our earnings release issued last might and filed this morning on Form 8-K.
Russ will now give you a brief overview of the results and Jim will cover the financials. After they conclude, Russ and Jim will answer your questions. Russ?
RUSS HUFFER, CHAIRMAN, CEO, APOGEE ENTERPRISES, INC.: Good morning and welcome to our conference call. I am pleased with the performance of our business in the fourth quarter as we began to see the impact of the downturn. We completed the year at the high end of our earnings guidance range and achieved our third consecutive year of record revenues and earnings. But Apogee now faces a tough year, probably two, with the slowdown in the economy and commercial construction.
Apogee operates primarily in a cyclical industry, and we are focused on running our business over a cycle. As we had planned, we are entering the commercial construction downturn in great financial condition, with a strong balance sheet and expectations to continue to generate positive cash flow this year.
We are aggressively managing our costs, including headcount and overhead costs, while we continue to emphasize productivity improvements across our operations. Looking forward, we have production capacities in place. Our plants have been upgraded to state-of-the-art, and we are committed to strategies that will help us remain profitable. When the markets recover, our Company is positioned to grow, gain share, and deliver significant shareholder value.
Turning to fiscal 2009 results, we earned $1.82 per share from continuing operations, up 22% from fiscal 2008. Revenues grew 5% to $925.5 million. I am pleased to report that we have achieved one of our best operating margins ever at 8.4%, up from 7.5% last year.
We performed well in the second half, showing our potential in stronger commercial construction market conditions. We generated strong cash flow, more than doubling the prior-year level while paying off all our bank debt. The only long-term debt remaining is $8.4 million in low-interest industrial revenue bonds which we intend to retain.
Our cash and other short-term investments totaled $27.1 million at the end of fiscal 2009 compared to $12.3 million at the end of the prior year. With our strong balance sheet we are well positioned to weather this downturn.
Each of our segments also performed well in fiscal 2009. Architectural revenues increased 7% and operating income grew 21%. For the year, the Architectural segment operating margin was 7.6%, up from 6.7% the prior year. The Architectural segment benefited from solid execution by the installation window businesses of projects with good margins and mix, and good pricing in our architectural glass business, slightly offset by midyear operational challenges we experienced in architectural glass as well as lower volumes.
Although Large-Scale Optical segment revenues declined 14% as they operated in extremely soft markets over the last two years, our picture framing glass business grew operating income 10% as it continued to convert customers to our best value-added framing glass and acrylic. Operating margin for the year was 23.6%, up from 18.6% the prior year.
Focusing on the fourth quarter, Apogee achieved strong operating margins and cash flow despite slowing markets for our architectural and picture framing glass products that resulted in lower revenues. Revenues and earnings were below last year's strong fourth quarter, but generally met our expectations. Revenues were down 17% in the quarter and operating income declined 22% compared to the strong prior-year period. Earnings from continuing operations were $0.40 per share, down from $0.49 per share last year.
Architectural segment revenues declined 17%, and operating income was $15 million, down 25% from the strong prior-year period. The fourth-quarter segment operating margin was 8.1% compared to 8.9% in last year's fourth quarter, which benefited from high capacity utilization, mix, and pricing.
Solid execution by our installation and window businesses on projects with good margins and mix, good pricing in our architectural glass business, ongoing productivity improvements, and cost-cutting efforts later in the quarter were somewhat offset by lower capacity utilization and downsizing expenses.
Backlog declined to $316.2 million compared to $373.2 million at the end of the third quarter and $510.9 million in the prior-year period. As we complete work on existing backlog, project cancellations and slow bid-to-award timings are impacting backlog levels, despite steady bidding activity and the green building trend, which we believe is increasing demand for our energy-efficient glass products.
We have recently seen a slowdown in the rate of project cancellations and delays, but it's too early to tell if it is a trend.
The mix shifted in the quarter as expected, with institutional projects now comprising a larger portion of the backlog and office projects a smaller part. The shift reflects both market conditions and our change in focus earlier in the year in anticipation of a slowdown.
Large-Scale Optical segment operating earnings grew 10% on a 19% revenue decline. Productivity improvements and cost management, along with a higher mix of our best value-added products more than offset weak market conditions for picture framing.
As we manage through the economic downturn, we further reduced headcount and cost during the quarter. Headcount is now down more than 20% from the peak earlier in fiscal 2009, and overall costs have been reduced approximately $36 million on an annual basis.
Next I will cover our outlook. This is the third cycle I have experienced in this industry, and today we are facing an unprecedented level of uncertainty in commercial construction markets. As we stated in our press release, we will not be providing EPS and detailed annual guidance at this time.
We do expect continued profitability on revenues that will likely be down at least 15%. At this time we are estimating operating margins in the mid-single digits...
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