Apogee Enterprises' Q2 2026: Contradictions Emerge on Performance Surfaces, Metals/Glass Margins, and Tariff Impact

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

Date of Call: October 10, 2025

Financials Results

• Revenue: $358.2M, up 4.6% YOY; driven by $24.9M inorganic sales (UW Solutions) partially offset by lower price/volume in Glass and less favorable mix in Metals
• EPS: $0.98 adjusted diluted EPS, down versus prior year, driven by lower adjusted EBITDA and higher interest expense

Guidance:

• FY26 net sales expected at $1.39B–$1.42B; adjusted diluted EPS $3.60–$3.90 (tariffs impact EPS by $0.35–$0.45)
• Adjusted effective tax rate ~27%; capex $35M–$40M
• 2H FY26: YOY growth in net sales and adjusted EPS, led by Performance Surfaces
• Q3 adjusted EPS ~Q2; Q4 sequentially higher; net sales split roughly evenly between Q3 and Q4
• Glass 2H results to be in line with 1H; competitive pricing pressure persists
• Metals margins to decline in Q3 due to ~20% higher aluminum costs and pricing pressure
• Elevated health insurance costs to continue in 2H
• ‘One Big Beautiful Bill Act’ provides a FY26 cash tax benefit (smaller in FY27)

Business Commentary:

* Sales and Earnings Performance: - Apogee Enterprises reported net sales of $358.2 million in Q2, up 4.6% compared to the previous year. - The growth was driven by both inorganic and organic growth in Performance Surfaces and improvements in Architectural Services, but was offset by lower prices and volumes in Glass and unfavorable mix in Metals.

• Glass Segment Challenges:
• The Glass segment experienced a decline in net sales and a moderation in adjusted EBITDA margin, primarily due to reduced volume and price from lower-end market demand.

• The competitive environment pressured prices, impacting the ability to secure volumes without compromising margins.

• Metals Segment Pressure:

• Metals' adjusted EBITDA margin decreased to 14.8%, affected by a less favorable mix and higher aluminum and tariff costs.

• The increase in aluminum costs by approximately 20% during the second quarter is expected to continue, impacting pricing and volume in the longer term.

• Cash Flow Strength:

• Apogee generated net cash provided by operating activities of $57.1 million in Q2, demonstrating strong cash flow generation in a dynamic macroeconomic environment.
• The company's balance sheet remains strong with a consolidated leverage ratio of 1.5x, no near-term debt maturities, and significant capital available for future deployment.

Sentiment Analysis:

• Results improved sequentially with net sales up 4.6% to $358.2M, but outlook was lowered due to Glass price/volume pressure and higher aluminum costs in Metals. Management still expects YOY growth in net sales and adjusted EPS in 2H, Q3 EPS similar to Q2 and Q4 improving, with strong cash flow and balance sheet.

Q&A:

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): Please expand on Performance Surfaces’ organic growth drivers versus market growth.
  Response: Core legacy business regained retail shelf space, added products, and is leveraging cross-selling with UW; flooring within UW is outperforming.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): What is driving momentum in UW’s flooring business?
  Response: Warehouse automation (AGVs/robotics) is boosting demand and a major global e-commerce customer is pulling the product into Europe.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): What drove the Services backlog increase sequentially?
  Response: Wins in the Northeast as activity improved and continued Western U.S. expansion; taking share in a soft market.

• Question from Julio Romero (Sidoti & Company, LLC): Can Glass still post targeted EBITDA margins and how long could softness persist?
  Response: Expect mid-teens EBITDA margins for Glass over the next couple of quarters and the year; price competition is intense, and they’re protecting premium pricing floors.

• Question from Julio Romero (Sidoti & Company, LLC): For Metals, how much of the lowered 2H guide is cost versus strategy to maximize EBITDA dollars?
  Response: Pressure is mainly from higher aluminum costs (~20% Q/Q increase); balancing price and volume; Q3 margins to decline as higher costs and second tariff round flow through.

• Question from Julio Romero (Sidoti & Company, LLC): What is UW’s flooring mix within the portfolio now?
  Response: It has moved from just under half to comfortably over half and is trending higher.

• Question from Gowshihan Sriharan (Singular Research, LLC): Are you seeing a customer shift toward smaller or engineering-only projects?
  Response: Yes, especially in Glass and Services; pursuing smaller, less complex, lower-margin jobs to capture margin dollars while protecting premium products.

• Question from Gowshihan Sriharan (Singular Research, LLC): What’s the realistic downside to FY26 EPS and levers to defend it?
  Response: Guidance range is $3.60–$3.90; downside risk is further aluminum inflation; mitigating with cost actions under Project Fortify 2.

• Question from Gowshihan Sriharan (Singular Research, LLC): How should we model the tax rate for the rest of the year?
  Response: Assume ~27% for FY26; Q3 roughly 27% and Q4 slightly lower to land at ~27% for the year.

• Question from Gowshihan Sriharan (Singular Research, LLC): How sensitive are Performance Surfaces’ margins to a potential slowdown or channel inventory correction?
  Response: Retail seasonality favors Q2–Q3; any inventory reset likely Q1; expect mix shifts more than volume drop given upper-income consumer resilience.