Apogee Second Quarter Earnings from Continuing Operations Increase; Fiscal 2009 Earnings Guidance Reduced

Apogee Enterprises, Inc. (Nasdaq:APOG) today announced fiscal 2009 second quarter earnings. Apogee provides distinctive value-added glass solutions for the architectural and picture framing industries.

SECOND QUARTER HIGHLIGHTS

• Revenues of $245.0 million were up 13 percent from the prior-year period.
• Operating income was $18.8 million, up 9 percent from the prior-year period.
• Earnings from continuing operations were $0.43 per share versus $0.40 per share a year earlier.
• Architectural segment revenues grew 15 percent, and operating income increased 6 percent versus the prior-year period.
• Large-scale optical segment revenues declined 17 percent, and with higher operating margins, operating income declined just 4 percent compared to the prior-year period.
• Net earnings were $0.43 per share versus $0.39 per share in the prior-year period.
• Fiscal 2009 guidance: expected earnings from continuing operations are now $1.65 to $1.82 per share, down primarily due to project delays and two project cancellations.

Commentary

"Architectural segment revenue growth continued in the second quarter, and operating performance was strong in all segment businesses except architectural glass, where internal operational challenges impacted us throughout the quarter,” said Russell Huffer, Apogee chairman and chief executive officer.

"Our large-scale optical segment turned in a strong operating margin performance, while revenues were negatively impacted primarily by the elimination of less-profitable product lines and somewhat by soft picture framing market conditions,” he said. "In addition, the company continued to generate significant positive cash flow in the quarter.

"We are bringing down our fiscal 2009 full-year guidance due to softer and uncertain architectural market conditions that are resulting in project delays and cancellations in our architectural glass business, along with operational issues this business experienced in the second quarter,” said Huffer.

SEGMENT AND OPERATING HIGHLIGHTS

OUTLOOK

"In recent weeks, we’ve seen rapid changes in commercial construction markets, and are expecting our full-year earnings to be impacted by reduced volume due to project delays and a small number of cancellations, as well as the internal operational challenges in our architectural glass fabrication business that affected us in the second quarter,” said Huffer. "We do expect that improving operations in our window and installation businesses, and ongoing strong operating performance in our picture framing business will continue in the second half.

"Our outlook now is for earnings from continuing operations of $1.65 to $1.82 per share, compared to prior guidance of $1.82 to $1.94 per share,” he said. "We are encouraged that we will continue to grow our earnings and revenues, despite the uncertain market conditions affecting the timing of architectural projects, and operational challenges in our largest business.

"The non-residential market changes have caused some work to move out of the current fiscal year, and it appears we will not be able to fill in all open capacity that has been created due to the long selling cycle for much of our architectural glass and window work,” said Huffer. "At the same time, while bidding activity remains strong, future work is not filling in our backlog as quickly as we had anticipated because the time between project bids and awards seems to be growing. In addition, there are more U.S. competitors on mid-size to smaller projects, creating some pricing pressures.

"With the increasing uncertainty in commercial construction markets, we will be waiting until our third quarter release in mid December to update our fiscal 2010 outlook,” he said.

"For fiscal 2009, we have decreased our architectural segment revenue growth guidance to 11 to 14 percent, from 14 to 17 percent,” he said. "At the same time, we expect our architectural segment operating margin will range from 6.4 to 7 percent, down from prior expectations largely due to the architectural glass operating challenges, revenue declines and expected second-half cost increases, primarily for fuel and petroleum-based materials, somewhat offset by anticipated operating improvements in our installation and window businesses.

"Our picture framing business continues to convert customers to our best framing glass and acrylic products, allowing us to raise operating margin guidance for the year to approximately 22 percent, from previous guidance of 18 to 19 percent. We expect second half revenues and operating margin to be stronger than the first half, as we leverage the new capacity which has come on line at the beginning of the third quarter,” Huffer said.

"We believe that our markets offer significant longer-term opportunities, due to the increasing importance of green building, a sector demanding energy-efficient products that we supply, and the overall growth in the use of value-added products in commercial construction projects,” said Huffer. "Our goal is for Apogee, as a market leader with great products and services, to continue to outperform non-residential markets through the ups and downs of construction cycles.”

The following statements are based on current expectations for fiscal 2009. These statements are forward-looking, and actual results may differ materially.

The discussion above, including all statements in the Outlook section, contains "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect Apogee management’s expectations or beliefs as of the date of this release. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified by factors that may affect the operating results of the company, including the following: operational risks within (A) the architectural segment: i) competitive, price-sensitive and changing market conditions, including unforeseen project delays and cancellations; ii) economic conditions, material cost increases and the cyclical nature of the North American commercial construction industry; iii) product performance, reliability, execution or quality problems that could delay payments, increase costs, impact orders or lead to litigation; and iv) the segment’s ability to fully and efficiently utilize production capacity; and (B) the large-scale optical segment: i) markets that are impacted by consumer confidence and trends; ii) dependence on a relatively small number of customers; iii) changing market conditions, including unfavorable shift in product mix; and iv) ability to utilize manufacturing facilities. Additional factors include: i) revenue and operating results that are volatile; ii) self-insurance risk related to a material product liability event and to health insurance programs; iii) performance of the PPG Auto Glass, LLC joint venture; iv) management of discontinued operations exiting activities; v) cost of compliance with governmental regulations relating to hazardous substances; and vi) foreign currency risk related to certain discontinued operations. The company cautions investors that actual future results could differ materially from those described in the forward-looking statements, and that other factors may in the future prove to be important in affecting the company’s results of operations. New factors emerge from time to time and 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. For a more detailed explanation of the foregoing and other risks and uncertainties, see Item 1A of the company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2008.

TELECONFERENCE AND SIMULTANEOUS WEBCAST

Apogee will host a teleconference and webcast at 10 a.m. Central Time tomorrow, September 18. To participate in the teleconference, call 1-800-901-5213 toll free or 617-786-2962 international, access code 95185448. The replay will be available from noon Central Time on Thursday, September 18 through midnight Central Time on Thursday, September 25 by calling 1-888-286-8010 toll free, access code 56538405. To listen to the live conference call over the internet, go to the Apogee web site at http://www.apog.com and click on "investor relations” and then the webcast link at the top of that page. The webcast also will be archived on the company’s web site.

Apogee Enterprises, Inc., headquartered in Minneapolis, is a leader in technologies involving the design and development of value-added glass products and services. The company is organized in two segments:

• Architectural products and services companies design, engineer, fabricate, install, maintain and renovate the walls of glass and windows comprising the outside skin of commercial and institutional buildings. Businesses in this segment are: Viracon, the leading fabricator of coated, high-performance architectural glass for global markets; Harmon, Inc., one of the largest U.S. full-service building glass installation, maintenance and renovation companies; Wausau Window and Wall Systems, a manufacturer of custom aluminum window systems and curtainwall; Linetec, a paint and anodizing finisher of window frames and PVC shutters; and Tubelite, a fabricator of aluminum storefront, entrance and curtainwall products.
• Large-scale optical segment consists of Tru Vue, a value-added glass and acrylic manufacturer for the custom picture framing market and commercial optics.