Apogee Enterprises Inc (APOG) Q4 2019 Earnings Call Transcript

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Apogee Enterprises Inc (NASDAQ: APOG)

Q4 2019 Earnings Call

April 11, 2019 , 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, ladies and gentlemen, and welcome to Apogee’s Fiscal 2019 Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s conference may be recorded.

I would now like to turn the call over to Mr. Jeff Huebschen. Sir, you may begin.

Jeff HuebschenVice President, Investor Relations and Communications

Thank you. Good morning, and welcome to Apogee Enterprises fiscal 2019 fourth quarter earnings call . With me today are Joe Puishys, Apogee’s Chief Executive Officer; and Jim Porter, Chief Financial Officer. I’d like to remind everyone that there are slides to accompany today’s remarks, which are available in the Investor Relations section of Apogee’s website.

During this call, we will reference certain non-GAAP financial measures. Definitions of these non-GAAP measures and a reconciliation to the nearest GAAP measures are provided in the earnings release we issued this morning which is also available on our website. Also I’d like to remind everyone that our call will contain forward-looking statements, reflecting management’s expectations, which are based on currently available information. Actual results may differ materially. More information about factors that could affect Apogee’s business and financial results can be found in our SEC filings.

And with that I’ll turn the call over to you, Joe.

Joseph F. PuishysChief Executive Officer

All right. Thanks, Jeff. Good morning, everyone. Thanks for joining us. By now most of you have had a chance to read our press release. This morning I’d like to review our fiscal 2019 and the progress we are making on our key strategies.

We’ll discuss the charge we recorded in the quarter of course and highlight our outlook and long-term direction as well as comment on our favorable end markets. I’ll turn it over to Jim for more details on the quarter and our guidance.

For 2019 we made progress on many fronts, despite a few challenges during the year. We delivered on another year of growth with revenue increasing to a record $1.4 billion. We continued to see solid demand for Apogee’s products and services, reflecting healthy end markets and the strength of Apogee’s portfolio in the markets we serve.

Full year orders for the entire Company were up 12% compared to fiscal year ’18. We ended the year with higher backlogs, driven by the long lead time parts of our business. In particular, our Architectural Services segment which is our large curtainwall installation business known as Harmon continued to show great strength. Full year revenue grew 33%.

Strong operating leverage, disciplined project selection and impressive execution at the site led to record profitability, and we finished the year with a record backlog, and a large slate of jobs about to enter backlog. In Architectural Glass, we made significant progress toward overcoming the challenges we faced earlier in the fiscal year.

We saw order growth and began to recover some share in large projects. We hired and trained nearly 400 net new production employees during the year, an increase of over 20% in very tight labor markets. And we made strong progress to restore productivity, which is reflected in the fourth quarter operating margin which is 500 basis point improvement over the first half of the year. Fourth quarter operating margins would have been even stronger except for some severe winter storms, which interrupted production during the fourth quarter primarily in the month of February. We expect to realize further benefits from our productivity initiatives and we anticipate continued margin expansion in fiscal year ’20. So, even though we had some challenges, we had a lot of positives during the year.

Let me turn to EFCO-related charges. When I joined Apogee, one of the strategic priorities I laid out was to diversify our revenue base and make Apogee less dependent on more cyclical, large project segment of the construction market, where we were very heavily dependent.

To that end, over this time, we have expanded Architectural Framing Systems into our largest segment through both organic growth and acquisitions. Given its strong market position and recent acquisitions, it is also our largest opportunity for long-term revenue growth and margin expansion.

The EFCO acquisition has advanced our diversification strategy in Framing Systems. It provides increased scale, adding to our product offerings, and expanding the markets we serve. I remain very confident that EFCO is an important part of our future at Apogee in our future improvements.

However, as we previously discussed, we also inherited a few legacy projects with the EFCO acquisition that have presented substantial issues. We started the installation on the last and significantly largest of these projects late in calendar year 2018 and made substantial progress toward completion in the fourth quarter.

The charges we announced this morning are expected to cover the remaining costs related to these legacy projects and we expect to be substantially complete on these projects by the third quarter of this year. We are aggressively working to minimize these costs and we are actively pursuing all options available to us to recover these added costs through insurance and other legal actions.

These charges announced today and do not include any future recoveries and they are not in our guidance that we are providing for F ’20 as well, meaning, any potential recoveries. As we move into fiscal ’20, we are focused on putting these issues behind us in positioning EFCO and Framing Systems segment overall for long-term success.

