Apogee Enterprises' Q3 2026: Shifting Narratives on Aluminum Prices, M&A Strategy, and Project Fortify Savings

Date of Call: December, 2025

Financials Results

• Revenue: $348.6 million, up 2.1% YOY, primarily driven by $18.4 million from UW Solutions acquisition and favorable product mix, partially offset by lower volume in Metals
• EPS: $1.02 adjusted diluted EPS, in line with expectations and down YOY, primarily due to higher amortization and interest expense from UW Solutions acquisition
• Operating Margin: 13.2% adjusted EBITDA margin, decreased slightly YOY, driven by lower volume and price, higher aluminum and health insurance costs, partially offset by lower incentive compensation and cost savings from Phase 2

Guidance:

• Net sales for full fiscal 2026 expected to be approximately $1.39 billion.
• Adjusted diluted EPS for full fiscal 2026 expected in the range of $3.40 to $3.50.
• Includes updated estimate of EPS impact from tariffs of approximately $0.30.
• For fiscal 2027, expects cost headwinds from normalization of incentive compensation and higher health insurance costs; expanding Fortify Phase 2 to offset impact.
• Expects total pretax charges of $28M-$29M and annual pretax cost savings of $25M-$26M, with $10M benefit in fiscal 2027.
• Majority of tariff impact from fiscal 2026 not expected to repeat, benefiting fiscal 2027.

Business Commentary:

* Leadership Transition and Strategic Focus: - Apogee Enterprises announced Matt Oseberg's departure and appointed Mark Augdahl as interim CFO. - The company's strategic focus remains unchanged, emphasizing becoming an economic leader in target markets, managing its portfolio through accretive M&A, and strengthening its core operations.

• Financial Performance and Market Dynamics:
• Net sales increased by 2.1% to $348.6 million, driven by the UW Solutions acquisition and favorable product mix, but offset by lower volume in Metals.

• The adjusted EBITDA margin decreased slightly to 13.2% due to lower volume and price, higher aluminum and health insurance costs, and increased amortization from the acquisition.

• Segment Performance and Challenges:

• The Metals segment saw a decline in net sales due to lower volume, but adjusted EBITDA margin improved to 13.5% due to increased productivity and cost savings.

• The Glass segment experienced a slight sales increase, but margin compression occurred due to lower prices and higher material costs, influenced by end market demand softness.

• Cost Management and Future Outlook:

• Project Fortify Phase 2 expansion is expected to incur $28 million to $29 million in pretax charges, delivering an estimated annual pretax cost savings of $25 million to $26 million.
• The company anticipates continued margin compression in Q4 due to aluminum price increases and competitive market dynamics, with plans to offset these pressures through cost management initiatives.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledges challenging macroeconomic factors and margin pressures, particularly in metals from aluminum price increases, and competitive dynamics. However, they express confidence in the company's strategy, operational strengths, and ability to adapt, citing customer value, operational excellence through AMS, and a robust M&A pipeline.

Q&A:

• Question from Brent Thielman (D.A. Davidson): What is the Board looking for in new leadership, and is there any change in strategic direction regarding scaling the Performance Services business?
  Response: No change in strategy; focused on becoming economic leader in target markets, managing portfolio for accretive M&A, and strengthening core operations for scalable growth.

• Question from Brent Thielman (D.A. Davidson): Is the updated outlook primarily impacted by metals, and does it imply more severe margin pressure in Q4 than Q3?
  Response: Yes, continued margin pressure in metals due to rising aluminum prices and some impact in glass from volume/price declines; focused on managing margin dollars through cost control.

• Question from Jon Braatz (KCCA): How much emphasis is placed on M&A given past challenges, versus focusing on running the business profitably and returning cash?
  Response: M&A pipeline is robust and active; UW Solutions was successful, demonstrating discipline in execution and integration, and the company is aggressively pursuing opportunities aligned with strategy.

