APOGEE ENTERPRISES, INC. Q2 FY2027 earnings call

• Strong First Half Execution: Revenue reached $391 million (up >9%) and adjusted EPS was $1.17, exceeding expectations. The company benefited from disciplined pricing actions, productivity improvements, and accretive contributions from the CalWall acquisition.
• Strategic Acquisitions Integration: Apogee announced the acquisition of GrowGlass in September, adding differentiated technology and exposure to high-value end markets, particularly in Europe. Integration of CalWall is progressing as planned, with performance in line with first-year financial targets.
• Metals Segment Progress: Despite challenging market conditions, the metals segment saw improved profitability through Fortify Phase II cost savings, productivity gains, and effective pricing strategies that helped preserve margins and pull ahead on some volume.
• Services Segment Growth: The services segment continues to demonstrate resilience with consistent backlog expansion ($833 million), reflecting strong award activity and confidence in long-term growth potential despite competitive pressures.
• Glass Segment Turnaround Efforts: While broader market demand remains soft, the legacy glass business made meaningful progress against its action plan. Initiatives include commercial efforts to increase demand, operational productivity improvements, and strict cost discipline, positioning the unit for future profitability.
• Capital Allocation & Balance Sheet: The balance sheet remains strong with a leverage ratio of 1.7x and no near-term debt maturities. The company returned $5.5 million in dividends and repurchased $6.4 million in stock during Q2, maintaining flexibility for future deployments including the GrowGlass integration.

Metals: Net sales increased 1.8% to approximately $144 million, driven by favorable pricing partially offset by lower volume. Adjusted EBITDA margin expanded to 15.4%. Revenue contribution is approximately 36.8% of total consolidated net sales.

Services: Net sales grew nearly 8%, primarily driven by volume, marking the 10th consecutive quarter of top-line growth. Adjusted EBITDA margin increased to 5.8%. Backlog reached $833 million, up 5% year-over-year. Revenue contribution is approximately 29.7% of total consolidated net sales.

Glass: Net sales increased over 21% to $87.4 million, largely due to a $16.4 million contribution from the CalWall acquisition, partially offset by lower organic volume and price pressures. Adjusted EBITDA margin declined to 14.9% year-over-year but improved sequentially from 8.7%. Revenue contribution is approximately 22.4% of total consolidated net sales.

Performance Surfaces: Net sales increased over 14% to approximately $55 million, driven by higher volume and favorable pricing. Adjusted EBITDA margin decreased to 22.5% due to higher material costs. Revenue contribution is approximately 14.1% of total consolidated net sales.

• Fiscal 2027 Net Sales: Raised to a range of $1.46 billion to $1.5 billion, reflecting strong first-half performance and anticipated contributions from CalWall and GrowGlass.
• Fiscal 2027 Adjusted Diluted EPS: Raised to a range of $3.00 to $3.40, up from previous expectations, driven by improved operating performance and lower interest expense.
• Full-Year Financial Assumptions: Interest expense is expected to be approximately $15 million; adjusted effective tax rate is estimated at 26%; capital expenditures are projected between $35 million and $40 million.
• Quarterly Outlook: Management expects net sales and adjusted diluted EPS to be relatively balanced across the third and fourth quarters of fiscal 2027.
• Acquisition Contributions: CalWall is on track to deliver ~$85 million in revenue and a 15% adjusted EBITDA margin in its first 12 months. GrowGlass is expected to contribute ~$30 million in revenue and a 25% adjusted EBITDA margin in its first 12 months.

• Market Volatility and Soft Demand: End-market demand softness persists, particularly in the glass segment, leading to lower volumes and pricing pressure. The metals segment also experienced lower volume despite price increases.
• Inflationary Pressures: Higher material costs (including aluminum) and manufacturing/freight costs are impacting margins, requiring continuous pricing discipline to offset these headwinds.
• Execution Risks in Turnaround: The glass segment still has significant work to do to improve performance; while progress is evident, the broader market remains pressured, posing a risk to achieving long-term profitability goals.
• M&A Integration Challenges: While CalWall is performing well, integrating GrowGlass and realizing its strategic benefits require disciplined execution. Failure to integrate effectively could impact expected synergies and financial targets.

Q: Julio Romero asked about the Glass segment's better-than-expected performance relative to prior quarters, questioning if it was due to new leadership, mix changes, or other initiatives.

A: CEO Don Nolan attributed the improvement not to changed market conditions—which remain soft—but to significantly improved execution of a previously outlined action plan. This includes increased order rates, enhanced operational productivity, and strengthened cost management, though he noted further work is needed to fully address the segment's challenges.

Q: Julio Romero requested clarification on the Metals segment's pricing structure, specifically the split between structural price increases and surcharges, and whether the updated guidance assumes any giveback as surcharges unwind.

A: CFO Mark Augdahl explained that aluminum price fluctuations are typically built into the overall pricing structure rather than applied as separate surcharges. CEO Don Nolan added that the positive results were driven by a combination of pricing actions, productivity improvements, and Fortify Phase II cost savings, which also helped pull ahead some volume.

Q: Julio Romero inquired about the company's capital allocation priorities given a leverage ratio slightly above the historical target and active share repurchases, asking if the M&A pipeline remains open.

A: CFO Mark Augdahl stated that the current leverage level is manageable and expected to decrease as cash flow is generated without further acquisitions. He confirmed the M&A pipeline remains active with a full funnel, but the company will be highly selective, prioritizing delivering current results and cash flow over immediate new deals unless an attractive opportunity arises at the right price.

Q: Goshi Sri asked about the margin trajectory in the Performance Services segment, specifically whether margins are recovering through price increases passing through to customers or if customers are pushing back.

A: CEO Don Nolan clarified that the company has been implementing pricing for several quarters to recover margins, but emphasized that pricing is only one component of margin recovery. He highlighted that the strategy relies on a balanced approach combining productivity, cost reductions, and pricing, noting that it is 'not all pricing'.