Apogee Enterprises Inc (APOG) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2005 Apogee Enterprises earnings conference call. My name is Angela, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to you host for today's call, Ms. Mary Ann Jackson, Director of Investor Relations. Please proceed, ma'am.

Good morning and welcome to the Apogee Enterprises fiscal 2005 fourth-quarter and full-year conference call on Thursday, April 7. The call is being webcast live over the Internet from Apogee's corporate website, www.apog.com, and a replay of the call will be available on the Investor Relations section of our site.

With us on the line today are Russ Huffer, Chairman and CEO; Bill Marchido, CFO; and Mike Clauer, Executive Vice President. Their remarks will focus on our fourth-quarter and full-year results and the outlook for fiscal 2006.

Before we begin I'd like to remind all of you that our discussion today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's expectations or beliefs as of the date of this release. Please note that the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All forward-looking statements are qualified by factors that may affect the operating results of the Company, including the factors described in our press release. The Company wishes to caution investors that other factors may in the future prove to be important in affecting the Company's results of operations. New factors emerge from time to time and 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 statement.

For a more detailed explanation of the foregoing and other risks and uncertainties see Exhibit 99.1 to the Company's report on Form 10-K for the fiscal year ended February 28, 2004.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement as of the date of this call and may continue to be used while this call remains on the Apogee website.

Russ will now give you a brief overview of the results, and Bill will cover the financials, and Russ, Bill and Mike will answer your questions. Russ?

Good morning and welcome to our conference call. We are very pleased that our fourth-quarter and full-year performance exceeded our expectations. The team did an excellent job of executing our growth strategies, which remains our focus in fiscal 2006.

For the full-year our earnings from continuing operations grew from $0.17 per share in fiscal 2004, which was the bottom of the construction cycle for our business, to $0.60 per share in fiscal 2005. Our revenues for the year increased 17% to almost $630 million.

Results for our fourth quarter included earnings of $0.13 per share versus a loss the prior year and revenue growth of 30%. Our Architectural Segment accounted for the majority of our revenue growth. This segment had an especially strong revenue performance in the fourth quarter, up 38%, and we had operating income of 2.5 million versus a loss last year. The operating margin was 1.8% in the fourth quarter.

Our commercial construction markets are starting to improve, and project timing has stabilized. However, markets are still quite competitive and we have yet to see across-the-board improvement in pricing for our Architectural segment.

In the fourth quarter we saw market strength in high-end condos, government and institutional work, along with some improvement in the office market. These projects are also using more value-added hurricane blast and energy-efficient products. As an example, shipments of fabricated protective glass products grew more than 30% during the fiscal year.

We ended the quarter with a solid backlog of 220.1 million. This compares to the prior-year period backlog of 224.5 million, and is up from the third quarter backlog of 212.5 million. Although our glass installation acquisition added 24 million to the backlog, we had strong shipments in the quarter that reduced the overall backlog. It's also important to note that the prior-year backlog included approximately 15 million in fiscal 2004 work that was delayed until the first quarter of fiscal 2005.

Large-Scale Optical segment revenues increased 15%, while operating income grew to $4.3 million after a slight loss in the prior-year period, which had one-time pre-tax charges of 1.7 million for a product line sale and integration of the two businesses in the segment. Operating margin in the current quarter was 18.6%.

Sales of higher value-added picture framing products in the quarter were especially strong, as conversion continued from plain glass to value-added, as well as to higher-end value-added products. For the full year, value-added glass sales increased more than 30% due to significant conversions that took place during the year.

During the quarter I am pleased to report that we made progress on our initiatives to increase Architectural market share and to improve future performance in this segment.

We are on schedule for a second-quarter startup of the new capacity at our Viracon plant in Georgia. We are eager to get this new $20 million capacity online. Viracon has been operating near capacity for the past few months due to the success of our initiatives and our market share gain. This compares to capacity utilization of about 70% during fiscal 2004. Our window and finishing businesses were at 65 to 70% capacity utilization in the fourth quarter.

We also completed the acquisition of a glass installer, Architectural Wall Systems, or AWallS, in the fourth quarter. AWallS has helped us strengthen our installation organization and increase market penetration in the Midwest and Northwest.

