Executive Summary / Key Takeaways

• Apogee Enterprises is strategically transforming its business, shifting from a decentralized model to one focused on operational excellence, differentiated offerings, and profitable growth, building upon a strong foundation established over the past three years.
• The recent acquisition of UW Solutions is a pivotal move, significantly diversifying the portfolio into attractive, higher-growth markets like industrial flooring (with strong R&R exposure) and high-performance coated materials, leveraging core technical strengths.
• Despite facing near-term market headwinds in non-residential construction and the impact of tariffs, the company is implementing aggressive operational improvements and mitigation plans, including Project Fortify Phase 2, expected to drive significant cost savings and reduce tariff impact in the second half of fiscal 2026.
• Management has raised its fiscal year 2026 outlook for revenue and adjusted EPS, anticipating building momentum in the second half driven by recovery in Architectural Metals, a strengthening pipeline in Architectural Glass, and strong organic and inorganic growth in Performance Surfaces.
• The company maintains a strong balance sheet and liquidity position, providing ample capacity for continued strategic capital deployment, including further accretive M&A opportunities, while also returning value to shareholders.

Forging a New Foundation in Architectural and Performance Materials

Apogee Enterprises, Inc., established in 1949, operates primarily within the non-residential construction sector, providing architectural products and services for building envelopes, alongside high-performance coated materials for diverse applications. The company's business is segmented into Architectural Metals, Architectural Services, Architectural Glass, and Performance Surfaces. Over the past three years, Apogee has embarked on a strategic transformation aimed at enhancing operational efficiency, optimizing its cost structure, and focusing on higher-margin, differentiated offerings. This initiative, guided by a three-pillar strategy, has laid a stronger operating foundation, leading to notable improvements in profitability and return on invested capital despite fluctuating market conditions.

The non-residential construction market, a core end market for Apogee, currently faces headwinds. Leading indicators, such as the Architectural Billing Index, have signaled a contracting market, and forecasts point to slowing conditions and potential slight declines in overall market growth in calendar year 2025. Interest rate-sensitive sectors like office and commercial buildings are projected to see continued weakness, while institutional verticals such as education, healthcare, and transportation offer pockets of growth, often supported by government funding. Apogee has strategically shifted its mix towards these more resilient institutional projects.

The Edge of Innovation: Coating Performance and Precision

Central to Apogee's competitive positioning is its expertise in developing and applying high-performance coatings and its precision fabrication capabilities. In Architectural Glass, the company's advanced coatings and treatment processes enable the production of high-performance glass used in custom window and wall systems. This technology offers tangible benefits, such as enhanced energy efficiency, which is increasingly critical in modern building design and performance standards. While specific quantitative metrics comparing Apogee's glass efficiency directly against all competitors are not publicly detailed, the company's focus on premium, high-value-add products in this segment suggests a differentiation based on performance characteristics that command higher value.

The recent acquisition of UW Solutions has significantly bolstered Apogee's technological capabilities, particularly within the newly expanded Performance Surfaces segment. UW Solutions brings complementary expertise in applying high-performance coatings to a variety of substrates, including engineered wood, metals, and plastics, utilizing techniques like Roll Coating, Curtain Coating, and Spray Coating. This complements the legacy LSO segment's capabilities in deposition and roll coating for glass and acrylic. The acquired RDC Coatings business provides meaningful R&D capacity and deep coatings expertise, focusing on proprietary blends and processes to maximize coating performance, quality, and manufacturing yield. This technological synergy is expected to drive new product development and enable expansion into new applications and markets. The "so what" for investors is that this combined technological strength enhances Apogee's competitive moat by expanding its differentiated product portfolio, potentially leading to higher average selling prices, improved margins, and access to new, attractive growth markets beyond traditional architectural glass and framing.

Navigating the Competitive Terrain

Apogee operates within a competitive landscape that includes larger, more diversified players like CRH plc (CRH) and Masco Corporation (MAS), as well as more specialized competitors such as Quanex Building Products Corporation (NX). While precise market share figures vary by segment and niche, Apogee holds an estimated 5-10% aggregate share in North American architectural glass and framing.

Compared to global giants like CRH, Apogee operates at a smaller scale, which can translate to higher operating costs per unit due to less extensive economies of scale. CRH also benefits from a broader geographic presence and a highly diversified portfolio. Similarly, Masco, with its strong brand presence and efficient supply chains, particularly in residential markets, often exhibits higher gross and net margins than Apogee. However, Apogee differentiates itself through its focus on customized solutions and end-to-end services, particularly within its Architectural Services segment, which is the largest glazer in North America. This specialization allows Apogee to compete effectively in complex institutional projects where its technical expertise and project management capabilities provide a competitive edge.

