APOGEE ENTERPRISES, INC.
Forward-looking statements
This Quarterly Report on Form 10-Q, including the section Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements reflect our current
views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intend," "estimate," "forecast," "project,"
"should," "will," "continue" and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All forecasts and projections in this document
are "forward-looking statements," and are based on management's current
expectations or beliefs. From time to time, we may also provide oral and written
forward-looking statements in other materials we release to the public, such as
press releases, presentations to securities analysts or investors, or other
communications by the Company. Any or all of our forward-looking statements in
this report and in any public statements we make could be materially different
from actual results.
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Accordingly, we wish to caution investors that any forward-looking statements
made by or on behalf of the Company are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements. Information about factors that could materially affect our results
can be found in the "Risk Factors" section of our Annual Report on Form 10-K for
the year ended February 27, 2021 and in subsequent filings with the U.S.
Securities and Exchange Commission , including this Quarterly Report on Form
10-Q.
We also wish to caution investors that other factors might in the future prove
to be important in affecting the Company's results of operations. New factors
emerge from time to time; it is not possible for management to predict all such
factors, nor can it assess the impact of each such factor on the business or the
extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. We undertake no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Overview
We are a leader in the design and development of value-added glass and metal products and services for enclosing commercial buildings and framing and displays. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
The following selected financial data should be read in conjunction with the Company's Form 10-K for the year endedFebruary 27, 2021 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.
Highlights of Third Quarter of Fiscal 2022 Compared to Third Quarter of Fiscal 2021
Net sales Consolidated net sales increased 6.6 percent, or$20.6 million , and increased 6.9 percent, or$63.9 million , for the three- and nine-month periods endedNovember 27, 2021 , compared to the same periods in the prior year, primarily driven by volume growth in the Architectural Services and LSO segments, as well as, flow-through from pricing actions taken to offset inflation within the Architectural Framing segment. LSO was closed for most of the first and second quarters of fiscal 2021, due to COVID-19.
The relationship between various components of operations, as a percentage of net sales, is presented below:
Three Months Ended Nine Months Ended
November 27, 2021 November 28, 2020 November 27, 2021 November 28, 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 80.6 77.8 81.7 77.7
Gross margin 19.4 22.2 18.3 22.3
Selling, general and administrative
expenses 14.1 6.3 15.2 13.7
Operating income 5.3 15.9 3.1 8.6
Interest expense, net 0.2 0.5 0.3 0.5
Other (expense) income, net (0.9) 0.2 (0.3) 0.1
Earnings before income taxes 4.2 15.5 2.5 8.2
Income tax expense 0.9 3.7 0.5 2.0
Net earnings 3.3 % 11.9 % 2.0 % 6.2 %
Effective tax rate 21.7 % 23.5 % 19.6 % 23.8 %
Gross profit
Gross profit as a percent of sales (gross margin) was 19.4 percent and 18.3
percent for the three- and nine-month periods ended November 27, 2021 , compared
to 22.2 percent and 22.3 percent for the three- and nine-month periods ended
November 28, 2020 . Gross margin decreased in the current year three- and
nine-month periods compared to the prior year, primarily due to $3.6 million and
$22.1 million of restructuring charges included in cost of goods sold incurred
during the three- and nine-month periods of the current fiscal year, as well as
inflationary pressure on raw materials and freight within the Architectural
Glass and Architectural Framing Systems segments. These costs were partially
offset by positive impacts from continued recovery of the LSO segment (which
closed for most of the first and second quarters last year, based on
COVID-related government directives).
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Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales were 14.1 percent and 15.2 percent for the
three- and nine-month periods ended November 27, 2021 , compared to 6.3 percent
and 13.7 percent for the prior year three- and nine-month periods. SG&A expenses
in the three- and nine-month periods ended November 27, 2021 , included increased
Corporate and other costs, primarily related to investments in transformation
initiatives in the current year periods and higher health care costs in the
current year compared to the prior-year periods. Additionally, SG&A expenses in
the prior year third quarter were reduced by a $19.3 million gain on the
sale-leaseback of a building and $7.4 million of income related to a New Markets
Tax Credit transaction, driving lower SG&A expenses as a percent of sales in the
prior year three- and nine-month periods. In addition, we recognized a benefit
of $1.0 million and $5.5 million during the three- and nine-month periods ended
November 27, 2021 , respectively, compared to $4.2 million and $5.5 million in
the prior year three- and nine-month periods, from a Canadian wage subsidy
program offered to support Canadian businesses due to the ongoing impacts of the
COVID-19 pandemic.
Income tax expense
The effective income tax rate in the third quarter of fiscal 2022 was 21.7
percent, compared to 23.5 percent in the same period last year, and 19.6 percent
for the first nine months of fiscal 2022, compared to 23.8 percent in the prior
year period. The rate decrease was primarily related to lower year-to-date net
income, as well as, the release of a $1.2 million valuation allowance on certain
state net operating losses, which is the result of a realignment and
simplification of our business and legal-entity structure during the second
quarter of fiscal 2022.