We see tremendous opportunity for EFCO to grow revenue and significantly improve profitability. We’ve been laying the foundation for these improvements since the acquisition. I put a new leader in place last summer, my top operations executive from Apogee. We put a more disciplined pricing in project approval process in place. The sales force is reengaged under new leadership, and they established good order momentum in the fourth quarter, which has continued very nicely into the first few weeks of fiscal ’20.

We have investments under way to improve the facility layout and process flow through the factory and we are in our second year of implementing our Lean and continuous improvement systems into that business. And we are also seeing progress on realizing synergies across the Framing Systems segment, driven by Apogee leadership. There is still a lot to do, but I’m confident we have the right team in place to begin delivering very positive results from EFCO.

Turning to our outlook and long-term direction. Looking at the rest of Apogee, I’m optimistic about the future. Conditions in our end markets remain favorable, particularly the US architectural markets. The external indicators we track all remain favorable. The Architectural Billing Index has been positive for 17 straight months and 24 in the last 25 months.

New construction starts remain at healthy levels. Office vacancy rates are at a decade low level, falling below 10% for the first time since 2001. And we’re seeing continued employment growth particularly in the office occupying sectors, healthcare, and education, the three most important end markets for us.

And our internal indicators also remain positive; significant activity with architects and building developers; a strong sales pipeline and bidding activity; and we’re entering the new fiscal year with a strong backlog in our long lead time businesses, which provide us very good visibility well into fiscal ’21.

Many people comment on the age of the economic recovery, and all try to predict a future downturn. I’d like to go off script for a minute and comment on this. In March, Wells Fargo and the Department of Commerce issued a report, and I’d like to quote that while construction has steadily tended higher or trended higher for much of this expansion, the pace of activity fall short of prior cycles.

For example, at the peak of the 2001 cycle, non-residential structures’ investment had expanded a cumulative 81% over the course of six years. The 1990s expansion saw a 75% rise in investment over 10 years. Nearly 10 years after the end of the last recession, structures and the non-resi investment have risen only 48%. We continued to feel confident that the end markets bode well for everyone in our industry, as we continue to bump along the top and see modest growth.

We continued to see numerous growth and margin improvement opportunities across our segments. In Architectural Glass, we are launching a new growth initiative to further expand our presence in the market for fabricated glass for non-residential construction. We carefully evaluated this organic growth opportunity and have been thoughtful in determining how to best expand our presence with a new operating facility.

This is a significant long-term opportunity for Apogee, which will begin to contribute meaningfully to Glass segment revenues and operating income in fiscal ’21. We are very excited about this initiative, but at this point we are intentionally limiting our comments for competitive reasons. We will provide more details on this investment in the coming quarters.

Overall, we believe our Glass segment is well positioned for growth and margin expansion in fiscal year 2020 and beyond. Turning to Framing Systems segment. I previously mentioned the opportunities we have to improve operations at EFCO. Aside from EFCO, we are also targeting numerous other opportunities for long-term growth and margin expansion.

These include new product introductions, continued geographic expansion, core business unit synergies for both product and sales efforts and a continued ramp up of our building renovation initiative, which passed the $50 million revenue mark in the last fiscal year. Architectural Services segment has never been stronger. We are coming off an outstanding year in fiscal 2019. As a reminder, our services business is focused on a small number of large projects.

This makes the business inherently lumpy due to the timing of projects in the pipeline. Not every year will look like the one just completed regardless of our momentum. Despite this lumpiness we have good long-term visibility in this segment as we regularly engage with our customers well in advance of projects actually getting started. We are experienced and comfortable with this dynamic as we manage this business for long-term success rather than short-term earnings.

In fiscal ’20 we expect to see a step back from fiscal ’19’s record level of performance as the timing of projects schedules will drive lower revenues and operating income. Despite this short-term decline, our Architectural Services segment has never been stronger.

Our backlog is substantially higher than just one year ago. Looking further out, fiscal ’21 is shaping up to be another terrific year for services and we see multiple strong years ahead for this segment. We already have well over $200 million in backlog and customer commitments for fiscal year ’21.

We also have numerous attractive opportunity in our sales pipeline, and are continuing our disciplined approach to project selection to focus on those projects that have a best fit for Apogee. We believe our confidence is well founded and is supported by this segment’s performance over the past several years.

