August 25, 2008

Apogee: Boring Company, Good Value

Apogee Enterprises (APOG) isn't a company developing the next generation of life saving drugs or a Silicon Valley rising star working on a revolutionary computing technology. Apogee is an established, profitable company based in Minneapolis, Minnesota that designs, installs, and maintains many types of glass and windows used in commercial buildings.

Unlike other industrial goods companies that are struggling to maintain profitability due to the softening economy and downturn in the construction industry, Apogee is growing earnings and operating margins.

Business Segments

Apogee operates in two business segments: architectural glass and large scale optical technology. Their architectural segment is comprised of five subsidiaries:

  • Viracon: A leading fabricator of energy efficient, silk screening architectural glass used for hurricane protection and sound control. According to the company, Viracon wins 70% of their high profile projects.
  • Harmon, Inc.: One of the largest full service building glass installation, maintenance, and renovation companies in the U.S. The company has a 10-20% share in its served markets.
  • Wausau Window and Wall Systems: A manufacturer of custom aluminum window and curtain wall systems.
  • Linetec: A manufacturer of painted and anodized aluminum window frames; painted plastic interior shutters.
  • Tubelite: The 6th largest supplier of aluminum and storefront products in the U.S.
Their optical technologies segment is composed of one business:

  • Tru Vue: A proprietary value-added picture framing glass and acrylic with UV, anti-reflective and/or security properties. This company has a 80-90% share in its target market.
A Record Fiscal 2008

Apogee reported record fiscal 2008 earnings on April 8. The company's $0.49 EPS beat analyst expections of $0.42. Revenues rose 18% to $243.3 million from the year-ago period. Operating margin was 9.2% compared to 6.6% in 2007.

Raised Outlook for Fiscal 2009

For the full fiscal 2009 year, Apogee has raised earnings from continuing operations of $1.82 to $1.94 per share on revenue growth of 13 to 16%.

Russell Huffer, Apogee chairman and chief executive officer states that, Our architectural visibility gives us high confidence that we can deliver earnings in the mid to lower end of our guidance range, with the top end of the range achievable with strong operational performance and limited project delays, he said. We are expecting record years in fiscal 2009 and 2010, as demand for our architectural products and services remains healthy despite a more competitive environment in a market that is experiencing increased uncertainty.

A First Quarter Miss

Apogee reported fiscal 2009 first quarter results on June 25, where they missed earnings estimates. Apogee reported earnings of $0.36 per share. The street was looking for $.043. Although revenue was up 14% from $209.9 million to $238.5 million compared to last year, margins decreased primarily due to increasing manufacturing costs.

Despite the earnings miss, the company noted that its backlog is up 19% compared to the first quarter last year. They have also reaffirmed their fiscal 2009 guidance of $1.82 to $1.94 per share.


Currently trading at just under $20.00 a share, Apogee sports a P/E ratio of 12 and a forward P/E of 9.9, both of which are well under the industry average of 21.5. Apogee's Price to Book ratio of 2.00 is also under the industry average of 4.00.


Currently trading at a discount to its peers, Apogee is an established, profitable company that is growing earnings and revenue estimates. It is only a matter of time before they deliver on these estimates and Mr. Market brings its shares up to full valuation. To compensate you for your time, Apogee will also pay you a 1.40% dividend.

Disclosure: None

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