Q4 2025 Apogee Enterprises Inc Earnings Call
Thank you for watching!
Speaker Change: Good day, and welcome to the Q4 2025 Apogee Enterprises Earnings Conference Call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session [inaudible]
Speaker Change: To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today. Jeff Huebschen, please go ahead.
Jeff Huebschen: Thank you, Tonya. Good morning, everyone, and welcome to Apogee Enterprises, fiscal 2025, fourth quarter earnings call. With me today are Ty Silberhorn, Apogee's Chief Executive Officer, and Matt Osberg Chief Financial Officer.
Jeff Huebschen: I'd like to remind everyone that there are slides to accompany today's remarks. These are remarks available in the Investor Relations section of Apogee's website.
Jeff Huebschen: During this call, we will reference certain non-GAAP financial measures, definitions of these measures, and a reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck we published this morning.
Jeff Huebschen: I'd also like to remind everyone that our call will contain forward-looking statements.
These reflect management's expectations based on currently available information.
Jeff Huebschen: Actual results made different materially. More information about factors that could affect Apogee's business and financial results can be found in today's press release and in our SEC firements. Finally, I'd like to mention some changes we made to our segment names.
Jeff Huebschen: Our previously named Architectural Framing System Segment is now called Architectural Medals.
and our previous LSO segment is now called Performance Surfaces.
Jeff Huebschen: We believe these changes better reflect the product's focus and capabilities within those segments.
Jeff Huebschen: And with that, I'll turn the call over to you, Ty. Thank you, Jeff. Good morning, and thanks for joining us today.
Speaker Change: I'll cover three areas. First, we'll look back at some of the major accomplishments from our strategic transformation over the past four years.
Speaker Change: Second, I'll share some perspectives on key focus areas for fiscal 26.
Speaker Change: Third, I'll comment on how we are navigating through this period of uncertainty.
Speaker Change: focusing on what we can control while continuing to invest for growth.
Speaker Change: Then Matt will offer more details on the quarter and our outlook for our Fiscal 26.
Speaker Change: Before I dive in, let me comment on the fourth quarter and fiscal 25.
Speaker Change: We completed another successful year as our team continued to execute our strategy.
Speaker Change: We demonstrated sustainable operating improvements which helped us deliver increased adjusted operating margins and record adjusted EPS.
Speaker Change: Our focus on operational execution, productivity, and cost management continue to be key enablers of our improved results, despite challenges and architectural metals during the fourth quarter.
Speaker Change: We also continue to increase our mix of differentiated higher margin offerings.
Speaker Change: This was highlighted by the acquisition of UW Solutions and the evolution of our performance surfaces segment, which is expected to provide a strong growth platform.
We also delivered another year of solid cashflow.
and we sustained adjusted ROIC above our 12% target.
Speaker Change: Notably, we achieved all of this despite market headwinds that contributed to lower revenue and volume in both architectural glass and architectural metals.
Now Looking Back
Speaker Change: Our results in fiscal 25 capped the execution of the strategy that we laid out in November of 2021.
Speaker Change: Our three-pillar strategy has led to sustainable operating improvements across our business.
as outlined on page 7 of our presentation.
Speaker Change: We've significantly improved our cost structure through facility consolidation and organizational alignment, better integration of our supply chain operations.
and leveraging our back office functions across our enterprise.
Speaker Change: We've also achieved significant productivity improvements through the Apogee Management System.
We refocused our business on more differentiated higher margin offerings.
Speaker Change: And we improved our pricing models to better share in the value we provide to our customers.
Profit Dollars
Speaker Change: We exited less profitable business lines such as the velocity glass business and the curtain wall supply model in the metal segment.
We made investments.
in Organic Capacity for Performance Services
Speaker Change: Then coupled that with an additional growth catalyst through the UW Solutions acquisition.
Speaker Change: And we made organic growth investments in people and production capacity in the service of the segment to support their Westward Geographic expansion.
Speaker Change: All of this has been underpinned by a focus on talent management and people development which has significantly strengthened our team.
Speaker Change: Through this work, we've built a much stronger operating foundation that will support continued performance, especially in uncertain or challenging periods.
Speaker Change: Adjusted operating margin over 10% and out-growing the non-residential construction market.
We exceeded both the ROIC and Margin targets.
Speaker Change: Adjusted ROIC has been above 12% for three consecutive years, nearly doubling from fiscal
Speaker Change: and we steadily improved margins, reaching 11% this year, which is a 470 basis point improvement from fiscal 22.
But we have fallen short of our growth target [inaudible]
Speaker Change: Some of this was a function of our purposeful strategy to move away from lower margin offerings.
Speaker Change: and some was driven by the dynamics of our end markets as manufacturing plants, data centers, and warehouse builds have been the primary driver of non-residential construction growth the past few years.
