Apogee CEO Sees Opportunity in Retrofit and International Markets
December 17, 2009

While Apogee Enterprises has reported a 28-percent drop in revenues to $158.2 million for its architectural segment, Russ Huffer, chairman and chief executive officer, is optimistic and confident that the company will continue to be able to work through a weak market. The company released its fiscal 2010 third quarter earnings yesterday and hosted a conference call today to discuss the results.

Company-wide, revenues were down 25 percent to $179.8 million and operating income was down 35 percent to $16.1 million.

Earnings from continuing operations were 39 cents per share, versus 63 per share. In the Architectural segment revenues, Huffer reported that the backlog is at $246.4 million, compared to $295.0 million at the end of the second quarter and $373.2 million in the prior-year period.

"While our markets are down significantly, we're seeing success in winning institutional projects, including stimulus work, and our share of large projects that are going forward, as well as smaller domestic projects, international work and installation projects in new geographies," said Huffer during the call.

He explained that much of the backlog for the architectural segment--60 to 65 percent--has shifted to institutional work. Office work is about 20-25 percent of the backlog; hotel and entertainment about 5-10 percent; and condos are around 0-5 percent. Approximately $95 million, or 39 percent, of the backlog is expected to be delivered in fiscal 2010, and approximately $151 million, or 61 percent, in fiscal 2011 and 2012.

"Bidding activity remains steady although average project values have declined, and bid-to-award timing continues to slow as customers pursue every avenue for cost reduction," Huffer added.

Looking forward, Huffer said they are anticipating a decline of 22-24 percent and expect fiscal 2011 to be tougher than this year.

"Large project work is down more than 60 percent; the architectural glass segment has been hit hard," Huffer said. "We've reduced our costs by $55 million, including a head count reduction of 35 percent." He said that if necessary, future cuts could still be made. "We want to make sure we're aligned for what's ahead of us; we just don't have that long-term visibility that we used to," said Huffer.

However, there were also areas of opportunity discussed during the call, one of which is the retrofit market. Huffer noted that McGraw Hill has forecasted a dramatic increase in green retrofit activity. And while Apogee's retrofit revenues historically have been about 25 percent, this could change.

"If the government were to put retrofit incentives in place it could grow," said Huffer. "There is no question that retrofit can significantly change the energy performance of older buildings."

The international market is another area of growth. Huffer said in 2009 their international work was about $20 million; this year he expects that to be in the mid $30 million range.

"I think we can continue to grow that," Huffer said.

Most of the international work has been in Asia, as well as South America, some in the Middle East and Europe.

"We have also have continued to look at a locations for an international factory and have focused on Asia," said Huffer, explaining that as they continue to focus on new markets and growth opportunities, the company "will be well positioned for when the commercial market improves."

Need more info and analysis about the issues?
CLICK HERE to subscribe to USGlass magazine.