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Article Excerpt
PARTICIPANTS
. Mary Ann Jackson, Apogee Enterprises, Inc., Director IR . Russ Huffer, Apogee Enterprises, Inc., Chairman, CEO . Jim Porter, Apogee Enterprises, Inc., CFO . Tom Hayes, Piper Jaffray & Co., Analyst . Steve Denault, Northland Securities, Analyst . Brent Thielman, D.A. Davidson & Co., Analyst . Eric Prouty, Canaccord Adams, Analyst . Robert Kelly, Sidoti & Co., Analyst . Jon Braatz, Kansas City Capital, Analyst . Rod Hinze, Keypoint Capital, Analyst . Andrew Cash, Point Clear Value Management, Analyst
OVERVIEW
APOG reported FY09 revenues of $925.5m and EPS from continuing operations of $1.82. 4Q09 EPS from continuing operations was $0.40.
FINANCIAL DATA
A. Key Data From Call 1. FY09 revenues = $925.5m. 2. FY09 EPS (continuing operations) = $1.82. 3. 4Q09 EPS (continuing operations) = $0.40. 4. FY09 revenue growth = 5%. 5. 4Q09 revenues decline = 17%. 6. 4Q09 operating margin = 8.6%. 7. 4Q09 DSO = 44. 8. FY09-end cash and short-term investments = $27.1m.
PRESENTATION SUMMARY
S1. Business Review (R.H.) 1. Highlights: 1. As Co. began to see impact of downturn, completed the year at high-end of earnings guidance range and achieved 3rd consecutive year of record revenues and earnings. 2. Faces a tough year, probably two, with slowdown in: 1. Economy. 2. Commercial construction. 3. Operates in a cyclical industry. 1. Focused on running business over a cycle. 4. As planned, entering commercial construction downturn in great financial condition, with: 1. Strong balance sheet. 2. Expectations to continue to generate positive cash flow this year. 5. Aggressively managing costs, including headcount and overhead costs, while Co. continues to emphasize productivity improvements across operations. 6. Looking forward: 1. Has production capacities in place. 2. Plants have been upgraded to state-of-the-art, and committed to strategies that will help remain profitable. 7. When markets recover, Co. is positioned to: 1. Grow. 2. Gain share. 3. Deliver significant shareholder value. 2. FY09 Results: 1. EPS from continuing operations, $1.82. 1. Up 22% from FY08. 2. Revenues grew 5% to $925.5m. 3. Achieved one of Co.'s best operating margins ever at 8.4%. 1. Up from 7.5% last year. 4. Performed in 2H09 showing potential in stronger commercial construction market conditions. 5. Generated strong cash flow, more than doubling prior-year level while paying off all bank debt. 6. Only long-term debt remaining is $8.4m in low-interest industrial revenue bonds, which Co. intends to retain. 7. FY09-end cash and short-term investments, $27.1m vs. $12.3m at FY08-end. 8. With strong balance sheet, well positioned to weather this downturn. 9. All segments performed well. 10. Architectural: 1. Revenues increased 7%. 2. Operating income grew 21%. 3. Operating margin, 7.6%. 1. Up from 6.7% in FY08. 4. Benefited from solid execution by installation and window businesses of projects with good: 1. Margins and mix. 2. Pricing in architectural glass business, slightly offset by mid-year operational challenges experienced in architectural glass and lower volumes. 11. Large-Scale Optical: 1. Although revenues declined 14% as they operated in extremely soft markets over last two years, picture framing glass business grew operating income 10% as it continued to convert customers to best value-added framing glass and acrylic. 2. Operating margin, 23.6%. 1. Up from 18.6% in FY08. 3. 4Q09 Results: 1. Achieved strong operating margins and cash flow, despite slowing markets for architectural and picture framing glass products that resulted in lower revenues. 2. Revenues and earnings were below strong 4Q08, but generally met expectations. 3. Revenues were down 17% and operating income declined 22% vs. strong 4Q08. 4. EPS from continuing operations, $0.40. 1. Down from $0.49 in 4Q08. 5. Architectural: 1. Revenues declined 17%. 2. Operating income, $15m. 1. Down 25% from strong 4Q08. 3. Operating margin, 8.1% vs. 8.9% in 4Q08, which benefited from: 1. High capacity utilizations. 2. Mix. 3. Pricing. 4. Solid execution by installation and window businesses on projects with good margins and mix, good pricing in architectural glass business, ongoing productivity improvements, and cost-cutting efforts later in 4Q09 were somewhat offset by: 1. Lower capacity utilization. 2. Downsizing expenses. 5. Backlog declined to $316.2m vs.: 1. $373.2m at 3Q09-end. 2. $510.9m in 4Q08. 6. As Co. completes work on existing backlog, project cancellations and slow bid-to-award timing are impacting backlog levels. 1. Despite steady bidding activity and green building trend, which Co. believes is increasing demand for energy-efficient glass products. 7. Recently seen a slowdown in rate of project cancellations and delays. 8. Mix shifted as expected, with institutional projects now comprising a larger portion of backlog and office projects a smaller part. 9. Shift reflects market conditions and change in focus earlier in the year in anticipation of a slowdown. 6. Large-Scale Optical: 1. Operating earnings grew 10% on 19% revenue decline. 2. Productivity improvements and cost management, along with higher mix of best value-added products more than offset weak market conditions for picture framing. 3. As Co. managed through economic downturn, further reduced headcount and cost during 4Q09. 1. Headcount is now down more than 20% from peak earlier in FY09. 2. Overall costs have been reduced to approx. $36m on an annual basis. 4. Outlook: 1. This is third cycle experienced in this industry. 2. Today, Co. is facing an unprecedented level of uncertainty in commercial construction markets. 3. Will not be providing EPS and detailed annual guidance at this time. 4. Expects continued profitability on revenues that will likely be down at least 15%. 5. At this time, estimating operating margins in mid-single digits as lower capacity utilization and competitive pricing are slightly offset by productivity improvements and lower energy and material costs like for aluminum and packaging. 6. Expects that 1H10 will be stronger than 2H10, as Co. executes projects in architectural backlog that were bid in stronger market conditions. 1. 2H10 could benefit from addition of stimulus projects to upgrade government and school buildings that would incorporate energy-efficient, green products and services. 2. At this time, has not secured any of these projects. 7. There is more than $5b to renovate federal GSA buildings to improve energy efficiency. 1. Windows and walls should be an important contributor to this effort. 8. Seeing early success in pursuing work in underserved architectural glass markets, including smaller and international projects. 1. At same time, remains focused on delivering new energy-efficient glass products for green building market. 9. New energy-efficient product introduced a few months ago is seeing early success in marketplace. 10. Focused on bringing to market products with superior energy efficiency, performance, at prices comparable to existing competitive products to further enhance industry leadership. 11. Balance sheet remains strong. 1. Expects to have positive cash flow in FY10 as Co. projects working capital declines and CapEx of less than $20m....
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