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Article Excerpt
OPERATOR: Good day, ladies and gentlemen, and welcome to the third quarter 2009 Apogee Enterprises, Incorporated, earnings conference call. My name is Francine, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions)
I would now like to turn the presentation over to your host for today's conference, Ms. Mary Ann Jackson. Please proceed, ma'am.
MARY ANN JACKSON, DIRECTOR OF IR, APOGEE ENTERPRISES, INC.: Thanks, Francine. Good morning and welcome to the Apogee Enterprises fiscal 2009 third quarter conference call on Thursday, December 18th, 2008. With us on the line today are Russ Huffer, Chairman and CEO, and Jim Porter CFO. Their remarks will focus on our third quarter results and the outlook for fiscal 2009.
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. These 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 1st, 2008, and in our earnings release issued last night and filed this morning on Form 8-K.
Russ will now give you brief overview of the results, and then Jim will cover the financials. After they conclude, Russ and Jim will answer your questions. Russ.
RUSSELL HUFFER, CHAIRMAN, CEO, APOGEE ENTERPRISES, INC.: Thanks, Mary Ann. Good morning, and welcome to our conference call. We performed well in the third quarter, delivering on a healthy backlog of architectural projects booked nine to 12 months ago, when our markets were strong. The projects generally had good pricing and margins, as is evident from our results. Our large scale optical segment also had a high mix of its best value-added glass and acrylic framing products. This performance is indicative of what we can do when the economy and commercial construction are growing.
Although we expect future periods to be impacted way the commercial construction slowdown, we have entered the downturn with a very strong balance sheet. We are generating significant positive cash flow, our long-term debt has declined to less than $30 million, and we have a strong bank facility with available capacity. Revenues were up 14% in the quarter, and operating income increased 111%, compared to the prior year. Earnings were $0.63 per share, up from $0.26 per share last year. We had several adjustments in the current quarter, as well as in the prior year period. I will highlight some of them in my comments.
Architectural segment revenues grew 16%, with growth coming from our architectural glass, storefront, and entrance, and installation businesses. We acquired the Storefront and Entrance business last December, and continue to be pleased with their performance. Architectural segment operating income was $19.6 million, compared to $7.7 million in the prior year period. The segment operating margin was 9%. This compares to 4.1% in the prior year period, when we had write-downs on three Florida glass installation projects. Excluding the prior year write-downs the operating margin would have been 7.5% in last year's third quarter.
In the current quarter, as we had anticipated, overall installation project margins continued to increase as we saw continued solid execution by the team on work flowing through backlog. In addition, production in our Architectural Glass business improved to expected operating levels. The second quarter had been impacted by production challenges in this business, which were successfully resolved midway through the third quarter. Backlog declined to $373.2 million, compared to $456.7 million in the prior year period, and $446.7 million at the end of the second quarter.
Project delays and cancellations and slow bid to award timing, which is extending beyond the normal nine to 12 months, are impacting backlog levels, despite strong bidding activity and the ing trend, which we believe is increasing demand for our energy efficient glass products. Large-scale optical segment operating earnings grew 43% on a 2% revenue decline. A higher mix of our best value-added products more than offset weak market conditions for picture framing.
Early in the quarter we concluded the sale of our 34% interest in the PPG Auto Glass, LLC joint venture, reported in equity and affiliates. Our strategic exit of the Auto Replacement Glass industry yielded proceeds of $27.1 million in cash. Our quarterly results also reflected long-term executive compensation adjustments, which added $0.06 per share. As the outlook for our markets and business near term has declined, we have projected lower payouts of stock-based long-term incentives.
Next, I will cover our outlook. Our fiscal 2009 guidance for earnings from continuing operations remains at $1.65 to $1.82 per share. This outlook includes declines in revenues and earnings per share in the fourth quarter compared to the prior year, as we experienced the first full quarterly impact of the commercial construction slowdown. Despite the anticipated fourth quarter declines, we expect to complete fiscal 2009 with record revenues and earnings.
To manage through the downturn we have already implemented a number of cost-cutting initiatives, and continue to evaluate further actions, ranging from a reduction of headcount and discretionary spending to productivity improvements. Actions already implemented will result in more than $10 million in annual savings; headcount has been reduced 7%, and most of our manufacturing facilities across our businesses will be taking week-long shutdowns in December. The slowdown in large projects for our Architectural Glass business has opened up production capacity and reduced lead times, allowing this business to pursue opportunities to generate revenues by penetrating underserved markets, including smaller US projects and international projects. By offering capacity in existing markets, we expect to be able to significantly grow our international glass sales.
At the same time, we continue to focus our sales efforts on markets that demand our value-added, energy efficient, aesthetic hurricane and glass products. The institutional market for education, healthcare, and government projects traditionally tends to be more stable through the ups and downs of commercial construction cycles, and green building is a growing trend that is here to stay.
We also are continuing product development efforts, particularly related to energy efficiency. I am encouraged that as part of its economic stimulus proposals, the new administration is focused on efforts to make public buildings more energy efficient, and to modernize and upgrade school buildings.
Finally, we remain strongly focused on cash flow and managing working capital, and will tightly control capital expenditures. Current conditions are unlike any I've seen in my 30 years in this industry, and are creating a higher level of uncertainty than I've previously experienced. Delays and cancellations and slower conversion of bid projects into awards have impacted the size of our backlog, and have lowered our visibility in fiscal 2010. At this time, we estimate that our fiscal 2010 revenues are likely to be down at least 10%.
As we have demonstrated with our strong third quarter performance, we have good businesses with strong brands and operations that are poised to serve the growing demand for green, energy-efficient commercial buildings. In the third quarter alone, we launched a new highly energy efficient coated glass product at Breen Build, completed the move into our lead registered window manufacturing facility, and renewed sales efforts on underserved architectural markets. In addition, our Picture Framing Glass business brought its new, more efficient production capacity on line.
We anticipate that with our focus on quality, service, and productivity improvements, Apogee will move stronger than ever after the economy improves. Jim will...
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