Sign in

You're signed outSign in or to get full access.

AE

APOGEE ENTERPRISES, INC. (APOG)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 revenue was $341.3M, essentially flat YoY (+0.5%), while GAAP EPS fell to $0.96 and adjusted EPS to $1.19 as margins compressed on lower volume and less favorable mix in Framing and Glass; Services delivered double‑digit sales growth and margin expansion .
  • Integration of UW Solutions progressed; it contributed $8.8M to Q3 sales (LSO) and is expected to add ~$30M to FY25 revenue (about $0.05 adjusted EPS dilution) and ~$100M revenue in FY26 at ~20% adjusted EBITDA margin (EPS accretive) .
  • Guidance tightened: FY25 net sales now expected to decline ~5% (from -4% to -7% prior), adjusted EPS guided to the bottom of the $4.90–$5.20 range; capex narrowed to $40–$45M; Project Fortify charges raised to $16–$17M with $13–$14M annualized savings (60% in FY25) .
  • Balance sheet impact: long-term debt increased to $272M to fund the acquisition; consolidated leverage ratio rose to 1.3x, with management prioritizing deleveraging while maintaining an active M&A pipeline .

What Went Well and What Went Wrong

  • What Went Well

    • Services posted its third straight quarter of double-digit sales growth (Q3: +10.8%) and sustained margin expansion (adjusted operating margin 8.6% vs. 5.6% LY), reflecting favorable project mix and execution; management expects the segment to operate within its 7%–9% range .
    • UW Solutions acquisition closed Nov 4; early integration progress and pipeline momentum in industrial flooring noted: “I am encouraged by the opportunities… to leverage their shared capabilities to drive growth” and flooring pipeline “better than… expected,” with strong margins .
    • LSO grew sales 27.6% (incl. $8.8M inorganic) and delivered 18.6% adjusted operating margin despite legacy retail softness; acquisition builds a platform for higher-growth, higher‑margin adjacencies .

  • What Went Wrong

    • Gross margin declined 50 bps to 26.1% and operating margin to 8.4% (adjusted 10.4%), driven by lower volume leverage, less favorable mix (notably in Framing), and higher incentive and lease expense .
    • Glass segment sales fell 22.8% YoY on demand softness; operating margin moderated to 14.4% (from 16.7% LY). Management flagged continued pressure on price/volume into Q4, with mix downticks in “high value-add” features .
    • Services backlog declined sequentially to $742.2M (from $792.1M in Q2), indicating softer new awards amid market choppiness, though backlog remains nearly two years of sales; management expects near-term market softness to persist .

Financial Results

Overall P&L metrics (oldest → newest)

MetricQ1 FY25Q2 FY25Q3 FY25
Net Sales ($M)$331.5 $342.4 $341.3
Diluted EPS ($)$1.41 $1.40 $0.96
Adjusted Diluted EPS ($)$1.44 $1.44 $1.19
Gross Margin (%)29.8% 28.4% 26.1%
Operating Margin (%)12.5% 12.3% 8.4%
Adjusted Operating Margin (%)12.8% 12.6% 10.4%

Segment net sales ($M) (oldest → newest)

SegmentQ1 FY25Q2 FY25Q3 FY25
Architectural Framing Systems$133.2 $141.4 $138.0
Architectural Glass$86.7 $90.1 $70.2
Architectural Services$99.0 $98.0 $104.9
Large‑Scale Optical (LSO)$21.2 $19.8 $33.2
Total Net Sales$331.5 $342.4 $341.3

Segment operating margin (%) (oldest → newest)

SegmentQ1 FY25Q2 FY25Q3 FY25
Architectural Framing Systems13.8% 12.1% 9.2%
Architectural Glass19.7% 23.4% 14.4%
Architectural Services5.7% 6.3% 9.3%
Large‑Scale Optical (LSO)22.9% 19.1% 14.6% (18.6% adjusted)

Operational KPIs (oldest → newest)