Segment Analysis
Architectural Framing Systems
Three Months Ended Nine Months Ended
November 27, November 28, November 27, November 28,
(In thousands) 2021 2020 % Change 2021 2020 % Change
Net sales $ 151,665 $ 136,688 11.0 % $ 453,476 $ 439,779 3.1 %
Operating income 10,689 7,218 48.1 % 27,027 26,211 3.1 %
Operating margin 7.0 % 5.3 % 6.0 % 6.0 %
Architectural Framing Systems net sales increased
Operating margin increased 170 basis points for the three-month period of the current year, compared to the same period in the prior year, primarily driven by improved pricing and the benefits from restructuring actions, which offset increased costs for materials, freight and labor. As previously announced, the segment incurred restructuring-related termination costs in the second and third quarters of the current fiscal year related to realignment of the segment to increase focus on target markets, better serve customers, improve operational execution, and reduce overall costs. Operating margin was 6.0 percent for the nine-month periods in the current and prior fiscal years. In addition, this segment benefited from a Canadian wage subsidy of$1.0 million and$5.5 million during the three- and nine-month periods endedNovember 27, 2021 , respectively, compared to$4.2 million and$5.5 million in the prior-year three- and nine-month periods, respectively, as a result of a program to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic. As ofNovember 27, 2021 , segment backlog was approximately$419 million , compared to approximately$406 million at the end of the prior quarter. Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is not a term defined underU.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. We have strong visibility beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog. Architectural Glass Three Months Ended Nine Months Ended November 27, November 28, November 27, November 28, (In thousands) 2021 2020 % Change 2021 2020 % Change Net sales$ 74,289 $ 84,779 (12.4) %$ 236,693 $ 248,274 (4.7) % Operating (loss) income (1,277) 10,825 N/M (16,143) 15,306 N/M Operating margin (1.7) % 12.8 % (6.8) % 6.2 % 23
-------------------------------------------------------------------------------- Table of Contents Net sales decreased$10.5 million , or 12.4 percent, and$11.6 million , or 4.7 percent, for the three- and nine-month periods endedNovember 27, 2021 , compared to the same periods in the prior year, primarily reflecting lower volume due to weaker order backlog from fiscal year 2021, partially offset by an improved sales mix. In the current quarter, the segment had operating loss of$1.3 million and negative operating margin of 1.7 percent, compared to operating income of$10.8 million and operating margin of 12.8 percent in the same period of the prior year. For the nine-months endedNovember 27, 2021 , the segment had an operating loss of$16.1 million and negative operating margin of 6.8 percent, compared to operating income of$15.3 million and operating margin of 6.2 percent in the prior year period. The results for the current year periods were primarily driven by$3.5 million and$20.9 million of restructuring costs for the three- and nine-month periods endedNovember 27, 2021 , respectively. As previously announced, this segment incurred restructuring charges related to the closure of two operating facilities and the associated employee termination costs in the second and third quarters of the current fiscal year. This restructuring is intended to enable the segment to emphasize more premium, high-performance products in its business. The three- and nine-month periods of the prior fiscal year also included$7.4 million of operating income related to the settlement of a New Markets Tax Credit transaction during the third quarter of fiscal 2021. Architectural Services Three Months Ended Nine Months Ended November 27, November 28, November 27, November 28, (In thousands) 2021 2020 % Change 2021 2020 % Change Net sales$ 91,971 $ 76,690 19.9 %$ 250,657 $ 213,911 17.2 % Operating income 9,203 8,558 7.5 % 20,982 20,470 2.5 % Operating margin 10.0 % 11.2 % 8.4 % 9.6 % Architectural Services net sales increased$15.3 million , or 19.9 percent, and$36.7 million , or 17.2 percent, for the three- and nine-month periods endedNovember 27, 2021 , compared to the same periods in the prior year, driven by increased volume from executing projects in backlog. Operating margin decreased 120 basis points in each of the three- and nine-month periods of the current year, compared to the same periods in the prior year, primarily reflecting a less favorable project mix. Additionally, the nine-month period was negatively impacted by isolated performance challenges on certain projects experienced during the first quarter of fiscal 2022. As ofNovember 27, 2021 , segment backlog of$572 million was unchanged from the end of the prior quarter. Segment backlog at the end of the third quarter of fiscal 2021 was approximately$597 million . Backlog is described within the Architectural Framing Systems discussion above.
Large-Scale Optical (LSO)
Three Months Ended Nine Months Ended
November 27, November 28, November 27, November 28,
(In thousands) 2021 2020 % Change 2021 2020 % Change
Net sales $ 27,351 $ 25,267 8.2 % $ 75,122 $ 48,438 55.1 %
Operating income (loss) 5,996 26,114 (77.0) % 17,326 25,131 (31.1) %
Operating margin 21.9 % 103.4 % 23.1 % 51.9 %
LSO net sales increased $2.1 million or 8.2 percent, and $26.7 million or 55.1
percent for the three- and nine-month periods ended November 27, 2021 , compared
to the same periods in the prior year, reflecting a more favorable sales mix, as
demand recovered from the impact of COVID in the prior year nine-month period.
In fiscal 2021, most of the segment's customers and the segment's manufacturing
operations were closed for a large part of the first and second quarters to
comply with COVID-related government directives.
The segment had operating income of $6.0 million and $17.3 million and operating
margin of 21.9 percent and 23.1 percent, for the three- and nine-month periods
ended November 27, 2021 , respectively, compared to operating income of $26.1
million and $25.1 million , and operating margin of 103.4 percent and 51.9
percent, in the same periods of the prior year. The decreases for the fiscal
2022 periods are primarily the result of a $19.3 million gain on the
sale-leaseback of a segment manufacturing facility recorded during the prior
year third quarter.
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