Apogee Enterprises, Inc. Q2 FY2026 earnings call

• Solid second quarter results with sequential improvements in sales and adjusted EPS. - Leveraged strategic actions to reduce tariff impacts. - Net sales improved ~5% driven by Performance Surfaces inorganic and organic growth, Architectural services had net sales growth and backlog growth. - Glass performed as expected but margins normalized. - Metals had sequential top and bottom line improvement but volume faltered. - Strong cash flow in the quarter. - Updated outlook for net sales and adjusted EPS, lowering expectations for glass volume/price and metals due to aluminum costs and competitive pressures. - UW Solutions on track to meet financial and synergy targets. - Building M&A pipeline for strategic and financial objectives. - AMS driving productivity improvements across manufacturing footprint. - Strong cash flow and balance sheet provide flexibility for M&A.

Metals: Net sales declined slightly, primarily reflecting a less favorable mix, with adjusted EBITDA margin at 14.8% due to a less favorable mix and higher aluminum and tariff costs, partially offset by lower incentive compensation expense. Services: Delivered sixth consecutive quarter of year-over-year net sales growth (2.5% due to higher volume), adjusted EBITDA margin 5% (mostly driven by project mix, partially offset by lower short-term incentive compensation costs), and backlog sequentially grew 16% to $792 million. Glass: Net sales declined, adjusted EBITDA margin moderated from elevated levels, due to reduced volume and price from lower end market demand, partially offset by lower short-term incentive compensation expense. Performance Surfaces: Net sales increased driven by inorganic sales from UW Solutions acquisition and organic growth of 18.6% primarily from improved retail channel distribution, adjusted EBITDA margin increased primarily driven by favorable price and volume.

• Expect net sales in range of $1.39 billion to $1.42 billion and adjusted diluted EPS in range of $3.60 to $3.90. - Lowering expectations for glass volume and price due to competitive environment. - Higher aluminum costs putting pressure on metals pricing and volume, expecting margins to drop in Q3 from Q2. - Second half of year expected to drive year-over-year net sales and adjusted diluted EPS growth primarily from Performance Surfaces. - Net sales generally evenly distributed between Q3 and Q4, Q3 adjusted diluted EPS similar to Q2, then sequential improvement in Q4. - Higher than expected health insurance costs in Q2 forecasted to continue in second half as new headwind.

• Competitive pressure in glass affecting volume and price. - Higher aluminum costs impacting metals pricing, volume, and margins, especially on longer lead time products. - Higher health insurance costs continuing in second half of the year as a headwind.

Q: Focused on performance services, could you expand on the organic growth related to internal initiatives around distribution?

A: Excluding UW Solutions, core business saw strong growth as they regained retail distribution shelf space, added additional products, and leveraged cross-selling between UW Solutions and legacy business. Flooring side of UW outperforms based on demand from automation in distribution centers and pull into Europe for a large global e-commerce retailer.

Q: On the Glass segment's lowered expectations in second half, do you still expect to post margins in targeted EBITDA margin range?

A: Expect mid-teens EBITDA margin for the year and next couple of quarters, due to premium strategy and careful pursuit of volume opportunities to preserve margin. Bid activity in glass is up year over year but price pressures from competition are causing downward pressure, but team is repositioning premium portfolio to preserve margin floor.

Q: On the Metal segment, how much of lowered guide is based on cost pressure vs decision to maximize EBITDA?

A: Higher aluminum costs are the main pressure, with second round of price increases for aluminum tariffs leading to order volume hits. Navigating to balance holding/share, regain share, and maximize EBITDA dollars, but higher aluminum costs in Q3 lead to margin erosion in Q3.

Q: On Performance Surfaces, mix of flooring within UW?

A: Flooring is trending to be comfortably over half of the UW portfolio, with healthy double-digit growth rates and expected to continue that trend in next several quarters.

Q: On customer shift towards smaller or nontraditional engineering-only projects, any delta?

A: Glass and services have seen average project size come down in last 18 months as they work to maximize volume, with smaller, less complex projects opening up to regional players and putting price pressure.

Q: Downside for FY 2026 EPS if continued end market softness, no additional tariff relief? Levers to defend?

A: Continued upward cost pressure on aluminum is a risk, with current outlook factoring aluminum costs staying where they are. Project Fortify phase two is looking at cost actions to control costs and offset pressure.

Q: Sensitivity of Performance Surfaces segment to potential slowdown or inventory correction?

A: Dramatic slowdown on retail side is more likely in Q4/Q1 as folks reset inventories after holiday season. Business targets upper middle class/upper-income households which are less susceptible, and consumer spending in that market was holding up at ~4%.