These are segments where we have historically had less presence.
Speaker Change: but are opening up those markets through the Resendek Industrial Flooring Product Line.
Speaker Change: As we move forward, we will strive to sustain the ROIC and margin gains we've achieved while shifting more focus to growth. [inaudible]
Speaker Change: Despite those revenue headwinds, the execution of our strategy has driven significant growth in profit dollars and earnings for share, as shown on page 9.
Speaker Change: Since fiscal year 2022, we've achieved a 22% cager on adjusted operating income, and we've doubled adjusted EPS.
Speaker Change: We've also improved our cashflow, building upon Apogee's long history of consistent, strong cashflow generation.
Speaker Change: We've used this to pursue a balanced approach to capital deployment shown on page 11.
Speaker Change: We've steadily increased our dividend, we've returned capital to shareholders through buybacks and we've made organic and inorganic investments to enable profitable growth.
Speaker Change: With our strong balance sheet and cash flow, we have more opportunity for value creating
Speaker Change: We've also invested significant time and resources to build stronger M&A capabilities.
This includes a focus strategy dedicated resources.
Speaker Change: Discipline Screening Intelligence and a playbook for how we drive integration.
Speaker Change: Our M&A pipeline remains robust and we continue to proactively identify and evaluate opportunities that support our strategy and our accretive to our long-term financial profile.
Speaker Change: We are very excited about the UW Solutions acquisition and it's a great example of what we can accomplish through M&A.
Speaker Change: We added a differentiated business that is well-positioned in attractive markets.
Speaker Change: including a flooring product line that gives us exposure to R&R in manufacturing and distribution centers.
Speaker Change: We gain complimentary products, providing new opportunities for growth and diversification.
We expanded our manufacturing and process technology capabilities.
Speaker Change: and the business has a strong financial profile that will be accrued to our growth rate and our EBITDA margins.
Speaker Change: Since closing the acquisition last November , we've made significant progress on our integration and we're on track to deliver the deal model financial targets.
Speaker Change: Prior to the newly announced tariffs and the macro uncertainty that has brought, we felt confident that the combined performance surfaces business would deliver double-digit, organic growth in fiscal 26.
Speaker Change: Now we still see this business delivering high single digit organic growth, but we have attempted to factor in potential softness from the consumer portion of this business into our guidance.
Speaker Change: Let me talk about what we are seeing in the market and how we are positioning for the coming year.
Speaker Change: As we discussed last quarter, we expect continued headwinds in non-residential construction during calendar year 25
Speaker Change: Leading indicators, such as long-term interest rates and the architectural buildings index, as well as industry forecasts, points to slowing conditions and a cautious outlook for market growth.
Speaker Change: The picture remains mixed across different segments of the non-residential market.
Speaker Change: Interest rate sensitive sectors like office, commercial lodging, and multi-family are projected to decline again this year.
Speaker Change: But there are also pockets of growth in verticals like education, health care and transportation.
Speaker Change: Given this market outlook, we expect the most pressure on our architectural businesses, especially in glass and metals.
Speaker Change: Reese's Development with Terrace adds to the uncertainty in our market outlook.
Speaker Change: Our team has been preparing for tariffs since January , and we've already taken actions to mitigate the impact.
Speaker Change: We've managed through similar situations over the past of our years, including tariffs during the first Trump administration.
Supply Chain Disruptions During The Pandemic
and the recent period of rapid inflation.
Speaker Change: I'm confident that our team will successfully manage through the current situation as well.
Speaker Change: However, Tarris will have an impact on several aspects of our operations.
Speaker Change: Now we think about tariff exposure in two buckets, direct tariffs where we are directly paying tariffs to deliver products to customers and indirect tariffs, which includes things like raw material cost inflation, potential impacts from supply chain disruption.
and other indirect impacts.
Speaker Change: Our operations and supply chain are largely centered in the U.S., and we do have relatively limited exposure to global trade.
Speaker Change: However, we are more directly exposed to the current Section 232 tariffs on aluminum products
Speaker Change: Entering the U.S. from our manufacturing operation in Canada and the retaliatory tariffs on similar products entering Canada from the U.S.
Speaker Change: Indirectly, our biggest impact is the cost of aluminum, which is our largest input cost and mostly sourced from Canada in the form of billet.
Speaker Change: We also expect other input costs such as paint, chemicals, and lumber to increase as well.
Speaker Change: We've already taken actions to mitigate tariffs, including accelerating our Canadian production in the services segment to ship as much work as possible ahead of the new tariffs taking effect, which added to their sales in Q4.
Speaker Change: Diverting new U.S. project work from our Canada operation into U.S. manufacturing facilities
Further optimizing our services manufacturing footprint.
Evaluating Supply Chain Optionality and Deversification Thank you.