• Question from Jon Braatz (KCCA): Why did the Fortify cost savings increase from $13-15M to $25-26M, and what is the difference between the initial and updated figures?
  Response: The increase in savings is due to a broader scope in Fortify Phase 2, primarily involving restructuring in metals and corporate, with costs now estimated at $28-29M.

• Question from Gowshihan Sriharan (Singular Research): How are you thinking about bid approval thresholds and pricing discipline in metals and glass, and have you walked away from projects?
  Response: Focus on maximizing EBITDA dollar contribution while managing costs; glass is in a stronger position than last downturn, operating in teens EBITDA margin versus mid-single digits.

• Question from Gowshihan Sriharan (Singular Research): Are you seeing pricing differences between strategic repeat customers and transactional work?
  Response: No noticeable widening or narrowing gap; seeing higher volume of smaller projects in glass amid a challenging environment.

• Question from Gowshihan Sriharan (Singular Research): How much of Performance Services growth is from high-margin SKUs, and will you adjust long-term margin aspirations?
  Response: Growth from expanding shelf space in distribution (an attractive business) and entering the warehouse/manufacturing flooring market via UW Solutions, which has shown organic growth.

• Question from Gowshihan Sriharan (Singular Research): How should we think about the sustainability of lower incentive compensation and competitiveness of comp structure?
  Response: Comp structure is fine; lower incentive comp this year due to tough performance relative to targets, expected to normalize in the future.

• Question from Julio Romero (Sidot): How do you view the company's growth trajectory and opportunity set, and any change in ROIC hurdles?
  Response: No change in strategy; focused on economic leadership, portfolio management, and strengthening core. UW Solutions opens new markets/products for faster growth; M&A pipeline is robust for future opportunities.

• Question from Julio Romero (Sidot): Are there any quick-turn wins or low-hanging fruit beyond Fortify expansion?
  Response: Delivering current year results is critical; Project Fortify Phase 2 is key, along with ramping up AMS for cost structure improvements and pursuing accretive M&A.

• Question from Julio Romero (Sidot): Any difference in IRR hurdles for M&A versus the last management team?
  Response: No difference in financial analysis, but intent to move faster with disciplined approach.

• Question from Julio Romero (Sidot): Any preliminary thoughts on revenue/profit growth for fiscal 2027?
  Response: In early planning; tailwinds include Fortify Phase I benefits and tariffs not repeating; headwinds are incentive comp normalization and aluminum prices; will provide full outlook next call.

Contradiction Point 1

Aluminum Price Impact and Margin Outlook for Metals

This is a substantial contradiction regarding a core financial driver. The narrative shifts from an expectation of sequential margin improvement (Q1) and a specific forecast of margin erosion due to "swallowing" costs (Q2) to a new reality of persistent, worsening pressure from ever-increasing aluminum prices (Q3). This changes the expected timeline and feasibility of recovering the Metals segment's margin profile.

Is the updated Q4 outlook primarily due to the metals segment and does it indicate a more severe margin impact in Q4 than Q3? Are the long-term EBITDA margin targets still appropriate? - Brent Thielman (D.A. Davidson)

20260107-2026 Q3: For Metals, this is driven by **13% higher aluminum prices compared to Q2, with further increases expected**. - Donald Nolan(CEO)

What's driving the sequential improvement in the Metals segment? Did the improvement continue into June? Have you observed any changes in end-market demand? - Julio Alberto Romero (Sidoti & Company, LLC)

2026Q1: Sequential improvement in Q1 was driven by operational gains... The company expects **further sequential improvement in Q2 as pricing actions take effect**... - Ty R. Silberhorn(CEO) & Matthew J. Osberg(CFO)

Contradiction Point 2

M&A Pipeline Activity and Valuation Environment

This represents a significant shift in market strategy and capital allocation. The characterization of the M&A environment evolves from one of notable constraint ("pace has slowed due to macro factors," "private equity interest remains cautious" - Q1) to one of robust opportunity and aggressive pursuit without mentioning those headwinds ("robust and active," "aggressively pursue" - Q3). This suggests a change in the company's strategic posture and confidence level regarding growth through acquisitions.