For example, looking back at fiscal year ’18 results, they were negatively impacted by a similar project schedule related flow. But our backlogs gave us confidence that, that segment would turn around quickly, and we projected that, and as we projected, fiscal ’19, we delivered tremendous results across the board. We believe this segment’s historical performance and existing backlog justifies our enthusiasm for the future prospects of this business in this segment.

Lastly, our financial condition remains quite solid, and we’re deploying capital to drive shareholder value. We increased both the dividends and share buybacks in fiscal ’19, returning over $60 million of capital to shareholders. And as I mentioned, we’re investing internally to drive organic growth and margin expansion. We will continue this balanced capital deployment approach in fiscal 2020.

With that, I’ll pass the call over to Jim, who will provide details on the quarter and the outlook and the guidance before we take your questions. I’ll return for a few additional comments. Thank you. Jim?

James S. PorterExecutive Vice President and Chief Financial Officer

Thanks, Joe and good morning, everyone. I’ll begin with our consolidated results, which you can see on page six of our earnings presentation. Total revenue is $346 million compared to $353 million in last year’s fourth quarter.

As Joe mentioned, we recorded pre-tax charges in the quarter; $42.6 million was related to increased project-related charges on the legacy EFCO contract. This includes an increased estimate of the cost to complete the project and claims related to project delays and other disputes.

We also recorded a $3.1 million non-cash charge for the impairment of trade name intangibles related to EFCO. Including these charges, we had a fourth quarter operating loss of $14.8 million. Excluding these charges and the amortization of short-lived acquired intangibles, fourth quarter adjusted operating income was $31.2 million compared to $34.1 million in last year’s fourth quarter.

The decrease was primarily driven by reduced volumes and lower margins in Architectural Framing Systems, which offset higher operating income in Architectural Services. Adjusted EBITDA came in at $42.4 million compared to $46.2 million in last year’s fourth quarter. With the charges included, we had a net loss of $0.45 per share in the fourth quarter. On an adjusted basis, earnings per share was $0.85 compared to $0.96 in the prior year period. As a reminder, last year’s fourth quarter reported and adjusted earnings per share included a $0.13 per share benefit from implementation of the new tax reform laws.

During the fourth quarter, unusually severe winter weather impacted several of our business segments. This included production interruptions at our multiple manufacturing locations in the Midwest as well as disruption at some of our customers’ job sites. In total, we estimate the severe weather reduced our fourth quarter earnings by $0.08 to $0.10 per share through a combination of some lost revenue as well as increased operational costs.

Looking at our full-year results, we had earnings per diluted share of $1.63. On an adjusted basis, earnings per share was $2.96. I’d like to mention that in our full-year adjusted results, the project-related charges that we recorded in the fourth quarter included some adjustments for profits recognized in the first three quarters of the fiscal year. The details regarding this full-year adjustments for these charges can be found in the non-GAAP reconciliation tables included in today’s press release and presentation.

Now, I’ll turn to segment results, which is on slide 7. Architectural Framing Systems revenue was $171 million, down from $184 million last year, primarily due to lower volumes at EFCO. Adjusted operating income was $12.1 million with an adjusted operating margin of 5.6% compared to 8.2% last year.

The lower margin was primarily due to negative operating leverage on the reduced volumes and a less favorable sales mix. Framing Systems backlog increased slightly to $408.5 million. Architectural Glass continued to make progress toward expanding its workforce and improving productivity following the increased demand we saw in the first half of the fiscal year.

The segment’s revenues grew 13% in the quarter to $104 million and operating margin came in at 7.1%. The Architectural Glass segment has now improved its operating margin by 510 basis points compared to 2% in the second quarter of fiscal ’19. Architectural Services turned in another outstanding quarter.

Revenue was $66 million compared to $68 million on last year’s fourth quarter. Operating income grew 44% to $9.1 million and operating margin improved to 13.7%, driven by strong execution and a mix of more mature projects allowing favorable project write-ups on a number of projects that came to completion during the quarter.

As Joe mentioned, Architectural Services, as a project business is inherently lumpy with considerable variability from quarter-to-quarter and year-to-year. Fiscal 2019 was an extraordinary year for this segment. In other years, services margins could vary considerably depending on project schedules and where projects are in their lifecycle. Architectural Services had strong order flow during the quarter and backlog increased to $444 million.