Driving Internal Costs, Control and Productivity Improvement
Speaker Change: and taking price actions where appropriate and necessary after we have done all that we can to mitigate those higher costs.
Speaker Change: tariffs could also impact overall inflation and thus demand for our products, but that is difficult to forecast with any precision today.
Speaker Change: We've included a slide on page 25 in our presentation that provides a summary of the tariff impacts our mitigation efforts and the net estimated impact on our fiscal 26 earnings.
Speaker Change: by revisiting customers and projects that had previously planned to source key materials from international suppliers.
Speaker Change: Against this backdrop of market uncertainty, we're focused on sustaining the progress we've achieved from executing our strategy.
Speaker Change: Over the past several years, our team has demonstrated that we can deliver strong results even in challenging market conditions.
Speaker Change: As we navigate through this period of uncertainty, we recognize the imperative to deliver near-term results.
Speaker Change: We're approaching fiscal 26, balancing that near-term performance, while continuing to invest in long-term growth opportunities.
Speaker Change: We will maintain our focus on productivity, execution and managing costs as these have been central to everything that we've accomplished.
No, I'm not.
Speaker Change: As part of this focus, we are implementing a second phase of Project Fortify to drive further efficiencies and better align our operations and cost structure with the current market conditions.
These actions are concentrated in services and metals.
Speaker Change: and services we will be closing our Toronto manufacturing site and aligning resources to support growth in the US.
Speaker Change: In metals, we will continue to optimize our footprint and make organizational changes to gain more efficiency.
Speaker Change: Now our metal segment had a rough fourth quarter as operational challenges hit as they tried to drive more standardization of their entrance system product lines across multiple sites.
Speaker Change: This hurt their productivity and their service levels, impacting margins and volume [inaudible]
Speaker Change: We made the decision to power through those change efforts to better position the business for fiscal 26.
Speaker Change: The actions in Fortify 2, in addition to investments we are making to further improve production processes.
Speaker Change: will help drive their recovery quarter by quarter and result in a stronger performing business.
Speaker Change: While we take these actions to ensure near term performance, we also remain focused on positioning the company for growth.
Speaker Change: We will continue to drive growth in the acquired UW Solutions portfolio and develop new growth opportunities across performance surfaces.
Speaker Change: We will also leverage our recent capacity investment in services and services to drive organic growth.
Speaker Change: Finally, as I mentioned earlier, we will continue to actively pursue our M&A pipeline looking for opportunities to add offerings and capabilities that further diversify our business.
Raising our margin profile and our growth potential [inaudible]
With that, I will turn it over to Matt.
Thanks, Ty, and good morning, everyone.
Speaker Change: First I'll begin with the review of the results for the fourth quarter in the full year. Then I'll discuss our outlook for fiscal 26.
Speaker Change: We've included a table in our earnings release on page 32 of our slide deck that quantifies these changes as well as our organic business for both the quarter and full year.
Speaker Change: Now let's start with the consolidated results for the fourth quarter.
to $346 million.
Speaker Change: The extra week in the fourth quarter of last year negatively impacted the net sales comparison by 7.9%.
Speaker Change: Net Sales were also unflavorably impacted by lower volume, primarily in metals and glass.
Speaker Change: These items were partially offset by $23 million of inorganic sales from UW Solutions, which added 6.4% of growth.
Speaker Change: Fourth quarter, operating income included a $9.4 million charge related to the March 2025 confirmation of an arbitration award which represents the impact of the award amount, net of existing reserves, and estimated insurance proceeds.
Speaker Change: Fourth-quarter operating income also included a $7.6 million impairment charge on a trade name in the metal segment as we continue the strategic product realignment within that business.
Speaker Change: Operating income also included $4.4 million of acquisition-related costs and $1.1 million of restructuring charges as we closed out the first phase of Project Fortify.
Speaker Change: Excluding these items, adjusted operating margin declined 120 basis points to 8.3%.
Speaker Change: Primarily driven by unfavorable sales leverage from lower volume and a less favorable product mix.
Speaker Change: These drivers were partially offset by a more favorable mix of projects and services and lower incentive, quality and insurance related costs.
Speaker Change: Adjusted deluded EPS to climb 22% coming in at 89 cents per share, primarily driven by lower adjusted operating income and higher interest expense.
Speaker Change: Looking at the segments, as Ty mentioned, this quarter's results in metals were below our expectations
Speaker Change: As part of Project Fortify, the metal segment has been through significant organizational and operational change.
Speaker Change: In the fourth quarter, these changes were compounded by the launch of a more standardized product line across multiple facilities which caused operational disruption and led to production delays and increased freight and labor costs.
Metals, net sales, decline 19% to $112 million $1.
Speaker Change: 7.8% of the decline was due to the extra week last year. The remainder was primarily driven by lower volume resulting from the operational disruption and a less favorable sales mix.
