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Apogee Enterprises (APOG +22%) is nicely higher after reporting Q2 (Aug) results last night. Apogee beat handily on EPS yet again and has now posted six consecutive double-digit EPS beats. Revenue declined as expected, but down only 3.2% yr/yr to $342.4 mln. Analysts were expecting an even larger drop. Apogee also raised FY25 EPS guidance pretty substantially to $4.90-5.20 from $4.65-5.00. It also reaffirmed FY25 revenue guidance at a -7% to -4% decline.

• Similar to Q1, the revenue decline in Q2 was partly due to a strategic shift away from less differentiated, lower margin product lines and a reflection of continued softness in some end markets, particularly non-residential construction. Despite the lower volume, Apogee still was able to increase adjusted operating margin to 12.6% from 11.5% a year ago. This was Apogee's second consecutive quarter with margins above 12%.
• Architectural Framing Systems, its largest segment, saw an 11% yr/yr sale decline to $141.4 mln, primarily reflecting reduced volume due to exiting certain lower-margin product lines and lower end-market demand. However, Framing sales did improve 6% sequentially despite the lower volume. Its Architectural Glass segment had a 4.2% revenue decline to $90.1 mln. APOG said its Glass team continues to exceed expectations due to strong pricing and mix, despite pressure on volume.
• Apogee posted a decline in its Large-Scale Optical unit primarily due to lower volume in its retail channel, partially offset by a more favorable mix. However, it made progress on its LSO capacity expansion project, which the company expects to come online during the second half of the fiscal year. Its best performing segment was Architectural Services, where sales jumped 16.1% to $98 mln, primarily due to a more favorable mix of projects and increased volume.
• Apogee remains excited about its pending acquisition of UW Solutions, which it announced last month. The cost was $240 mln, so it was a large acquisition for Apogee. The transaction is expected to close in Q3 (Nov). UW Solutions is a supplier of high-performance coated substrates serving attractive end markets, including building products for distribution centers and manufacturing facilities, as well as premium products for the graphic arts market. Apogee plans to integrate UW Solutions into its LSO segment. UW Solutions is expected to add $100+ mln of revenue at accretive adjusted EBITDA margins.

Overall, this was a solid upside quarter from APOG with strong guidance. It was also better than feared given the weakness in non-residential construction. What a company like Apogee really needs is for rates to decline and the Fed is moving in this direction. Lower rates will encourage customers to move forward with these capital-intensive construction projects. However, given the move in the stock, investors are clearly happy with Apogee's Q2 results and guidance.