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Apogee(APOG) - 2025 Q4 - Annual Report
APOGApogee(APOG)2025-04-24 17:08
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Sales and Revenue - In fiscal 2025, the Architectural Metals Segment accounted for approximately 39% of net sales, while the Architectural Services Segment contributed about 31%[20] - The Architectural Glass Segment provides customized solutions and accounted for approximately 21% of net sales in fiscal 2025[20] - The Performance Surfaces Segment, which develops high-performance coated materials, represented approximately 9% of net sales in fiscal 2025[20] - Consolidated net sales for fiscal 2025 were 1.36billion,adecreaseof3.91.36 billion, a decrease of 3.9% compared to 1.42 billion in fiscal 2024, primarily due to lower volume in Architectural Metals and Architectural Glass, partially offset by a 32.0millioncontributionfromtheacquisitionofUWSolutions[131]−Netsalesdecreasedto32.0 million contribution from the acquisition of UW Solutions[131] - Net sales decreased to 524.7 million in fiscal 2025 from 601.7millioninfiscal2024,primarilyduetoreducedvolumeandlowerendmarketdemand[136]−ThecompanyexperiencedadeclineinnetsalesintheArchitecturalGlasssegmentto601.7 million in fiscal 2024, primarily due to reduced volume and lower end market demand[136] - The company experienced a decline in net sales in the Architectural Glass segment to 322.2 million in fiscal 2025 from 378.4millioninfiscal2024,drivenbylowervolume[137]−ArchitecturalMetalssegmentnetsalesdecreasedby12.8378.4 million in fiscal 2024, driven by lower volume[137] - Architectural Metals segment net sales decreased by 12.8% to 524.7 million, while Architectural Services saw an increase of 11.0% to 419.9million[132]FinancialPerformance−Grossprofitforfiscal2025was419.9 million[132] Financial Performance - Gross profit for fiscal 2025 was 359.9 million, with a gross margin of 26.4%, an improvement from 25.9% in fiscal 2024, driven by a favorable mix of projects and lower quality-related costs[131] - Operating income decreased to 118.1millioninfiscal2025,withanoperatingmarginof8.7118.1 million in fiscal 2025, with an operating margin of 8.7%, down from 9.4% in fiscal 2024, primarily due to lower sales volume and acquisition-related expenses[131] - Net earnings for fiscal 2025 were 85.1 million, a decline of 14.6% from 99.6millioninfiscal2024,withdilutedearningspershare(EPS)of99.6 million in fiscal 2024, with diluted earnings per share (EPS) of 3.89 compared to 4.51inthepreviousyear[128]−Adjustedoperatingincomegrew2.44.51 in the previous year[128] - Adjusted operating income grew 2.4% to 149.8 million, with an adjusted operating margin improving to 11.0%[131] - The effective income tax rate increased to 24.4% in fiscal 2025 from 22.9% in fiscal 2024, primarily due to an increase in tax expense for discrete items[131] - Acquisition-related costs totaled 10.3millioninfiscal2025,impactingnetearningsandadjustedearningspershare[149]EmployeeandWorkplaceSafety−Thecompanyhadapproximately4,500employeesasofMarch1,2025,reflectinganincreasefrom4,400employeesthepreviousyear[44]−Thecompanyaimstoachieveanincidentrateofzeroinworkplacesafetythroughitsenterprise−widehealthandsafetyprogram[46]−Thecompanyconductsannualsafetycultureassessmentsandcomplianceauditstoenhancesafetyprogramsandemployeeengagement[47]−Thecompanyofferscomprehensivehealthandwellnessprograms,includingmedicalinsuranceandpreventivecare,tosupportemployeewell−being[48]−Thecompanyemphasizesdiversityandinclusion,conductingannualtrainingtoreducebiasandpromoteequalopportunity[49]−Thetalentmanagementprogramfocusesonemployeedevelopment,offeringtraining,coaching,andeducationassistanceforcareergrowth[50]StrategicInitiativesandGrowth−Thecompanyinvestedinorganicandinorganicgrowthinitiatives,includingtheacquisitionofUWInterco,LLCandcapacityexpansioninthePerformanceSurfacessegment[21]−Thecompanyaimstoshiftitsbusinessmixtowardhigheroperatingmarginofferingstoimprovereturnoninvestedcapitalperformance[19]−Thecompanyisexploringstrategicopportunities,includingacquisitionsanddivestitures,todrivelong−termgrowthandefficiency[63]−Thecompany’sstrategyincludesstrengtheningcorecapabilitiesthroughacenter−ledfunctionalexpertisemodelandtheApogeeManagementSystem[19]RisksandChallenges−ThecompanyisinfluencedbyNorthAmericaneconomicconditions,particularlyinthenon−residentialconstructionindustry,whichaffectssalesandoperations[56]−Thecompanyfacesrisksfromglobalinstability,whichcouldadverselyaffectoperationsandprojecttimelines[59]−Supplychaindisruptions,particularlyinaluminumandrawglass,couldnegativelyimpactthecompany′soperatingresults[70]−Risinginterestratesandinflationcouldreducedemandforthecompany′sproductsandservices,negativelyimpactingprofitability[86]−Thecompanyisvulnerabletofluctuationsineconomiccycles,whichmayaffectsupplierperformanceandcontractterms[72]−Difficultiesinmaintaininginformationtechnologysystemsandpotentialcybersecuritythreatscoulddisruptbusinessoperationsandincreaseexpenses[74]−Thecompanymayfaceincreasedcostsduetochangesintradepoliciesandtariffs,whichcouldadverselyaffectoperatingresultsandprofitability[79]−Thecompanyhasexperiencedproductliabilityandwarrantyclaims,whichcouldleadtoadditionalexpensesandnegativelyimpactoperatingresults[83]−Thecompany’sliquiditymaybeadverselyaffectedbychangesincapitalandcreditmarkets,impactingitsabilitytofundoperationsandpursuebusinessopportunities[91]−Thecompany’sinternalcontrolsoverfinancialreportingmaynotalwayspreventmisstatements,potentiallyleadingtorestatementsandregulatoryinvestigations[90]−Thenumberofdatasecurityincidentshasincreasedregulatoryfocusonsecurityrequirements,whichmayleadtoadditionalcompliancecosts[78]ProjectandRestructuringUpdates−TheCompanyincurredatotalof10.3 million in fiscal 2025, impacting net earnings and adjusted earnings per share[149] Employee and Workplace Safety - The company had approximately 4,500 employees as of March 1, 2025, reflecting an increase from 4,400 employees the previous year[44] - The company aims to achieve an incident rate of zero in workplace safety through its enterprise-wide health and safety program[46] - The company conducts annual safety culture assessments and compliance audits to enhance safety programs and employee engagement[47] - The company offers comprehensive health and wellness programs, including medical insurance and preventive care, to support employee well-being[48] - The company emphasizes diversity and inclusion, conducting annual training to reduce bias and promote equal opportunity[49] - The talent management program focuses on employee development, offering training, coaching, and education assistance for career growth[50] Strategic Initiatives and Growth - The company invested in organic and inorganic growth initiatives, including the acquisition of UW Interco, LLC and capacity expansion in the Performance Surfaces segment[21] - The company aims to shift its business mix toward higher operating margin offerings to improve return on invested capital performance[19] - The company is exploring strategic opportunities, including acquisitions and divestitures, to drive long-term growth and efficiency[63] - The company’s strategy includes strengthening core capabilities through a center-led functional expertise model and the Apogee Management System[19] Risks and Challenges - The company is influenced by North American economic conditions, particularly in the non-residential construction industry, which affects sales and operations[56] - The company faces risks from global instability, which could adversely affect operations and project timelines[59] - Supply chain disruptions, particularly in aluminum and raw glass, could negatively impact the company's operating results[70] - Rising interest rates and inflation could reduce demand for the company's products and services, negatively impacting profitability[86] - The company is vulnerable to fluctuations in economic cycles, which may affect supplier performance and contract terms[72] - Difficulties in maintaining information technology systems and potential cybersecurity threats could disrupt business operations and increase expenses[74] - The company may face increased costs due to changes in trade policies and tariffs, which could adversely affect operating results and profitability[79] - The company has experienced product liability and warranty claims, which could lead to additional expenses and negatively impact operating results[83] - The company’s liquidity may be adversely affected by changes in capital and credit markets, impacting its ability to fund operations and pursue business opportunities[91] - The company’s internal controls over financial reporting may not always prevent misstatements, potentially leading to restatements and regulatory investigations[90] - The number of data security incidents has increased regulatory focus on security requirements, which may lead to additional compliance costs[78] Project and Restructuring Updates - The Company incurred a total of 16.7 million in pre-tax charges related to "Project Fortify," delivering estimated annualized cost savings of approximately 14million[123]−Anextensionof"ProjectFortifyPhase2"isexpectedtoincurapproximately14 million[123] - An extension of "Project Fortify Phase 2" is expected to incur