KPIQ1 FY25Q2 FY25Q3 FY25
Services Backlog ($M)$867.0 $792.1 $742.2
Long‑term Debt ($M)$77.0 $62.0 $272.0
Consolidated Leverage Ratio (x)—0.1x 1.3x
Cash from Ops YTD ($M)$5.5 $64.1 $95.1
Capex YTD ($M)$7.2 $15.7 $24.7
Dividend/Share (Quarter)$0.25 $0.25 $0.25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY25Decline 4%–7% ~5% decline Narrowed
Adjusted EPSFY25$4.90–$5.20 At bottom of $4.90–$5.20 Range maintained; guided to low end
Project Fortify Pre‑tax ChargesFY25 total$15–$16M $16–$17M Raised
Project Fortify Savings (annualized)Run‑rate$13–$14M; ~60% in FY25, rest FY26 $13–$14M; ~60% in FY25, rest FY26 Maintained
Effective Tax RateFY25~24.5% ~24.5% Maintained
CapexFY25$40–$50M $40–$45M Narrowed (lower top end)
DividendNext payout$0.25/quarter (status quo) $0.26/quarter (announced Jan 9) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q‑2 and Q‑1)Current Period (Q3 FY25)Trend
Nonresidential demand / ABIQ1: Anticipated H2 softness; ABI declines; pricing pressure expected . Q2: Continued softness; Services backlog -QoQ to $792M though +YoY .ABI improved last 2 months; downturn seen as “short and shallow,” with pressure likely through 1H FY26; mix shifting to institutional (healthcare, education, gov’t) .Tentative improvement; conditions still soft
Glass marginsQ1: Expected to moderate toward top of 10%–15% . Q2: H2 margin moderation to top half of 10%–15% .Q3 OM 14.4% amid volume decline; expect continued Q4 pressure; customers trimming “high value-add” features .Moderating vs H1
Services executionQ1: Backlog $867M (+22% YoY), margins improving toward 7%–9% . Q2: OM 6.5%; backlog $792M .Q3 OM 8.6%; backlog $742M; team expects to stay within 7%–9% next year .Margins improving; backlog decelerating
UW Solutions integrationQ2: Deal announced; FY25 ~$30M rev, FY26 ~$100M at ~20% adj. EBITDA; ~$5M synergies by FY27 .Closed Nov 4; Q3 added $8.8M sales; FY25 ~$0.05 EPS dilution; FY26 EPS accretive; synergies on track .On track / positive
LSO adjacencies vs retailQ1: New adjacency wins; retail softness . Q2: LSO volume -16% on retail; 19.1% OM .Q3: LSO combined with UW; legacy retail softer; adjacencies (e.g., industrial flooring) gaining momentum .Mixed; improving mix
Capital allocation / leverageQ1: Strong balance sheet; active M&A pipeline . Q2: Expanded credit facility; low leverage .Q3: Leverage 1.3x post‑deal; plan to pay down debt while pursuing M&A .Balanced deleveraging with M&A
Macro/policy view for FY26—More uncertainty with incoming administration; headwinds: Glass margin normalization; lower insurance/STI tailwinds reversing .Cautious outlook

Management Commentary

  • Strategic focus and market view (CEO): “Our team remains focused on strengthening our operating foundation and positioning the company for long-term growth, despite continued pressure from soft demand in our end markets…” .
  • Integration progress: “The team is executing our integration plan, and we are encouraged by the early progress” on UW Solutions .
  • End-market mix and outlook: “Nonresidential new construction remains challenging… ABI has improved the past 2 months which may signal a positive inflection point… largest share of our backlog [now] institutional projects” .
  • Fiscal ’26 set‑up (CFO): Expect FY25 adjusted operating margin ~11% with sequential Q4 decline; FY26 headwinds include Glass margins moderating to 10%–15% range and normalization of insurance and STI costs .
  • Capital deployment (CEO): “We’ve got capacity to do a similar sized deal to UW Solutions today… we will continue to pay down debt [and]… look for acquisition opportunities” .

Q&A Highlights

  • Glass near term: Pricing holding but under pressure; Q4 volumes step down more in Framing than Glass; Q3 a reasonable benchmark for Q4 run-rate in Glass .
  • UW Solutions: Strong pipeline in industrial flooring (R&R exposure, robotics use cases), with better-than-expected opportunity; contribution targeted at ~$100M revenue in FY26 at ~20% adj. EBITDA; ~$5M synergy target over 12–18 months .
  • Services demand/backlog: Trends align with third-party forecasts; backlog supports operations within 7%–9% margin range despite competitive pressure .
  • Guidance framing: Company directed investors to the bottom of FY25 adjusted EPS range due to greater volume pressure than expected into Q4 .
  • Capital allocation: Leverage 1.3x post‑deal; capacity remains for similar‑sized M&A while paying down debt to reduce interest cost into FY26 .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable at the time of retrieval due to a vendor limit, so we cannot quantify beat/miss vs. consensus for Q3 FY25 [GetEstimates error]. Management did not cite a consensus comparison in the press release .
  • Given the margin compression and EPS step-down sequentially, we would expect estimate revisions to reflect softer Q4 volume/mix, normalization of Glass margins into FY26, partial offset from Services margin strength, and UW Solutions accretion in FY26 .

Key Takeaways for Investors

  • Q3 confirmed the expected normalization: Glass and Framing margins compressed on lower volume/mix, while Services continued to execute with rising margins; expect Q4 pressure to persist before FY26 normalizes around long‑term targets .
  • UW Solutions is a credible growth and mix-enhancement lever (industrial flooring, engineered coatings, HD printable materials) with synergy potential; accretive in FY26 at ~20% adj. EBITDA, providing a buffer against architectural cycles .
  • Balance sheet remains manageable post‑deal (1.3x leverage), with intent to delever while keeping M&A optionality; this supports a medium‑term thesis of margin mix shift and diversified end‑market exposure .
  • Watch Services backlog trajectory (two quarter decline) vs. continued margin gains; sustainable 7%–9% margins can underpin consolidated margin stability even as Glass normalizes .
  • Near-term trading setup: with EPS guided to the low end of the FY25 range and softer Q4 volume indicated, shares may need estimate resets; medium-term upside hinges on UW integration, LSO adjacencies, and ABI stabilization .
  • Capital returns remain supportive: dividend raised to $0.26/quarter in January (12th consecutive annual increase) alongside steady repurchases earlier in FY25 .

Additional References

  • Q3 FY25 8‑K / Press Release: detailed P&L, segments, non‑GAAP reconciliations, balance sheet, cash flow, and FY25 outlook .
  • UW Solutions closing (Nov 4): $242M cash; FY25 ~$30M revenue, FY26 ~$100M at ~20% adj. EBITDA .
  • Prior quarters for trend: Q2 FY25 PR/8‑K and call; Q1 FY25 10‑Q and call .