The slide on page 8, illustrates the strong backlog growth the segment has achieved over the past two years. Given the project schedules established by our customers, we expect roughly 50% of the services backlog will be converted to revenue in fiscal ’20 with the balance scheduled for fiscal ’21 or ’22.

As Joe mentioned, at this point, it looks like Architectural Services is set up for another very strong year in fiscal ’21, and we have a good pipeline of opportunities that will add to backlog in the coming quarters. The Large-Scale Optical segment continued to deliver solid performance. Fourth quarter revenue grew 2% to $24 million. The segment operating margin was steady at 29.9% compared to 29.8% in last year’s fourth quarter.

Turning to slide 9. Full-year cash flow from operations came in at $96 million. Full-year CapEx was $61 million as we continued our investments to drive organic growth, add capabilities and increase productivity, including the investments at EFCO and in our Architectural Glass segment that Joe mentioned.

Total debt stands at $246 million, with net debt of $229 million or roughly 1.4 times trailing 12 months adjusted EBITDA. During the fourth quarter, we repurchased 658,000 shares of stock for $20 million, bringing our full-year stock buybacks to nearly 1.3 million shares, more than 4% of shares that were outstanding at the beginning of the fiscal year.

With that let me turn to our guidance for fiscal 2020. Slide 10 and 11 present details on our outlook. We expect continued top line growth with revenue up 1% to 3%, driven by growth in three of our segments; Architectural Glass, Architectural Framing Systems and Large-Scale Optical, offset by a decline in Architectural Services due to the execution schedules of projects in backlog. We expect total Company margins between 8.2% to 8.6%.

We anticipate full year margin gains in Architectural Glass and Architectural Framing Systems, which will be offset by lower margins in Architectural Services due to negative leverage on lower volumes and less favorable project maturity.

The leverage impact is significant, as we cannot aggressively cut overhead costs, key resources such as engineering and project management that are needed to execute the segment’s robust backlog in project pipeline scheduled to flow in fiscal ’21 and ’22.

Company operating margins will also be impacted by $4 million to $5 million of start-up costs for the new Architectural Glass growth initiative and we anticipate increased corporate cost from higher legal and other advisory expenses.

We expect the tax rate of approximately 24.5% and full-year interest expense slightly above fiscal 2019’s level. Depreciation and amortization is projected to be approximately $50 million. Putting in all together, we expect earning per share in the range of $3.00 to $3.20. As in past years, we expect the first quarter will be our seasonally weakest quarter with progression through the year similar to what we’ve seen in the past couple of fiscal years.

Going into fiscal 2020, the amortization of short-lived acquired intangibles that we’ve excluded from our adjusted EPS the past few years will be complete. As a result, we are not presenting adjusted earnings per share guidance for fiscal 2020.

Looking at our segments, we expect the following. Architectural Framing Systems, we expect mid-single-digit growth with operating margins between 8% to 8.5%. We expect growth in margin improvements will be weighted to the back half of the fiscal year, as we work through some remaining less favorable mix along with initiatives we have under way at EFCO generate positive contributions.

In Architectural Glass, revenue growth is expected of approximately 10% and operating margins of approximately 7%. We expect the segment to make further progress toward restoring its productivity levels, which will benefit both revenue and profitability. These segment margins are impacted by 100 basis points to 150 basis points of start-up costs related to the new growth initiative.

We currently expect these start-up costs will have the greatest impact in the second and third quarters and that we’ll begin to generate limited revenue in the fourth quarter.

At Architectural Services, we expect revenues to be down approximately 15% due to the timing of project schedules with operating margins between 6% to 7%, a negative leverage from lower volumes and less favorable project maturity as we are at the early execution stage on a number of projects. Based on current project schedules, services revenue will likely be — roughly balanced throughout the year.

At Large-Scale Optical we expect mid single-digit growth as we make progress on our initiatives to extend into adjacent market opportunities. Segment margins are expected to be approximately 25%, just slightly below the fiscal 2019 level. This short lead time business has quarter-to-quarter variability within the year.

With that I’ll turn the call back to you Joe.

Joseph F. PuishysChief Executive Officer

All right. Thanks, Jim. To wrap up, I’d like to reiterate our confidence about Apogee’s direction. Despite some challenges in F ’19, we are making continued progress on the strategies to strengthen our Company and create shareholder value for the long-term.