Speaker Change: Adjusted operating margin and metals declined to 2.8 percent, reflecting unfavorable sales leverage from lower volume, less favorable mix, and unfavorable productivity impacts from the standardized product line launch.
Speaker Change: These items were partially offset by lower quality and short-term incentive compensation costs.
Speaker Change: Despite the fourth quarter operational disruption, the metal segment achieved full-year adjusted operating margin of 10.3 percent, which is within our target margin range.
Speaker Change: The team has worked quickly to identify root causes, communicate with customers, and implement recovery plans.
Speaker Change: In recent weeks, we have seen market improvement in the key operational metrics and believe that we have a path to drive significant performance recovery over the next few months.
Speaker Change: The services segment continue to deliver strong top line growth with net sales increasing 10.9% despite the unfavorable impact of the additional week in the prior year, making this the fourth consecutive quarter of double-digit sales growth for services.
Speaker Change: Sales in the quarter benefited from increased volume and a more favorable making of projects.
Speaker Change: Some of the volume increase resulted from accelerated cost flow on certain projects which pulled forward approximately $10 million of revenue that we had originally expected to flow in the first quarter of fiscal 26.
Speaker Change: Services adjusted operating margin improved by 140 basis points, coming in at 7.2%, primarily driven by a more favorable mix of projects, partially offset by a higher incentive compensation
Speaker Change: Services backlog extent ended the quarter at $720 million, compared to $742 million last quarter.
and 11% lower than a year ago.
Speaker Change: Overall backlog levels remain healthy, however the declining trend over the past three-quarters reflects some of the softness we've seen in the non-res construction market.
Speaker Change: Moving on to glass, net sales declined in the quarter driven by lower volume and a 7.4% unfavorable impact from the additional week in the prior year.
Speaker Change: Adjusted operating marketing glass declined to 14.6% from 19.7% in last year's fourth quarter, primarily driven by unfavorable leverage from lower volume.
Speaker Change: While Glass Margin for the quarter was lower year over year, it remained near the top end of our 10-15% target range for the segment.
Speaker Change: Sales and Performance Services grew 77% to $47.9 million, primarily due to inorganic sales from UW Solutions.
Speaker Change: Organic business net sales declined a half a percent as we continued to see lower volumes in the retail channel.
Speaker Change: Adjusted operating margin was 19.5% reflecting the dilutive impact from UW solutions and unfavorable sales leverage from lower organic volume, partially offset by improved productivity.
Speaker Change: UW Solutions delivered financial results in line with our expectations, contributing $23 million of revenue and adjusted EBITDA margin of over 22%.
Speaker Change: Corporate and other expenses were $13.8 million, which included $9.4 million of expense related to the Arbitration Award and $1.2 million.
Speaker Change: of Acquisition Related Costs. This was down from $14.5 million in last year's Ford Porter due to the lower restructuring charges and incentive compensation costs and insurance-related expenses.
Speaker Change: Looking at results for the full fiscal year, net sales declined 3.9%.
Speaker Change: This included 2% of unfavorable impact due to the extra week last year and 2.3% of inorganic growth from UW's solutions.
Speaker Change: Organic business net sales declined 4.2%, primarily due to lower volume and metals in black, partially offset by growth in services.
Speaker Change: Full-year adjusted operating margin improved 70 basis points to 11%, primarily driven by improved operating margin and services, lower quality and insurance-related costs, and lower
Speaker Change: These items were partially offset by unfavorable leverage from lower volume and higher lease costs.
Speaker Change: Notably, all segments were within or above their target adjusted operating margin range for the full year.
Speaker Change: Adjusted deluded EPS grew 4.2% to a record $4.97, primarily driven by higher adjusted operating margin.
Speaker Change: EPS also benefited from lower non-operating expenses and a lower fluted share count.
Speaker Change: Turning to cash flow in the balance sheet, we had another year of strong cash flow from operations. We generated $30 million of cash from operations in the fourth quarter, bringing the year-to-date total to $125 million.
Speaker Change: During the year, we invested $36 million in CAPEX, which included investments for capacity expansion and performance services, expanded manufacturing capacity and services,
and other projects to enhance productivity and enable growth.
Thank you.
Speaker Change: In the fourth quarter, we repurchased $30 million of stock. For the full year, we returned $67 million to shareholders through dividends and share buybacks.
Speaker Change: Our balance sheet remains strong with consolidated leverage ratio of 1.3, no-one-year-term debt maturities and significant dry powder for future capital deployment.
Now, let's move to our Outlook for Fiscal 26
Speaker Change: As Ty described, our industry faces uncertainty as we enter the new fiscal year, forecasts now point to a slight decline in non-residential construction, lower consumer confidence, and the impact of higher tariffs.
Speaker Change: The outlook we are providing today incorporates the current macroeconomic and tariff environments but we also acknowledge the recent volatility in the market.