How much emphasis will be on future M&A versus profitable operations, considering past mixed results? - Jon Braatz (KCCA)

2026Q2: ...with longer lead-time products, **the company expects to swallow higher costs in Q3, leading to margin erosion**. - Matthew Osberg(CFO)

Have you adjusted your target multiples for M&A in the current environment? - Gowshihan Sriharan (Singular Research, LLC)

20260107-2026 Q3: **The M&A pipeline is robust and active**... They continue to **aggressively pursue acquisitions**... - Donald Nolan(CEO)

Contradiction Point 3

Project Fortify Phase 2 Savings and Timeline

This is a key contradiction concerning a major cost-savings initiative's financial impact and timeline. The narrative changes from a clear, near-term realization of most savings (Q1) to an admission that the full savings profile has shifted later due to scope expansion and higher initial costs (Q3). This directly impacts forecasts for near-term EBITDA and the perceived reliability of the company's capital allocation plans.

What explains the discrepancy between the initial $13-$15M and updated $25-$26M Fortify savings projections? - Jon Braatz (KCCA)

2026Q1: The M&A pipeline remains focused on strategic targets... While the **pace has slowed due to macro factors**... **Private equity interest remains cautious** due to leverage models. - Ty R. Silberhorn(CEO)

Did the company realize any savings from Project Fortify Phase 2 in the May quarter, or are all savings expected later in the year? - Julio Alberto Romero (Sidoti & Company, LLC)

20260107-2026 Q3: The increase in projected savings is due to the **expansion of the Fortify Phase 2 scope**... While the initial costs were higher due to footprint-related matters in Q4, the focus is now on driving cost savings forward. - Donald Nolan(CEO)

Contradiction Point 4

Aluminum Tariff Impact and Mitigation Timeline

This involves a change in the financial forecast related to a major headwind. The company previously communicated a high degree of confidence in its mitigation plan, expecting it to "significantly reduce" the tariff impact in the second half of fiscal 2026 (Q4 2025). In the subsequent call (Q3 2026), this mitigation benefit is entirely absent from the discussion, with new pressure from aluminum prices cited instead, indicating the prior benefit was either overstated or did not materialize.

Excluding tariffs, does the company have early guidance on revenue/profit growth for FY2027? - Julio Romero (Sidot)

2026Q1: **Minimal savings were realized in Q1. Most of the $13-15M annualized savings are being implemented in Q2**. - Matthew J. Osberg(CFO)

What is the tariff impact, specifically the EPS impact of $0.45–$0.55 between direct and indirect categories? What is the confidence level in customer acceptance of your mitigation initiatives? - Julio Romero (Sidoti & Company, LLC)

20260107-2026 Q3: Key **headwinds** include... the continued need to monitor **aluminum prices**. - Donald Nolan(CEO)

Contradiction Point 5

UW Solutions Acquisition Integration Status

This reflects a potential shift in the operational and financial timeline for a major acquisition. The integration was previously declared "substantially complete" with the business "performing well and on target" (Q4 2025). In the later call (Q3 2026), the description of the acquisition's contribution shifts from highlighting its integrated performance to simply mentioning it as a future growth area without reaffirming its current operational status or synergy capture. This creates uncertainty about whether the full benefits have been realized.

How much of Performance Services' growth comes from high-margin versus mid-tier offerings, and does this mix impact long-term margin goals? - Gowshihan Sriharan (Singular Research)

2025Q4: The $0.45-$0.55 EPS impact is front-half weighted, with mitigation efforts expected to significantly reduce the impact in the second half of fiscal '26. - Matthew Osberg(CFO)

How is the integration of UW Solutions progressing, what is the demand like, and is the business's guidance accounting for any tariff impacts? - Julio Romero (Sidoti & Company, LLC)

20260107-2026 Q3: Growth is coming from two areas: 1) Gaining back **'shelf space' share in distribution**... and 2) The **UW Solutions acquisition**, which provides entry into the high-growth warehouse and manufacturing flooring market. - Donald Nolan(CEO)