Our end markets remain healthy and solid as I’ve demonstrated today and the demand for Apogee’s products and services also remain healthy. We have a market-leading businesses and numerous opportunities for organic growth and margin expansion. And finally our financial position remains quite strong giving us significant flexibility to invest in profitable growth and also at the same time return capital to our shareholders.

With that Chelsy, I’d like you to open up the call for questions please.

Questions and Answers:


(Operator Instructions) And our first question will come from the line of Chris Moore with CJS Securities. Your line is open.

Christopher MooreCJS Securities — Analyst

Thanks. Hey, good morning, guys. Yeah, maybe we could — (multiple speakers)

Joseph F. PuishysChief Executive Officer

Good morning.

Christopher MooreCJS Securities — Analyst

Good morning. Just start with Framing. Obviously, EFCO is still struggling. Can you kind of talk a little bit about the core framing business versus EFCO in terms of kind of the margin performance on the core framing?

James S. PorterExecutive Vice President and Chief Financial Officer

Sure, Chris. This is Jim. I’ll cover that. I mean our kind of core businesses, when we look at that legacy businesses that have been in our portfolio for another — for a long time, we continue to see nice growth and margin expansion across those businesses in fiscal ’19 and see that going forward as well.

Christopher MooreCJS Securities — Analyst

The — it sounds like by Q3 of this year most of the troubles — troubled EFCO contracts will be completed. So, reasonable to assume that, I don’t know, from your remarks, last quarter and then forward in terms of improved EFCO margin — improved Framing margins is reasonable.

Joseph F. PuishysChief Executive Officer

Yes. Chris, this is Joe. I also want to comment. EFCO is — the core business of EFCO is performing better. We are starting to see productivity. I mentioned orders were very strong. I put a new sales leader in place in the second half of last year. He was our — one of our top guys here at Apogee. He had — has had experience at our Harmon installation business at our Wausau Window and Wall and he is the fellow that I charge with creating and developing our retrofit business. We moved him down to join the team at EFCO.

We are starting to see really good rewards from that. The orders have to come first. Q4 was strong on orders. Q1 has remained very strong, only 5.5 weeks into a new year, but it’s still important. And so the core EFCO business is starting to look good.

The overhang from these legacy projects one in particular has been substantial and the distraction of that goes away. We’re almost done with manufacturing the product, and we’re more than halfway through the installation, we should be substantially complete by August with the installation at the field site at the project site and then after we get through that I can focus on some recovery efforts that I mentioned on the call.

James S. PorterExecutive Vice President and Chief Financial Officer

And, Chris, within specifically within Framing Systems, that legacy work should really kind of be through there in the first half of the year. So, our expectation is to see that margin improvement is really starting in Q3, carrying over into Q4 and knowing that we have a little bit of seasonality where Q3 is stronger than Q4 in Framing Systems.

Christopher MooreCJS Securities — Analyst

Got it. That’s helpful. Jim you had mentioned anticipated increased corporate costs from higher legal and advisory, can you maybe just talk to that a little bit?

James S. PorterExecutive Vice President and Chief Financial Officer

Yeah, I mean, I think really the bottom line is on our corporate line we’re probably estimating at this point about $2 million of increased costs in the corporate line, and it’s a variety of legal expenses associated with various activities kind of outside the core business as well as legal activities related to the legacy projects and the charges that we talked about and those types of things.

Christopher MooreCJS Securities — Analyst

Got it. All right. Let me jump back in line. Appreciate it guys.

James S. PorterExecutive Vice President and Chief Financial Officer

Thanks, Chris.


Thank you. And our next question comes from the line of Eric Stine with Craig-Hallum. Your line is open.

Eric StineCraig-Hallum — Analyst

Good morning, everyone.

Joseph F. PuishysChief Executive Officer

Good morning, Eric.

Eric StineCraig-Hallum — Analyst

Maybe just sticking with EFCO, I mean, and this maybe a tough question, but any, I mean, any thoughts on your confidence level regarding the ability whether it’s insurance or legal to recover some of this. I mean, obviously you’ve got — would seem to have a pretty good leg to stand on. And I know it’s part of a process, but just maybe thoughts on how you see that progressing?

Joseph F. PuishysChief Executive Officer

Yes. So, Eric I — let me be clear and I kind of fumbled — my tongue was fumbling in the call. Any recoveries are not included in the charges. They are not included in the $3.00 to $3.20 guidance that Jim highlighted today. So, obviously they are upside. I don’t want to comment on anything and then lower our odds of success. I do feel confident that we have certain paths we can take. We obviously have insurance. We also have actions, other actions we plan to take. I’m just going to be silent on those and hopefully, deliver some good news in the future year or years and also leave it at that, Eric.