We remain focused on our overall strategic initiatives to grow our architectural and picture framing glass businesses. This includes growing current markets, targeting new markets with current products and looking for new opportunities that complement existing products and markets. With our solid balance sheet and strong cash flow, we're positioned to support our strategies with investments as opportunities arise.

Now I will cover the outlook for fiscal 2006.

Building on our improved performance in fiscal 2005, we are anticipating earnings growth approaching 20% in fiscal 2006 to $0.68 to $0.72 per share. Excluding unusual items, our earnings growth is expected to be approximately 40% next year. The unusual items include $0.05 per share from proceeds of a class action lawsuit settlement with flat glass manufacturers in fiscal 2005 and an expected $0.04 per share impact in the second half of fiscal 2006 related to expensing stock options.

Our fiscal 2006 revenue expectations haven't changed from previous guidance. But because of our especially strong fourth-quarter sales, our top-line growth target is now 6 to 8%. We anticipate continued growth in our Architectural segment revenues, modest growth in our Large-Scale Optical segment, and an ongoing decline in Auto Glass segment sales.

Our longer-term goal is to achieve an average of 8% annual revenue growth and 20% annual earnings per share growth over the three-year period from fiscal 2006 to 2008. Over this period we expect continued improvement in Architectural segment margins as we see market share growth in more attractive segments of the market, including new office construction and building renovation. For our Large-Scale Optical segment, we anticipate continued conversion to value-added products, although current high margins will likely be flat to slightly down, in part as a result of our strategy to drive conversion by making products more affordable at the consumer level.

Looking at the outlook for our segments for fiscal 2006, we expect Architectural segment revenue growth of 6 to 9%, based on our solid first-half backlog and strong quote activity for the second-half work yet to be secured. This growth rate reflects the market improvement projected by F.W. Dodge and share growth. The share growth is expected to result from our recent glass installation acquisition, second-half production from our new glass fabrication capacity, and continued success with our initiatives.

If you take into account the approximately $15 million in Architectural revenues that moved into the first quarter of the fiscal '05 from the prior year, our overall growth outlook for fiscal 2006 is greater than the 6 to 9%. To achieve the higher end of this range, we will need to see continued market improvement, including pricing.

Our commercial construction markets are expected to grow this year after several down years, based on the latest calendar 2004 estimate from F.W. Dodge. Dodge anticipates overall nonresidential construction market growth of 5%. Dodge estimate for calendar 2004 correlates to Apogee's fiscal 2006 due to the average nine-month lag between project starts and the installation of glass on buildings.

The healthier economy is helping income properties. Job growth has led to lower vacancy rates with CB Richard Ellis reporting a 16% metropolitan vacancy rate for the fourth calendar quarter of 2004, down from 16.3% in the third quarter and 16.7% in the prior-year period.

The Large-Scale Optical segment is expected to grow value-added glass sales more than 20%. We expect slight growth in overall segment revenues in fiscal 2006 as we continue to convert the market to value-added framing products and transition from consumer electronics products.

Regarding our Auto Glass segment, the business faces difficult market conditions, but continues to generate cash for Apogee. In fiscal 2006 with the expiration of our supply agreement with PPG Industries in the second quarter, we will be transitioning back to the independent distributor marketplace. Our after-market windshield manufacturing business has opportunities for somewhat improved margins by serving the market for shorter lead-time windshields, and we're in the process of winning some of this business back.

We've taking a conservative approach to our outlook for Auto Glass manufacturing results in fiscal 2006, anticipating that revenues will decline slightly and margin will be at a breakeven or slightly better.

We have repositioned Apogee for a stronger future through our strategies for growing our architectural and picture framing glass businesses. Our positive operating cash flow allows us to pay our dividend, reduce debt, and fund capital spending. We also continue to evaluate opportunistic investments to further grow our business. We're delivering improved results and value to our shareholders.

Regarding stock repurchases, we anticipate purchasing about 0.5 million shares in fiscal 2006 to be antidilutive to our compensation programs.

We have successfully completed the first full year of our strategic initiatives and are excited about our prospects for the current year as our initiatives deliver results and our architectural markets strength.

