APOGEE ENTERPRISES, INC. Forward-looking statements This discussion 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. 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 endedFebruary 29, 2020 and in subsequent filings with theU.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 certain technologies involving 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 ongoing COVID-19 pandemic continues to cause volatility and uncertainty in global and domestic markets impacting worldwide economic activity. We have experienced some delays in commercial construction projects and orders as a result of COVID-19. In our Architectural Glass and Architectural Framing segments, orders have been delayed or have slowed, as
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customers and end markets face some uncertainty and delays in timing of work. In
our Architectural Services segment, some construction site closures or project
delays have occurred, and job sites have had to adjust to increased physical
distancing and health-related precautions. Within our Large-Scale Optical (LSO)
segment, most customers reopened and the segment's two manufacturing locations
resumed normal operations during our second fiscal quarter, after being shutdown
for most of our first and second quarters due to governmental orders. We have
also been impacted by quarantine-related absenteeism among our workforce,
resulting in labor and capacity constraints at some of our facilities. The
extent to which COVID-19 will continue to impact our business will depend on
future developments and public health advancements, which have been buoyed
recently by the commencement of vaccine production and distribution.
In response to COVID-19, we have implemented a variety of countermeasures to
promote the health and safety of our employees during this pandemic, including
health screening, physical distancing practices, enhanced cleaning, use of
personal protective equipment, business travel restrictions, and remote work
capabilities, in addition to quarantine-related paid leave and other employee
assistance programs.
The following selected financial data should be read in conjunction with the
Company's Form 10-K for the year ended February 29, 2020 and the consolidated
financial statements, including the notes to consolidated financial statements,
included therein.
Highlights of Third Quarter of Fiscal 2021 Compared to Third Quarter of Fiscal 2020
Net sales Consolidated net sales decreased 7.2 percent, or$24.3 million , and decreased 12.2 percent, or$128.2 million , for the three- and nine-month periods endedNovember 28, 2020 , respectively, compared to the same periods in the prior year, primarily reflecting end market and COVID-19-related volume declines in the Architectural Framing Systems and Architectural Glass segments.
The relationship between various components of operations, as a percentage of net sales, is presented below:
Three Months Ended Nine Months Ended
November 28, 2020 November 30, 2019 November 28, 2020 November 30, 2019
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 77.8 78.0 77.7 77.0
Gross profit 22.2 22.0 22.3 23.0
Selling, general and administrative
expenses 6.3 15.6 13.7 16.1
Operating income 15.9 6.4 8.6 6.9
Interest expense, net 0.5 0.6 0.5 0.7
Other income, net 0.2 0.1 0.1 0.1
Earnings before income taxes 15.5 5.9 8.2 6.3
Income tax expense 3.7 1.4 2.0 1.5
Net earnings 11.9 % 4.5 % 6.2 % 4.8 %
Effective tax rate 23.5 % 23.2 % 23.8 % 23.9 %
Gross profit
Gross profit as a percent of sales was 22.2 percent and 22.3 percent for the
three- and nine-month periods ended November 28, 2020 , compared to 22.0 percent
and 23.0 percent for the three- and nine-month periods ended November 30, 2019 .
The increase in the third quarter of fiscal 2021 compared to the same period in
fiscal 2020 was driven by strong project execution in the Architectural Services
segment. The decrease in the nine-month period of fiscal 2021 compared to fiscal
2020 was largely driven by lower volumes due to market-related and COVID-19
project delays.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales were 6.3 percent and 13.7 percent for the
three- and nine-month periods ended November 28, 2020 , compared to 15.6 percent
and 16.1 percent for the prior year three- and nine-month periods. SG&A
decreased as a percent of sales compared to the same periods in the prior year
primarily due to 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, both of
which were recognized in the third quarter of fiscal 2021. In addition, we
received a benefit of $4.2 million during the third quarter of fiscal 2021, and
$5.5 million year-to-date in fiscal 2021, from a Canadian wage subsidy program
offered to support Canadian businesses due to the widespread impacts of the
COVID-19 pandemic. In total, these items had a favorable impact on SG&A as a
percentage of sales
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of 9.9 percentage points and 3.5 percentage points for the three- and nine-month
periods ended November 28, 2020 , respectively.
Income tax expense
The effective tax rate in the third quarter of fiscal 2021 was 23.5 percent,
compared to 23.2 percent in the same period last year, and 23.8 percent for the
first nine months of fiscal 2021, compared to 23.9 percent in the prior year
period.
Segment Analysis
Architectural Framing Systems
Three Months Ended Nine Months Ended
November 28, November 30, November 28, November 30,
(In thousands) 2020 2019 % Change 2020 2019 % Change
Net sales $ 136,688 $ 165,517 (17.4) % $ 439,779 $ 533,432 (17.6) %
Operating income 7,218 6,345 13.8 % 26,211 34,141 (23.2) %
Operating margin 5.3 % 3.8 % 6.0 % 6.4 %
Architectural Framing Systems net sales declined $28.8 million , or 17.4 percent,
and $93.7 million , or 17.6 percent, for the three- and nine-month periods ended
November 28, 2020 , compared to the prior-year periods, primarily reflecting
market-related and COVID-19 project delays and lower order volume for short
lead-time products.