Eric StineCraig-Hallum — Analyst

Got it. No, understand. Well, in this question, maybe in that same category, but just in terms of the investment in Glass and it was, thank you for quantifying that amount, and I know you’re not sharing a whole lot, but just from a high level, I mean, is that — should we think of that as new geography or just a new part of the market for you if you’re able to answer that?

Joseph F. PuishysChief Executive Officer

Yes. No, I appreciate the question, and I would have preferred to say nothing today, Eric. I don’t want to gift wrap package to competitors. And I know you understand that and the shareholders would be upset, and I would be distraught. But we had to say something because of the overhang. Glass is improving more than 150 basis points year-over-year. So, we could not ignore that. We would have had more questions if we go down a rat hole and unfortunately, we’d be forced to mislead by not talking about it.

That said I believe by the end of the first quarter and certainly by some point in the second quarter, we’ll be able to talk more thoroughly about this effort. It’s been well thought out. It is organic. I don’t want anyone to believe we have an acquisition and it is not. It is not related to further headcount adds in our existing facility. I thought it was important to highlight that, but beyond that Eric, I’m going to have to ask you to hold on.

Eric StineCraig-Hallum — Analyst

Yes. That’s helpful. Okay, maybe last one for me. I’m interested, Joe, in your commentary you talked about a large slate of jobs set to enter backlog in the services business. And I know that you have that from time-to-time. But, maybe, if you could just talk about on top of the growth that you saw this quarter, how that large slate of jobs might compare to the typical quarter or maybe year-over-year some way to make a comparison there?

Joseph F. PuishysChief Executive Officer

Yes. Our installation business has done an amazing job of project selection over the last several years. Actually their efforts in project selection began about seven years ago and it’s been paying dividends. They field execution at the sites. I used the singular word earlier when I said site, I didn’t mean to say that. At the construction sites, they’ve done a phenomenal job.

So, there’s two parts to the Company. The selection and design engineering of the curtainwall solution and then the other half of the Company is at the project site, going up the side of the building. They’ve done a phenomenal job. Their backlog grew substantially in the fiscal year ’19. It — I’ll go out of limit and tell you, I expect the first quarter backlog will expand again and they just have a fairly substantial slate of jobs that they’ve been awarded.

But we’re not through the contracting process yet. So, they’ll enter backlog late this quarter and into Q2 and there’s a pretty large slate of projects that will be awarded to someone that we are active on many of them and feel good about our chances on some core projects. So, we believe the momentum will continue on an upward trajectory for that business.

It is literally impossible in that world when your average win is in excess of $20 million. It’s literally impossible to have the projects roll-in, so that your revenue stream is steady. We try to, but from the time you are verbally awarded a project to the time you actually start to revenue, it’s usually a year. And that lumpiness — as projects get pushed out, it’s literally impossible to have a smooth flow.

If you look at that business kind of over a 24-month cycle, which frankly based on award to revenue flow is probably more appropriate. You can see the business performance has been steady as opposed to some of the year-over-year lumpiness. The pipeline also allows us to maintain that disciplined project selection. We don’t get desperate to go after risky jobs because of a hole in the pipeline.

So, the pipeline is very strong. You’ll see backlog increase in Q1. Beyond that I don’t want to get into backlog projections, but as I mentioned, we’ve got more than $100 million in the backlog in that business than we did a year ago and that — look what happened after the last, after the year after that pipeline. We had a record year. So, when you say why isn’t F ’20 going to be even better, it’s just because of the flow of work that we have. There’s a lot more in the second year meaning F ’21 than there was in the second year just a year ago. We liked it. We like the problem, and we obviously hope the business continues to outperform expectations.

Eric StineCraig-Hallum — Analyst

Okay. Thank you.

Joseph F. PuishysChief Executive Officer

Thank you, Eric.


Thank you. And our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is open.

Brent ThielmanD.A. Davidson — Analyst

Hey, great. Thanks. Good morning.

James S. PorterExecutive Vice President and Chief Financial Officer

Good morning.

Joseph F. PuishysChief Executive Officer

Hey, Brent. Good morning.

