Apogee Enterprises Inc (NASDAQ:APOG) Q4 2019 Earnings Conference Call Transcript

Apr 11, 2019 • 09:00 am ET


Apogee Enterprises Inc (NASDAQ:APOG) Q4 2019 Earnings Conference Call Transcript


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Joseph F. Puishys

increase of over 20% in very tight labor markets. And we made strong progress to restore productivity, which is reflected in the fourth quarter operating margin which is 500 basis point improvement over the first half of the year. Fourth quarter operating margins would have been even stronger except for some severe winter storms, which interrupted production during the fourth quarter primarily in the month of February. We expect to realize further benefits from our productivity initiatives and we anticipate continued margin expansion in fiscal year '20. So, even though we had some challenges, we had a lot of positives during the year.

Let me turn to EFCO-related charges. When I joined Apogee, one of the strategic priorities I laid out was to diversify our revenue base and make Apogee less dependent on more cyclical, large project segment of the construction market, where we were very heavily dependent.

To that end, over this time, we have expanded Architectural Framing Systems into our largest segment through both organic growth and acquisitions. Given its strong market position and recent acquisitions, it is also our largest opportunity for long-term revenue growth and margin expansion.

The EFCO acquisition has advanced our diversification strategy in Framing Systems. It provides increased scale, adding to our product offerings, and expanding the markets we serve. I remain very confident that EFCO is an important part of our future at Apogee in our future improvements.

However, as we previously discussed, we also inherited a few legacy projects with the EFCO acquisition that have presented substantial issues. We started the installation on the last and significantly largest of these projects late in calendar year 2018 and made substantial progress towards completion in the fourth quarter.

The charges we announced this morning are expected to cover the remaining costs related to these legacy projects and we expect to be substantially complete on these projects by the third quarter of this year. We are aggressively working to minimize these costs and we are actively pursuing all options available to us to recover these added costs through insurance and other legal actions.

These charges announced today and do not include any future recoveries and they are not in our guidance that we are providing for F '20 as well, meaning, any potential recoveries. As we move into fiscal '20, we are focused on putting these issues behind us in positioning EFCO and Framing Systems segment overall for long-term success.

We see tremendous opportunity for EFCO to grow revenue and significantly improve profitability. We've been laying the foundation for these improvements since the acquisition. I put a new leader in place last summer, my top operations executive from Apogee. We put a more disciplined pricing in project approval process in place. The sales force is reengaged under new leadership, and they established good order momentum in the fourth quarter, which has continued very nicely into the first few weeks of fiscal '20.

We have investments underway to improve the facility layout and process flow