Against more specialized competitors like Quanex Building Products, which focuses on cost-efficient manufacturing of components, Apogee's strength lies in its integrated offerings and higher-performance products. While NX may offer lower manufacturing costs per unit for commoditized components, Apogee's investment in advanced coatings and fabrication allows it to offer products with potentially greater durability and energy efficiency, appealing to customers prioritizing performance and lifecycle value. The acquisition of UW Solutions further diversifies Apogee, adding exposure to markets like industrial flooring where the ResinDEK brand is recognized as a leader, leveraging partnerships with robotics companies and benefiting from significant R&R exposure, a dynamic different from the new construction focus of many competitors. Indirect competition from smart glass technologies and advanced material providers also exists, potentially offering alternative solutions with different cost and performance profiles. Apogee's strategic response involves leveraging its technological base and recent acquisitions to expand into adjacent markets and offer new differentiated solutions.

Operational Discipline and Strategic Catalysts

Apogee's strategic transformation has been underpinned by significant operational initiatives. The implementation of the Apogee Management System (AMS), based on Lean and Continuous Improvement principles, has been a key driver of productivity improvements across the business. Project Fortify, a multi-phase restructuring effort, has aimed to streamline operations and enhance cost efficiency. Phase 1, completed in fiscal 2025, involved consolidating production and eliminating lower-margin offerings, primarily impacting the Architectural Metals segment.

Project Fortify Phase 2, announced in April 2025, continues this focus, targeting further optimization in Architectural Metals and Architectural Services. This includes the strategic decision to close the Toronto manufacturing site in the Services segment and align resources to support U.S. growth, as well as further footprint optimization and organizational changes in Metals. These actions are expected to result in $24 million to $26 million in pre-tax charges but deliver annualized pre-tax cost savings of $13 million to $15 million, with substantial completion expected by the end of fiscal 2026. While the Metals segment faced operational challenges in Q4 FY25 related to standardizing product lines, management reports solid sequential improvement into Q1 FY26 and expects continued recovery.

The UW Solutions acquisition, which closed in Q3 FY25, represents a significant strategic catalyst. Integrated into the Performance Surfaces segment, this acquisition brings differentiated product lines, including Industrial Flooring (ResinDEK), HD Printable Materials (ChromaLuxe, Unisub), and Engineered Coatings. The Industrial Flooring business, in particular, offers exposure to the attractive R&R market within manufacturing and distribution centers, benefiting from secular trends like e-commerce and automation. UW Solutions is expected to contribute approximately $100 million in revenue in fiscal 2026 at an adjusted EBITDA margin of around 20%, and is anticipated to be accretive to adjusted EPS. Integration efforts are largely complete, and the business is performing in line with expectations, with synergy targets on track.

Financial Performance and Outlook

Apogee's strategic execution has translated into improved financial performance. For the full fiscal year 2025, the company achieved improved adjusted operating margin and record adjusted EPS, demonstrating its ability to deliver profit growth even amidst market headwinds.

In the first quarter of fiscal 2026, Apogee reported net sales of $346.6 million, a 4.6% increase compared to $331.5 million in the prior year period. This growth was primarily driven by a $22.0 million inorganic sales contribution from the UW Solutions acquisition, partially offset by lower volume in Architectural Glass and a less favorable mix in Architectural Metals. Gross profit decreased to $75.1 million from $98.9 million, with the gross margin declining to 21.7% from 29.8%. This was attributed to restructuring charges ($6.9 million), a less favorable mix and higher aluminum costs in Metals, and higher tariff expense in Services. Selling, general, and administrative (SGA) expenses increased to $68.2 million from $57.5 million, or 19.7% of net sales compared to 17.3%, primarily due to restructuring charges ($8.4 million) and increased amortization from the UW Solutions acquisition, partially offset by lower long-term incentive expense. Operating income declined significantly to $6.9 million from $41.4 million, with the operating margin falling to 2.0%. Adjusted EBITDA decreased to $34.4 million from $52.6 million, with the adjusted EBITDA margin moderating to 9.9% from 15.9%. The decline in adjusted EBITDA margin was driven by factors similar to the gross margin impact. Interest expense increased to $3.8 million, primarily due to increased debt from the UW Solutions acquisition. The company reported a net loss of $2.7 million, or $0.13 per diluted share, compared to net earnings of $31.0 million, or $1.41 per diluted share, in Q1 FY25. Adjusted diluted EPS for Q1 FY26 was $0.56 compared to $1.44 in Q1 FY25.