Speaker Change: With that in mind, we are providing a wider the normal ranges for our sales and EPS outlooks.
Speaker Change: We expect full-year net sales between $1.37 billion to $1.43 billion, and adjusted deluded EPS in the range of $3.55 to $4.10.
Speaker Change: This includes our current estimate of 45 to 55 cents of unfavorable adjusted EPS impacts from tarot
Speaker Change: We continue to expect UW Solutions will contribute approximately $100 million of revenue with pro-forma mid-single digit growth.
Insales. Have adjusted EBIT down margin of approximately 20%.
and be accretive to adjusted EPS.
Speaker Change: We also see an opportunity for high single digit organic growth in the legacy performance services business as we expect to increase distribution at one of our key retail customers.
Speaker Change: Even in the face of a potentially softer market, this remains a strong business with the creda margins and great growth prospects.
Speaker Change: We anticipate adjusted operating margin to moderate compared to fiscal 25 with the primary drivers being the impact of tariffs, glass margins moving back into the target range of 10 to 15%, the dilutive impact of the UW Solutions business on performance surfaces margin.
Speaker Change: and increasing insurance-related costs, which were a tailwind in fiscal 25.
Speaker Change: With the acquisition of UW Solutions and continued focus on M&A as a growth driver, we will replace more emphasis on adjusted EBIT-DOM-ARGEN as a measure of operating performance.
Accordingly, on slide 29 of our presentation,
Speaker Change: We have converted our long-term target margin ranges from adjusted operating margin to adjusted EBIT down margin.
Speaker Change: As I said, our outlook includes an estimated unfavorable tariff impact to adjust the DPS.
of 45 cents to 55 cents.
Speaker Change: This will fall mostly in the first half of fiscal 26 with the impact decreasing significantly in the second half of the year as mitigation efforts take full effect.
Speaker Change: We expect that approximately 60% of the tariff impacts will affect the services segment with approximately 30% of the impact in the metal segment and the rest impacting glass and surfaces.
Speaker Change: As Ty mentioned, our team has been planning for tariffs for the past few months and we have already taken steps to both avoid tariffs and to mitigate their impact.
Speaker Change: Although we are expecting a material impact of tariffs in fiscal 26th,
Speaker Change: Assuming no material changes to tariff policy, we believe that the measures we are enacting in the first half of the year will put us in a position to be able to successfully mitigate these tariffs in fiscal 27 and beyond.
Speaker Change: Tera Policy has been changing rapidly and we will continue to monitor and assess the impact on our business.
We are also launching a second phase of Project Fortify.
Speaker Change: We expect that this will result in $24 million to $26 million of pre-tax restructuring charges
of which approximately $8 million will be non-task.
Speaker Change: We expect Phase II to deliver annualized pre-tax cost savings of $13 million to $15 million and the plan to be substantially complete by the end of fiscal 26.
Speaker Change: We estimate that approximately 50% of the annualized savings from Faves 2 will be in services, 40% in metals, and 10% in corporate.
Speaker Change: These savings will be incremental to what we achieved in the initial phase of Project Fortify.
Speaker Change: Our Outlook assumes interest expense of $14.5 million to $15.5 million.
An effective tax rate of approximately 24 and a half percent
And capital expenditure is between $35 million to $40 million [inaudible]
Speaker Change: We expect operating cashflow to decline year-over-year, primarily due to the impact of the arbitration award payment in the first quarter of fiscal 26.
Lower estimated EBITDA and higher interest expense [inaudible]
Speaker Change: Our first quarter is typically a very low quarter for cash for operating cash flow generation.
Speaker Change: With the first quarter impact of the arbitration award payment and the higher concentration of EBITDA decline and increased expense, we expect negative operating cash flow in the first quarter of fiscal 26.
Looking at the Quarterly Cadence of the Year
Speaker Change: Due to the first half impacts of moderating operating margins and metals and glass, increased interest expense and tear-related expenses concentrated in the first half of the year.
Speaker Change: Looking back at the past three years I am proud of the results that we've been able to deliver although we are facing additional uncertainty in fiscal 'twenty six our team is focused on managing what we can control and taking appropriate actions to adapt to a changing environment.
Speaker Change: While continuing to make prudent investments that position the company for future growth.
Speaker Change: We've established a strong record of progress over the past several years.
Speaker Change: And we have successfully managed through challenging business environments before.
Speaker Change: Even as the near term seems unsettled we remain focused on execution and are confident in the long term outlook for our business with that I'll turn it back over to Ty for some concluding remarks. Thanks, Matt.
Speaker Change: To close fiscal 'twenty five was another successful year for apogee with improved adjusted operating margin and record adjusted EPS. These.
Speaker Change: These results continue to demonstrate a track record of driving sustainable operating improvements across the business.