approximately 24 million to 26millioninpre−taxcharges,withannualizedpre−taxcostsavingsprojectedat26 million in pre-tax charges, with annualized pre-tax cost savings projected at 13 million to 15million[124]−ThecompanyrecognizedrestructuringchargesrelatedtoProjectFortifytotaling15 million[124] - The company recognized restructuring charges related to Project Fortify totaling 6.2 million in asset impairment, 5.9millioninemployeeterminationcosts,and5.9 million in employee termination costs, and 0.3 million in other costs for fiscal 2024[156] Shareholder Returns and Stock Performance - Cash dividends paid per share for fiscal 2025 totaled 1.0100,anincreasefrom1.0100, an increase from 0.9700 in fiscal 2024[111] - The Company repurchased a total of 548,337 shares at an average price of 58.70duringthefourthquarteroffiscal2025[112]−Thecompanyreturned58.70 during the fourth quarter of fiscal 2025[112] - The company returned 67.1 million to shareholders through share repurchases and dividends, compared to 33millionintheprioryear[165]BacklogandContractManagement−Thecompanyhad33 million in the prior year[165] Backlog and Contract Management - The company had 394.1 million of backlog bonded by performance bonds with a face value of 1.2billionasofMarch1,2025[179]−Approximately361.2 billion as of March 1, 2025[179] - Approximately 36% of total revenue in fiscal 2025 was derived from longer-term, fixed-price contracts, primarily in the Architectural Services Segment[186] - The company measures progress on long-term contracts using an input method, comparing total costs incurred to-date to estimated total costs, recording that proportion of the total contract price as revenue[186] - Architectural Services Segment backlog was 720.3 million at the end of fiscal 2025, down from 807.8millionintheprioryear[140]MarketandEconomicConditions−ThePerformanceSurfacesSegmentreliesheavilyontheU.S.retailcustompictureframingindustry,whichissensitivetoconsumerconfidence[57]−Thecompanyisexposedtomarketrisksrelatedtochangesininterestrates,foreigncurrencyexchangerates,andrawmaterialpricing[206]−A200basispointchangeininterestratescouldimpactnetearningsbyapproximately807.8 million in the prior year[140] Market and Economic Conditions - The Performance Surfaces Segment relies heavily on the U.S. retail custom picture framing industry, which is sensitive to consumer confidence[57] - The company is exposed to market risks related to changes in interest rates, foreign currency exchange rates, and raw material pricing[206] - A 200 basis point change in interest rates could impact net earnings by approximately 0.6 million[208] - The company manages foreign currency risk through local operations and forward purchase foreign currency contracts[211] - The company cannot accurately calculate the pre-tax impact of a 1% change in commodity costs of aluminum and lumber on fiscal 2025 operating results due to various influencing factors[214] Cybersecurity and Legal Matters - The company reported no material adverse effects from cybersecurity incidents, maintaining a robust cybersecurity risk management program[97] - The Board oversees the cybersecurity risk management program, receiving updates on the Company's cyber risk profile at least twice a year[101] - The Company has not identified any legal proceedings that would have a material adverse effect on its financial condition[106] Impairment and Valuation - The company incurred 7.6millioninpre−taximpairmentchargesrelatedtoindefinite−livedintangiblesintheArchitecturalMetalsSegmentduetostrategicbrandingchanges[88]−A100basispointincreaseintheweightedaveragecostofcapitalcoulddecreaseestimatedfairvaluesofreportingunitsby7.6 million in pre-tax impairment charges related to indefinite-lived intangibles in the Architectural Metals Segment due to strategic branding changes[88] - A 100 basis point increase in the weighted average cost of capital could decrease estimated fair values of reporting units by 13 million to 60million[194]−Thecompanyhasintangibleassetswithindefiniteusefullives,andforfiscal2025,recognizedanimpairmentexpenseof60 million[194] - The company has intangible assets with indefinite useful lives, and for fiscal 2025, recognized an impairment expense of 7.6 million due to carrying amounts exceeding fair value[198] - For fiscal 2025, the company bypassed qualitative assessments for goodwill impairment and directly compared fair value to carrying value, with fair value exceeding carrying value across all reporting units[194] - Management is responsible for maintaining adequate internal control over financial reporting to ensure reliability and compliance with accounting principles[215]