Apogee Enterprises Inc. (APOG) posted fiscal second-quarter earnings of 46 cents per share, above the Zacks Consensus Estimate of 25 cents per share as well as the prior-year earnings of 43 cents per share. However, quarterly revenue was down 23% year-over-year at $187.4 million due to weakness in commercial construction market.
Despite lower revenue, the company managed to post higher profits through strong project execution, productivity improvements and cost reductions. Apogee has reduced costs by more than $45 million on an annualized basis since October 2008. The company continues to evaluate further reductions in headcount and discretionary spending.
Revenue in the Architectural segment was down 25%, compared to the second quarter of fiscal 2009. This business derives revenue primarily from the North American commercial construction industry, which is witnessing project delays/cancellations and slower conversion of bid projects into awards on the back of lower corporate profits.
The segment’s operating income was down 2%, but operating margin increased 200 bps to 8.7%. The impact of lower revenue was offset by higher pricing on projects bid in stronger markets, solid project execution, productivity improvements, cost reductions and some favorable material costs.
Backlog at the end of second quarter of fiscal 2010 stood at $295.0 million, compared to $310.0 million at the end of the previous quarter and $446.7 million at the end of the prior-year quarter. With the current level of weakness in the U.S economy, the revenue outlook for the segment remains highly uncertain.
Large-scale Optical Technologies segment’s revenue of $16.8 million was up 3% on a year-over-year basis. The segment’s operating income was up 11% and operating margin improved 160 bps to 22.9%. To ease the impact of the current economic downturn on the segment’s margins, the company is focusing on increasing the proportion of higher-margin value-added framing glass.
Given the high level of uncertainty in the economy, Apogee did not provide earnings guidance for fiscal 2010. The company forecasts a revenue decline of 20% to 25% compared to fiscal 2009. With no expectations of substantial recovery in its end markets in the coming months and Apogee being a late cycle commercial construction company, management expects fiscal 2011 to be tougher than the current year.
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