Brent ThielmanD.A. Davidson — Analyst

Joe or Jim on Glass, any sense how much the weather-related disruptions impacted margins. I know it was a challenging quarter from that perspective and then should we — understanding some of the headwinds through the year, should we see some sequential progress into the first quarter?

Joseph F. PuishysChief Executive Officer

Yes, let me give you — Jim will give you the detailed answer, Brent. Let me just tell you that it was unprecedented what happened in February the amount of, I mean, there were a mandatory closure of the highways. It was bizarre. We here in Minneapolis had easy weather or relatively easy. Southern Minnesota, one hour away, highways were closed.

The National Guard was trying to rescue people on the highway. I think we had seven days of weather-related production shutdown, I mean — and I think we had about 14 shifts of production that we lost. Because it happened in February I didn’t have a chance to make it up later in the quarter that was the end of the quarter.

It impacted our Large-Scale Optical factory as well. We don’t call it out because the business is much smaller, but it impacted that business as well. So, it was real. The basis points impact or the earnings per share impact, I’ll let Jim talk about it.

James S. PorterExecutive Vice President and Chief Financial Officer

Yes, Joe, I’ll take that. I mean specifically, Brent, related to Architectural Glass, we estimate that in the quarter we have over 100 basis point drag on operating margins of that segment. And as Joe described it, I mean, it was probably kind of split between a little bit a loss of revenue, which really wasn’t material, but not just the plant shutdowns, but having many days where we had staffing shortages because employees couldn’t get to the factory just led to productivity challenges in the business, but surely in the quarter, as I said, it was a little over 100 basis points and that should — that goes away.

Brent ThielmanD.A. Davidson — Analyst

Yes. Okay, and then you guys are projecting 7% margins in that segment this year. Understand some of these investments are going to weigh on margins a little bit as you go through the year. Is it your expectation to get back to double-digits in this business as those costs kind of go away?

Joseph F. PuishysChief Executive Officer

Absolutely. We — as we continue to improve our productivity, get this project launched that will give us some tailwinds on revenue growth and margin expansion. Without question this business has to get back to double digits.

James S. PorterExecutive Vice President and Chief Financial Officer

And as we have been saying — our expectation is — as we get to the end of the second quarter, we expect to be at that run rate. So, we expect the second half of the year to be at that double digit operating margin level.

Brent ThielmanD.A. Davidson — Analyst

Got it. The installation business is great, I mean, it was really a great year. Joe, I want to get your thoughts, I know, you want to manage kind of how large that business gets a piece of the whole pie. But does this year’s performance change at all kind of your threshold for how large you want the business to get?

Joseph F. PuishysChief Executive Officer

Yes. We don’t want this to be a $500 million part of our portfolio. As a public company, it is obviously a bit of a challenge. From my 7.5, almost 8 years I’ve been here, we’ve never operated differently just because we’re a public company, but it’s a headache clearly.

The business has continued on an upward trajectory for all these eight years. I — we still have room for growth. We’re not going to add another, let’s call it, shift of project managers and engineers because that would be problematic when a slowdown happens.

So, we can continue to grow the business. I think the revenues of approximately $300 million or where I’d like to be at — in the — and as we approach the top of the cycle, and maybe low-200s, at the bottom end of a cycle at lowest. But I think our — my expectations on operating margins, Brent, admittedly are now higher.

The business has performed better in all aspects, project selection and execution, I’m very proud of the team. We talk about F ’20 as a return to really great results. F ’20 is going to be at historically high levels for that business. And we shouldn’t talk about it in any other manner. It just won’t be as powerful as the F ’19 result. But the backlog is better as I mentioned than a year ago. I hope the projects in backlog will prove to be better than the margin that we just experienced. Jim, mentioned maturity, that’s a key factor. The age of our projects is younger in F ’20 than it was in F ’19 and that’s important. As we close out projects, we tend to take a good news later in the projects for obvious reasons. If we ever have bad news, we take it immediately, but as we execute well, you see a little bit more margin pick up as projects progress to the end of the installation.

Our F ’20 maturity is a little bit lower. So we’ve been a little conservative on our expectations there. I think the business will continue to perform extremely well. And I would say my margin expectation of a stretch goal of getting to 10% someday are no longer a stretch goal. I believe that can be more of our norm than at the peak markets.