Speaker Change: During the year, we made several strategic investments, both organic and inorganic that do position the company for improved growth in the long term and.
Speaker Change: And importantly, our acquisition of UW solutions is progressing very well and delivering the results that we expected.
Speaker Change: As we move into fiscal 'twenty six our team is focused on managing what we can control and executing our strategy to deliver near term results while positioning the company for the long term.
Speaker Change: Over the past few years, our team has built a strong record of success and I am confident that we will continue to execute our strategy as we move forward pushing through the current macro challenges and coming out even stronger on the other side.
Speaker Change: Despite the current market uncertainty we are working through our next strategic plan that will drive an even stronger focus on growth.
Speaker Change: We're planning to share updated strategy later in our fiscal year.
Speaker Change: With that we're ready to take your questions.
Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And our first question will be coming from Julio Romero of Sidoti <unk> Company LLC. Your line is open.
Julio Romero: Great Hey, good.
Speaker Change: Thanks for taking the questions. Thanks, Brian Yeah, all the Colorado.
Speaker Change: Hey, thanks, so much.
Speaker Change: Thanks for all the color on all the moving pieces here really appreciate it and it sounds like you've moved quickly in January to prepare for tariffs.
Speaker Change: Any way to kind of put a finer point on the tariff impact EPS impact of 45 55.
Speaker Change: Between the direct and indirect tariff buckets.
Speaker Change: Or.
Speaker Change: Maybe asked another way the direct impact of the section 232 tariff specifically related to aluminum and then as a follow on to that just if you could speak to the confidence level in terms of customers may be accepting.
Speaker Change: Mitigation.
Speaker Change: Initiatives are taking related to that.
Speaker Change: Yes.
Speaker Change: Good morning, I'll take the I'll take it initially here in the entire probably jump in so let's talk about tariffs first.
Speaker Change: We talked about it in two major buckets direct and indirect and if you think about the major impact in direct.
Speaker Change: What we are doing right now is in our services segment, where manufacturing certain pieces for certain jobs in the U S and we're importing those into the U S. So what the team has done there has done a great job of trying to accelerate a lot of that production ahead of tariffs going impact shift jobs.
Speaker Change: Maybe would have been produced in Toronto and shipped into the U S and brought those into the U S. So as we mentioned as part of project fortify one of the things. We're doing is closing down the Toronto manufacturing. So structurally in the first half of the year that will happen in the first half of the year as we cycle through that production in <unk>.
Speaker Change: We run those projects out.
Speaker Change: That impact essentially goes away by the end of the second quarter.
Speaker Change: That's our biggest direct impact the biggest indirect impact we have is the cost of aluminum billet going up and what we've been doing is watching that very carefully looking at ways, we can offset cost taking price increases where appropriate.
Speaker Change: And.
Speaker Change: As we cycle in some of those price increases and other mitigation efforts that flows in over the first half of the year as well and then we would start to really mitigate that in the second half of the year. So as we said we think the majority of that 50 impacts the first half of the year and we get down to something Thats.
Speaker Change: We can definitely mitigate as we look at even the third and fourth quarter with productivity initiatives working with some of our suppliers doing some other productivity costs or productivity initiatives internally. So it's a definitely a front half weighted impact as we make some structural changes to offset that second half.
Speaker Change: Here, we see that diminishing.
Speaker Change: Yes, I think thats good.
Speaker Change: Color, Matt I guess, Julio I would just add if you look at the supply chain moves we're making.
Speaker Change: We never want to have to close the facility.
Speaker Change: But when we looked at where we're sitting and maybe some additional color on services services was going through the year and driving meaningful productivity improvements in their plants.
Speaker Change: The softness in the market they picked up a few jobs that they will.
Speaker Change: Revenue through over the next 18 months that actually involved no manufacturing of curtain wall. These are.
Speaker Change: Smaller revenue jobs thing.
Speaker Change: $15 million ish, instead of $30 million ish, but they feel some nice hold in the revenue stream there good margin, but they don't involve us fabricating curtain walls. So those two things together before tariffs. The team was already looking at hey across our three facilities, we have excess capacity, we probably need to look at some some work for.
Speaker Change: <unk>, either furloughs of workforce reduction.
Speaker Change: In one or two of those facilities.
Speaker Change: So that was something the team is already working on a plan for then layer in the tariffs and that biggest impact was for them with curtain wall coming out of Toronto into the northeast.
Speaker Change: And Thats, where it just became clear for us we need to do more than furlough and unfortunately, we need to consolidate production into the two U S facilities, historically about 75% of the revenue coming out of services Toronto facility shipped back into the U S.
Speaker Change: Last year. It was almost all just to give you a guide if the current tariffs had been in effect all of last fiscal year that would have been at 12% to $15 million tariff hit Justice services.