CFO, Bill Marchido, will now cover the financials. Bill?

Thanks, Russ. I'm feeling good about the continued progress we made in the fourth quarter. Revenues were up significantly and operating income grew. We have continued to improve operations and reduce costs, while implementing our growth strategies.

The earnings per share reconciliation between the current quarter earnings of $0.13 per share and a loss of $0.14 per share in the prior-year period shows why we are encouraged by the performance of our Architectural and Large-Scale Optical segments. Architectural was up $0.16 from last year, including $0.01 from an asset write off. Large-Scale was $0.12 better than last year. And Auto Glass, including the results for PPG Auto Glass, which is reported in equity and affiliates, was up $0.01 from prior year.

Debt reduction in the quarter was a $0.01 improvement, more than offset by a $0.03 reduction due to the tax rate impact of change in deductions.

Russ covered the performance of our Architectural segment. I would also like to note that Architectural backlog of 220.1 million remains solid. It gives us confidence in the first half of fiscal 2006, and our level of quote activity for second-half work looks good.

Large-Scale Optical operating income in the fourth quarter increased significantly on flat revenues. Taking a closer look at the segment's performance, picture framing glass revenues actually grew more than 20% when you exclude matte board and consumer electronics revenues in the prior year.

Our long-term debt was 35.2 million at the end of the fiscal year, down 11% from the end of the prior year. Our debt-to-total- capital ratio was reduced to 17%.

Turning to the outlook for fiscal 2006, our outlook for the current year is earnings growth (technical difficulty) or $0.68 to $0.72 per share. When unusual items are excluded the earnings growth is expected to be approximately 40% this year.

We're coming off an especially strong fourth quarter, and therefore have a change to our revenue target for fiscal 2006 from our previous guidance. Our target for revenue growth is now 6 to 8%. The reflects continued growth in Architectural segment revenues, modest growth in Large-Scale Optical, and a decline in Auto Glass segment sales. This outlook is higher when you take into account the approximately $15 million in Architectural revenues that moved in the first quarter fiscal 2005 in the prior year.

We expect annual gross margins for the year to be approximately 1 percentage point higher than last year as operational improvements and cost reductions are somewhat offset by higher cost of wages, materials, utilities and freight.

Our outlook for the segment margins is Architectural, 3.5 to 4.5%; margins are expected to increase with improved pricing and capacity utilization; Large-Scale Optical, approximately 12%. This is relatively flat with our focus on making picture framing glass products more affordable for consumers. Auto Glass, breakeven to slightly better. The decrease results from competitive market dynamics.

SG&A as a percent of sales is expected to be approximately 14.5%.

I'm going to briefly cover the elements of cash flow for fiscal 2006.

We're estimating EBITDA -- earnings before interest, taxes, depreciation and amortization -- from continuing operations of 46 to $49 million for fiscal 2006. We estimate net cash provided by continuing operations of 38 to $41 million for the year. Capital expenditures are targeted at $25 million. This will give us anticipated free cash flow of 13 to $16 million. We define free cash flow as net cash flow provided by operating activities, minus capital expenditures. We expect to reduce debt to approximately $30 million by year end. Our tax rate for the year is anticipated to be approximately 32%, driven by benefits relating to a prior donation of certain intellectual property.

We're focused on implementing growth strategies for the short ad long term whole we continue to make our operations more efficient and reduce our costs. Thanks Russ.

Thanks Bill. I'm encouraged by fourth quarter and full year. We're making progress on our strategies, our business is improving and our key architectural markets are strengthening. We're excited about the opportunities for Apogee in fiscal 2006.

I would like to go ahead and open the call up for question at this time. Mike Clauer, EVP responsible for three of our Architectural business segments and Large-Scale Optical segment, is also available to address questions.

(OPERATOR INSTRUCTIONS) Ladies and gentlemen, we have no questions at this time.

I think we will go ahead and wrap it up unless there's a question that comes up while I'm just wrapping up the meeting. We certainly appreciate the people who have dialed in and listened to us today, and that have been with us as we've been executing our new strategies, and we look forward to their continued success. So if there are no more questions, we will sign off.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Everyone have a wonderful day and thank you.