Apogee Enterprises' Q2 2026: Contradictions Emerge on Glass Market Pressures, Metal Cost Challenges, and Services Backlog Dynamics

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $358.2M, up 4.6% YOY; improved sequentially
• EPS: $0.98 adjusted diluted EPS, down YOY; improved sequentially

Guidance:

• FY26 net sales expected at $1.39–$1.42B.
• FY26 adjusted diluted EPS expected at $3.60–$3.90.
• Tariffs expected to reduce EPS by ~$0.35–$0.45.
• Adjusted effective tax rate ~27%; capex $35–$40M.
• H2 FY26: YOY growth in net sales and adjusted EPS, led by Performance Services.
• Q3 adjusted EPS ~similar to Q2; Q4 to improve; sales split roughly evenly between Q3 and Q4.
• Glass H2 now expected in line with H1 amid competitive pricing pressure.
• Metals margins to decline in Q3 given ~20% higher aluminum costs; continued pricing/volume pressure.

Business Commentary:

* Sales and Earnings Performance: - Apogee Enterprises reported net sales of $358.2 million for Q2, up 4.6% year-on-year. - Adjusted diluted EPS was $0.98, with expectations for adjusted diluted EPS ranging between $3.60 to $3.90 for the fiscal year. - The growth was driven by both inorganic and organic growth in Performance Services and improved sales in Architectural Services, despite headwinds in the Glass and Metals segments.

• Glass Segment Challenges:
• The Glass segment saw a decline in net sales and moderation in adjusted EBITDA margins, with expectations for lower volume and price in the second half of the fiscal year.

• The decline was attributed to reduced volume and price from lower end-market demand and increased competitive pressure.

• Metals Segment Margin Pressure:

• The Metals segment experienced a 12.8% decrease in adjusted EBITDA margin, primarily due to less favorable mix and higher aluminum and tariff costs.

• Higher aluminum costs are expected to impact pricing and volume in the second half of the fiscal year, leading to margin erosion.

• Services Segment Growth and Backlog:

• The Services segment delivered its sixth consecutive quarter of year-over-year net sales growth, with a 2.5% increase, and backlog grew by 16% sequentially.

• Growth was driven by higher volume, strategic initiatives, and expansion into new markets, with a notable increase in backlog attributed to projects in the Northeast.

• Inorganic Growth and Strategic Initiatives:

• Apogee Enterprises achieved $24.9 million in inorganic sales from the acquisition of UW Solutions, contributing significantly to growth.
• The integration and strategic actions, such as tariff mitigation efforts and Project Fortify II, have enhanced the company's agility and resilience amidst macroeconomic challenges.

Sentiment Analysis:

• Management lowered FY26 sales and EPS outlook due to glass pricing pressure and higher aluminum costs, but expects H2 YOY growth in sales and EPS, Q3 EPS similar to Q2 with improvement in Q4, and strong momentum in Performance Services. Cash flow and balance sheet remain strong.

Q&A:

• Question from Brent Thielman (D.A. Davidson & Co.): Please expand on Performance Services organic growth and the impact of distribution initiatives vs market growth.
  Response: Growth was driven by regaining retail shelf space, adding products, and cross-selling between UW Solutions and legacy LSO; organic growth strong, especially in the core portfolio.

• Question from Brent Thielman (D.A. Davidson & Co.): What’s driving outperformance in the flooring portion of UW?
  Response: Demand tied to warehouse automation (AGVs/robotics) and a large e-commerce customer pulling the product into Europe, supporting continued growth.

• Question from Brent Thielman (D.A. Davidson & Co.): What explains the Services backlog increase in Q2?
  Response: Wins in the Northeast as bid activity improved, plus expansion in the Western U.S. with new sales presence, indicating share gains in a soft market.

• Question from Julio Romero (Sidoti & Company): For Glass, can you still deliver target EBITDA margins despite tougher competition, and how long might softness persist?
  Response: Expect mid-teens EBITDA margins through H2 by protecting premium pricing; competition is pressuring price, and softness likely continues near term as they prioritize EBITDA dollars over volume.

• Question from Julio Romero (Sidoti & Company): In Metals, how much of the lower guide is cost pressure vs share/EBITDA optimization?
  Response: Primarily cost-driven from ~20% higher aluminum and tariffs; pricing actions are balanced against volume to maximize EBITDA dollars, with Q3 margin erosion expected.

• Question from Julio Romero (Sidoti & Company): How has flooring mix shifted within UW since acquisition?
  Response: Flooring was slightly under half at acquisition and is now comfortably over half, with that trend expected to continue.

• Question from Gowshi Sri (Singular Research): Are you shifting to smaller or non-traditional projects across businesses?
  Response: Yes, especially in Glass and Services, expanding to smaller, less complex, lower-margin jobs to add volume while protecting premium margins.

• Question from Gowshi Sri (Singular Research): What’s the EPS downside if softness persists and no tariff relief; what levers exist?
  Response: Key risk is further aluminum cost increases; levers include Project Fortify II cost actions and corporate cost control to defend the $3.60–$3.90 EPS range.

• Question from Gowshi Sri (Singular Research): How should we model the tax rate?
  Response: Use ~27% for FY26; Q3 near 27%, dipping slightly in Q4 to land at ~27% for the year.

• Question from Gowshi Sri (Singular Research): How sensitive is Performance Services to potential retail slowdown or channel inventory corrections?
  Response: Retail peaks in Q2–Q3; if any correction, more likely in Q1 post-holiday. Exposure skews to higher-income consumers, so mix shifts are more likely than a sharp demand drop.