Speaker Change: So we looked at that and said we need to create some certainty we need to take some actions that gives us confidence.
Speaker Change: And the fact that we weren't able to support the work over the next I'd say 18, plus months, maybe even 24 months out of the two U S facilities, we made that tough decision.
Speaker Change: Got it really helpful color there and then secondly on the UW solutions.
Speaker Change: <unk> of the business just speak to.
Speaker Change: How how integration for that is going how demand is going and does that business in particular had any expected tariff impact that's baked into your guidance.
Speaker Change: Yes, I would say first on the tariff Julio it's minimal and they do have some aluminum products that are in there.
Speaker Change: <unk> feels that between productivity and some pricing they'll navigate that we have included some of that in our in our $45 to 55%.
Because it will take a while for them to work pricing through but it's minimal.
That team still feels confident as we as we looked out.
Speaker Change: Feels confident they can see a path to double digit growth, which is there was their original plan before the macro uncertainty settled in as Matt commented, we're looking at it thinking the combined business across performance services is probably mid maybe high single digit growth and that's what we've included in our guidance.
Speaker Change: The flooring portion of that business of which was just under half of UW solutions looks very strong and is tied to projects that had been greenlighted. So we do see double digit growth happening in that part of the business.
Speaker Change: So overall, we feel very good about how the acquisitions performing.
Speaker Change: The heavy lift on the integration I would say is.
Speaker Change: Substantially complete.
Speaker Change: There's some minor things I say minor I'm sure my team will appreciate that but theres, some minor lift in things and cleanup on.
Speaker Change: So my T systems and integration work, that's still happening over the next quarter or two but.
Speaker Change: The bulk of that work is behind us and is performing well and as we said, it's it's doing as expected from <unk>.
Speaker Change: <unk> EBITDA and a cash generation perspective.
Speaker Change: Just to add in from a synergy perspective, we're also on target if not slightly ahead of where we expect it to be at this point in time.
Speaker Change: Great. Thanks, very much for all the color I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Question.
Speaker Change: Next question will come from gene Lee of D. A Davidson your line is open.
Speaker Change: Alright, Thank you for your time.
Gene Lee: Could you talk about the degree of the noise over the last couple of months around tariffs impacting your customer decisions are they're moving slower than a few months ago to execute.
Speaker Change: All of our projects.
Speaker Change: I would say Theres, a general level of uncertainty.
Speaker Change: That is causing.
Speaker Change: Some additional slowdown in the industry I think as you look at for nonresidential construction aluminum is a key raw material that I mean, theres not a commercial building thats going to go up without a fair amount of aluminum or steel.
Speaker Change: Certainly the tariffs having an impact there customers are assessing that in terms of how much of this is long term how much of this gets negotiated downward.
Speaker Change: I'd say, we have seen some of the market forecasters revised calendar 'twenty five from flattish to a couple of percent growth.
Speaker Change: Flattish to a couple of percent negative growth anticipating some of that so there certainly is.
Speaker Change: A bit more I would say of caution just like youre seeing across the larger.
Speaker Change: The macroeconomic environment.
Speaker Change: Got it.
Speaker Change: And could you provide.
Speaker Change: I guess you are still seeing really strong margins in glass, despite the volume headwinds.
Speaker Change: Is the 15 to 20 EBITDA margin target for the segment still attainable in fiscal 26, even with the deleveraging you're expecting.
Matt Osberg: Yes, James This is Matt, yes, we definitely think so.
Speaker Change: Although glass segment margins.
Speaker Change: Margins are moderating their moderating from.
Speaker Change: Outside on the top end of that range and where they've been in the past so theyre moderating more into that expected range and Thats got a drag year over year, but when you still look at it it's definitely where we expect them to be on a long term basis.
Speaker Change: Got it.
Speaker Change: And then if I.
Speaker Change: Do one more any color on the expectations for cash flow in fiscal 'twenty six.
Speaker Change: We see that the Capex guidance.
Speaker Change: You should.
Speaker Change: Sorry, we see the Capex guidance there.
Speaker Change: Based on what we anticipate some of these moving pieces with tariffs impact.
Speaker Change: How does that impact your overall cash flow this year.
Speaker Change: Yes, My remarks, I commented that we expect operating cash flow to be down you picked up on one of them we talked about in the first quarter. We we have an arbitration award payment that we had to make that was close to $25 million. So thats going to be a drag on the year from a cash flow perspective.
Speaker Change: The impact of tariffs and just overall lower EBITDA will be a bit of a drag and then we'll have higher interest expense or cash paid for interest. So a lot of those are going to be a weight on our operating cash flow. This year. So we expect it to be down from what we delivered in fiscal 'twenty five.
Speaker Change: Thank you I appreciate the time I'll hop back into the line. Thank.
Don: Thank you Don.
Speaker Change: And one question.
Don: Yes.