Brent ThielmanD.A. Davidson — Analyst

Got it. Last one, if I could, just sticking with that segment. Joe, I understand the long lead times kind of associated with it and obviously factored that into the outlook. It does seem like a really strong market right now. I mean, would you agree there’s still opportunities to kind of fill in some holes through the year or is that just work you don’t really necessarily want to pursue?

Joseph F. PuishysChief Executive Officer

Well, they can still win projects that will have beginning revenue flows in F ’20. As we get to this point in the calendar, it’s most projects that they get awarded will have very little revenue flow. Some design engineering. So they can fill on a few holes, but it’s — everything we’re booking now will be for F ’21 and beyond. Projects do slip out sometimes, they pull forward. So, our confidence and our forecast for that business is pretty solid. Filling in more holes would be a challenge at this point in the calendar year.

Brent ThielmanD.A. Davidson — Analyst

Okay. Great. Thank you. I’ll turn it over.

Joseph F. PuishysChief Executive Officer

Thanks, Brent.


Thank you. (Operator Instructions) And our next question will come from the line of Julio Romero with Sidoti & Company. Your line is open.

Julio RomeroSidoti & Company — Analyst

Hey, good morning. Thanks for taking the questions.

Joseph F. PuishysChief Executive Officer

Hey, Julio. Good morning.

Julio RomeroSidoti & Company — Analyst

I wanted to ask about the retrofit initiative. Nice job growing that about $50 million for the year. Can you just give us a refresher on what the margins look like for that work, and what would be a fair expectation for retrofit revenues for the upcoming year?

James S. PorterExecutive Vice President and Chief Financial Officer

Yes, the margins are generally reflective of our existing businesses. All the revenues do go through our current segments. But this is business we would not have had without this initiative. It is what we call a make market. You’re convincing customers, you’re working with customers, kind of on a project basis. There’s often not competition. You’re a partner. The project either goes forward or it doesn’t. I believe when I came here I brought this initiative. We had a massive effort in this in the industry I came from which was on the inside of buildings. It tends to be anti-cyclical at times. I want to point out that $50 million were awards or orders, the revenue stream follows that.

I still believe we can get to $100 million that I — as an annual impact. We have added to the team. We are working on it further expanding our footprint across the geography of the US with this initiative. We’ve hired energy engineers and sales people for this. They collaborate with our Framing Systems businesses and it usually involves pulling through our own glass.

It’s typically not the installation target market for us. So, we’re usually using regional installers, but it does use our glass, our window and wall system, our finishing capability, and I’ll continue to push this initiative going forward. And as I said I hope that see $100 million a year before I retire.

Julio RomeroSidoti & Company — Analyst

Okay. Very good. And just on the CapEx, $60 million to $65 million. How much of that would be maintenance versus growth?

James S. PorterExecutive Vice President and Chief Financial Officer

About $25 million kind of roughly $25 million is maintenance capital.

Julio RomeroSidoti & Company — Analyst

Okay. Very good. I’ll hop back in queue. Thanks very much.

Joseph F. PuishysChief Executive Officer

Okay. Chelsy, can you see if there are any more questions from any of the listeners?


I’m not showing any further questions at this time. I’ll now turn the call back to Mr. Joe Puishys for closing remarks.

Joseph F. PuishysChief Executive Officer

Okay. Thank you, Chelsy, and all of our investors and analysts, thank you for listening today. I’ll be meeting with many folks over the next week on the road. Jim and I are available with Jeff to follow up phone calls. I know we had a lot on the table today. The good news is, I believe our fiscal ’20 guidance is extremely realistic, and we look forward to delivering on the guidance we provided today. And I look forward to our next call with all of you. Thank you. Have a great day.


Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Duration: 49 minutes

Call participants:

Jeff HuebschenVice President, Investor Relations and Communications

Joseph F. PuishysChief Executive Officer

James S. PorterExecutive Vice President and Chief Financial Officer

Christopher MooreCJS Securities — Analyst

Eric StineCraig-Hallum — Analyst

Brent ThielmanD.A. Davidson — Analyst

Julio RomeroSidoti & Company — Analyst

More APOG analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Apogee Enterprises

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Apogee Enterprises wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: APOG

Zeen is a next generation WordPress theme. It’s powerful, beautifully designed and comes with everything you need to engage your visitors and increase conversions.

Wealth Empire Newsletter
Register now for free updates and alerts

Subscribe By

Note: I have the ability to revoke this permission at any time and ask for the removal of my personal data collected by contacting us or simply clicking Unsubscribe.