Despite the Q1 FY26 decline in profitability metrics, management highlighted that results exceeded their expectations and demonstrated building momentum. Architectural Services continued its strong top-line growth, while Architectural Metals showed solid sequential improvement from Q4 FY25. Architectural Glass saw reduced volume but its revenue pipeline is picking up. Performance Surfaces delivered strong inorganic growth and is expected to see renewed organic growth.

The company's balance sheet remains robust. As of May 31, 2025, total assets were $1.16 billion, with total liabilities of $678.8 million and total shareholders' equity of $481.8 million. Cash and cash equivalents stood at $32.8 million. Long-term debt was $311.0 million. The consolidated leverage ratio was 1.6x at quarter-end. The company's new $700 million credit facility, established in July 2024, provides significant liquidity, with $351.4 million available for revolving borrowings as of May 31, 2025. Net cash used in operating activities was $19.8 million in Q1 FY26, compared to cash provided of $5.5 million in Q1 FY25, primarily due to lower net earnings and increased working capital usage, including a $13.7 million net payment for an arbitration award settlement. The company expects negative operating cash flow in Q1 FY26 due to these factors but anticipates paying down debt in subsequent quarters.

Looking ahead, management raised its fiscal year 2026 outlook. Net sales are now expected in the range of $1.40 billion to $1.44 billion, and adjusted diluted EPS is projected between $3.80 and $4.20. This outlook includes an estimated unfavorable EPS impact from tariffs of $0.35 to $0.45, primarily weighted towards the first half of the year. Management expects sequential improvement in Q2 FY26 results compared to Q1, with year-over-year net sales and adjusted EPS growth anticipated in the second half of the year. This H2 momentum is expected to be driven by continued improvement in Metals, revenue growth picking up in Glass (starting Q3/Q4), and strong organic and inorganic growth in Performance Surfaces (from industrial flooring and legacy distribution gains). The outlook assumes an adjusted effective tax rate of approximately 27.5% and capital expenditures between $35 million and $40 million.

Risks and Challenges

Despite the positive strategic momentum and raised outlook, Apogee faces several risks and challenges. The ongoing softness and uncertainty in the non-residential construction market, particularly in interest rate-sensitive sectors, could continue to pressure volume and pricing in the Architectural Metals and Architectural Glass segments. While management views the downturn as likely short and shallow, a more prolonged or deeper slowdown would negatively impact financial results.

Increased tariffs on aluminum products from Canada entering the U.S. and retaliatory tariffs on U.S. products entering Canada pose a significant headwind, particularly for the Architectural Metals and Architectural Services segments. Although the company is implementing mitigation plans, including structural changes like consolidating manufacturing footprints, these tariffs are expected to have a material unfavorable impact on adjusted EPS in fiscal 2026, primarily in the first half, before mitigation efforts fully take effect. Higher costs for key inputs like aluminum, paint, chemicals, and lumber could also pressure margins if not fully offset by pricing actions or productivity gains.

Operational execution risks remain, as highlighted by the challenges faced in the Metals segment in Q4 FY25. Successfully implementing Project Fortify Phase 2 and driving the expected cost savings and productivity improvements are critical to offsetting market and tariff pressures. The integration of the UW Solutions acquisition, while progressing well, still involves some ongoing work and the realization of expected synergies and growth depends on successful execution. Furthermore, dependency on key customers and potential policy changes from the incoming U.S. administration could introduce additional uncertainty and impact demand.

Conclusion

Apogee Enterprises is navigating a complex market environment by leveraging a strengthened operational foundation and executing a clear strategy focused on profitable growth through differentiation and diversification. The company's historical journey has culminated in a strategic pivot, highlighted by the transformative acquisition of UW Solutions, which adds significant capabilities and exposure to attractive, higher-growth markets like industrial flooring. While near-term headwinds from construction softness and tariffs are impacting results, particularly in the first half of fiscal 2026, management is proactively implementing operational improvements and mitigation strategies expected to drive a stronger performance in the second half. The raised fiscal 2026 outlook reflects building momentum across key segments and confidence in the effectiveness of strategic actions. With a solid balance sheet and a focus on accretive capital deployment, Apogee appears well-positioned to continue its evolution, leveraging its technological expertise and diversified portfolio to pursue long-term value creation for shareholders, even as it manages through current market uncertainties.