Speaker Change: And our next question will be coming from gas shrink of singular research. Your line is open.
Speaker Change: Good morning can you hear me.
Speaker Change: Yes, Ken good morning.
Speaker Change: Good morning.
Speaker Change: My first question is.
Speaker Change: In the architectural market in the specific end markets.
Speaker Change: What are you guys seeing in the competitive dynamics.
Speaker Change: And consolidation.
Speaker Change: Im confident youll vehicles to.
Speaker Change: Pass on the cost and the pricing.
Speaker Change: In the future.
Speaker Change: Yes, it's a great question I would say as we look at our end markets and the competition and let's really look at architectural metals first.
Speaker Change: We are seeing and hearing that softness is consistent across the market. There are two biggest competitors in the space are currently held by private equity firms.
Speaker Change: So we've seen under that ownership.
Speaker Change: There has been a focus on improving operations and it appears to be there has been a focus on improving margins.
Speaker Change: So as we look at that I think there's there's continued to be some rationality and just managing through price given some of the broader market challenges. So I think that right now as.
Speaker Change: Is it positive to neutral situation from that perspective.
Speaker Change: Glass.
Speaker Change: They have really refocused on their premium offerings.
Speaker Change: That has taken out some of the international competition, but one of the things. They are doing is going back and looking at the opportunity to maybe go after some projects not give up on their premium position, but maybe go down the ladder, a little bit where they know some projects were awarded to.
Speaker Change: Glass suppliers that are going to have to import that product from overseas.
Speaker Change: Particularly from Europe.
Speaker Change: So that's maybe something that shows up in the second half for them or as we go into fiscal 'twenty seven but there is an example, where theyre trying to capitalize on the situation and turn it into a positive and maybe revisit some awards that were given to international suppliers for glass.
Speaker Change: And then services I mean, they are the largest blazer in North America.
Speaker Change: They not only I would say have continued to see this shift in flight to quality that is help them stay competitive on winning jobs, but as I mentioned they have also picked up some non curtain wall work, which allows them to leverage their engineering design project management and installation services.
Speaker Change: And still generate some nice margins.
Speaker Change: Okay got you thanks for the color.
Speaker Change: The other side on the M&A side, given your balance sheet.
Speaker Change: An opportunity for bolt on deals or some kind of rollout.
Speaker Change: Do you see this as an opportunity to take some market share.
Speaker Change: We're very active in that and our M&A pipeline our acquisition pipeline of course, I think just where the market is right now.
Speaker Change: Companies that were considering a sale.
Speaker Change: They have they have paused a little bit so we have seen some slowness there, but there's still there's still a fair amount of activity. We look to be opportunistic in this environment. I think we do think there could be opportunities the acquisition of UW solutions, we're actually able to break that lose probably about a year ahead of what the private equity firm.
Speaker Change: It tended to bring that to market.
Speaker Change: We're taking a similar approach in looking at strong strategic fit and good valuations again accretive to margin and most importantly for US is we really shift to growth. We're looking for things that are going to add to our growth potential.
Speaker Change: And outgrow our existing.
Speaker Change: Core target markets.
Speaker Change: <unk> will remain active there is good dialogues going on but we do recognize theres a little bit of softness if you don't have to sell right now in this level of uncertainty people are.
Speaker Change: <unk> are going to sell but we're hopeful on that as we work our way through the fiscal year.
Speaker Change: Okay.
Speaker Change: And our last question.
Speaker Change: On the inventory front.
Speaker Change: More any particular segment that you guys have.
Speaker Change: Well to buffer around that.
Speaker Change: More pronounced in the metals glass and color on that.
Speaker Change: Nothing unusual I would say gauci with our business a lot of it is make to order we have a little bit of a make to stock. So I would say nothing from an inventory perspective that we think is unusual.
Speaker Change: Okay sounds good thanks, I'll come back on line.
Speaker Change: Thank you.
Speaker Change: And I'm showing no further questions at this time I would now like to turn the call back to tie silver Horn CEO for closing remarks.
Speaker Change: Thank you as we close the call today I want to just recap three key points.
Speaker Change: We had a record year for earnings capping our three year journey that source improved margins by nearly 500 basis points improve ROIC are well above our cost of capital and grow profit dollars by 80%.
Speaker Change: Tariffs are impacting our adjusted EPS by approximately <unk> 50.
Speaker Change: But we are taking actions to fully mitigate these by the end of our fiscal year, creating some certainty in uncertain times and our growth efforts through the acquisition of <unk> solutions will deliver strong above market growth.
Speaker Change: And accretive margins in performance services.
Speaker Change: We've got an experienced strong team that is embracing the new challenges, while pivoting to a stronger growth focus to build the next leg of our journey.
Speaker Change: Thank you for joining us today, and we look forward to providing you with another update with our first quarter results in June.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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