Operating margin increased 150 basis points for the three-month period of the
current year and decreased 40 basis points for the nine-month period of the
current year, compared to the same periods in the prior year. The increase in
the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020
was due to cost actions and improved productivity that served to offset the
impact of volume declines from end market softness and COVID-19. The decrease in
the nine-month period in the current year compared to the same period in the
prior year reflects leverage on the lower revenue, partially offset by cost
reduction actions and improved productivity. In addition, this segment benefited
from a Canadian wage subsidy of $4.2 million in the third quarter of fiscal 2021
and $5.5 million for the nine-month period of fiscal 2021, as a result of a
Canadian program offered to support Canadian businesses due to the widespread
impacts of the COVID-19 pandemic.
As of November 28, 2020 , segment backlog was approximately $408 million ,
compared to approximately $404 million at the end of the prior quarter, and $375
million at the end of the third quarter of the prior year. 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 under U.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 28, November 30, November 28, November 30,
(In thousands) 2020 2019 % Change 2020 2019 % Change
Net sales $ 84,779 $ 89,433 (5.2) % $ 248,274 $ 288,862 (14.1) %
Operating income 10,825 4,092 164.5 % 15,306 16,951 (9.7) %
Operating margin 12.8 % 4.6 % 6.2 % 5.9 %
Net sales decreased $4.7 million , or 5.2 percent, and $40.6 million , or 14.1
percent, for the three- and nine-month periods ended November 28, 2020 , compared
to the same periods in the prior year. The decreases reflect lower volumes
primarily due to market-related and COVID-19 project delays.
Operating margin increased 820 and 30 basis points for the three- and nine-month
periods of the current year, compared to the same periods in the prior year.
Fiscal 2021 third quarter results included $7.4 million of operating income
related to a New Markets Tax Credit transaction. In addition, operating margins
in both periods of the current year were impacted by volume declines due to end
market softness and COVID-19.
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Architectural Services
Three Months Ended Nine Months Ended
November 28, November 30, November 28, November 30,
(In thousands) 2020 2019 % Change 2020 2019 % Change
Net sales $ 76,690 $ 69,043 11.1 % $ 213,911 $ 195,787 9.3 %
Operating income 8,558 6,533 31.0 % 20,470 15,082 35.7 %
Operating margin 11.2 % 9.5 % 9.6 % 7.7 %
Architectural Services net sales increased $7.6 million , or 11.1 percent, and
$18.1 million , or 9.3 percent, for the three- and nine-month periods ended
November 28, 2020 , compared to the same periods in the prior year, driven by
increased volume from executing projects in backlog.
Operating margin increased 170 and 190 basis points for the three- and
nine-month periods of the current year, compared to the same periods in the
prior year, primarily driven by strong project execution.
As of November 28, 2020 , segment backlog was approximately $597 million ,
compared to approximately $665 million as of the end of the prior quarter, and
$607 million at the end of the third quarter of the prior year. Backlog is
described within the Architectural Framing Systems discussion above.
Large-Scale Optical (LSO)
Three Months Ended Nine Months Ended
November 28, November 30, November 28, November 30,
(In thousands) 2020 2019 % Change 2020 2019 % Change
Net sales $ 25,267 $ 24,405 3.5 % $ 48,438 $ 66,449 (27.1) %
Operating income 26,114 6,754 286.6 % 25,131 15,561 61.5 %
Operating margin 103.4 % 27.7 % 51.9 % 23.4 %
LSO net sales increased $0.9 million or 3.5 percent, and decreased $18.0
million , or 27.1 percent, for the three- and nine-month periods ended November
28, 2020 , compared to the same periods in the prior year. In the third quarter,
customer demand increased significantly following the segment's COVID-related
shutdown earlier in the year. The decrease in sales for the current year
nine-month period compared to the same period in the prior year reflects the
required COVID-related closure of most of the segment's customers and the
segment's manufacturing locations for most of the first and second quarters of
fiscal 2021.
The segment had operating income of $26.1 million and $25.1 million and
operating margin of 103.4 percent and 51.9 percent for the three- and nine-month
periods ended November 28, 2020 , respectively, compared to operating income of
$6.8 million and $15.6 million and operating margin of 27.7 percent and 23.4
percent in the same periods in the prior year. The increases for the fiscal 2021
periods are primarily related to a $19.3 million gain on the sale-leaseback of a
segment building during the current year third quarter. Additionally, operating
margin in the nine-month period reflects the impact of the segment's temporary
shutdown and the related impact from lower volume.
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