Apogee's Profit Plunges 66% Amid Rising Costs, Interest Expense

TL;DR

**APOG's earnings are getting crushed by costs and interest, making it a risky bet despite revenue growth.**

AI Summary

APOGEE ENTERPRISES, INC. reported a significant decline in net earnings for both the three and six months ended August 30, 2025, despite an increase in net sales. For the three-month period, net sales rose to $358.194 million from $342.440 million year-over-year, a 4.6% increase, but net earnings dropped by 22.6% to $23.649 million from $30.566 million. This was primarily driven by a substantial increase in cost of sales, which rose to $275.587 million from $245.119 million, and a surge in interest expense, net, to $4.075 million from $1.140 million. The six-month period showed an even steeper decline in net earnings, falling 65.9% to $20.962 million from $61.577 million, despite net sales increasing to $704.816 million from $673.956 million. Key business changes include an impairment on intangible assets of $7.418 million for the six months ended August 30, 2025, and the adoption of ASU 2023-07 for segment disclosures. Risks include increased cost of sales and higher interest expenses impacting profitability, as evidenced by the gross profit decline from $97.321 million to $82.607 million for the three-month period. The strategic outlook involves managing long-term contracts, with $930.872 million in unsatisfied performance obligations expected to be recognized over the next two years and beyond.

Why It Matters

This filing reveals a concerning trend for APOGEE ENTERPRISES, INC., as significant increases in cost of sales and interest expenses are eroding profitability despite revenue growth. For investors, this signals potential margin compression and reduced returns, impacting share price and dividend sustainability. Employees might face pressure if cost-cutting measures become necessary, while customers could see price adjustments to offset rising input costs. In the competitive market, Apogee's declining profitability could weaken its position against rivals who manage costs more effectively, potentially affecting its ability to invest in innovation and market expansion. The substantial impairment on intangible assets also raises questions about asset valuation and future growth prospects.

Risk Assessment

Risk Level: high — The risk level is high due to a 65.9% decrease in net earnings for the six months ended August 30, 2025, falling to $20.962 million from $61.577 million in the prior year. This decline is exacerbated by a significant increase in interest expense, net, which jumped from $1.140 million to $4.075 million for the three-month period, and an impairment on intangible assets of $7.418 million, indicating potential asset overvaluation or underperformance.

Analyst Insight

Investors should exercise caution and consider a 'hold' or 'sell' position on APOG. The substantial decline in net earnings and rising costs suggest fundamental challenges. Monitor future filings closely for signs of cost control improvements or further asset impairments before considering new investments.

Financial Highlights

revenue

$704.816M

total Assets

$1,154.683M

total Debt

$270.000M

net Income

$20.962M

eps

$0.98

cash Position

$39.526M

revenue Growth

+4.6%

Key Numbers

• $358.194M — Net Sales (3 months) (Increased from $342.440M, a 4.6% rise)
• $23.649M — Net Earnings (3 months) (Decreased from $30.566M, a 22.6% drop)
• $704.816M — Net Sales (6 months) (Increased from $673.956M, a 4.6% rise)
• $20.962M — Net Earnings (6 months) (Decreased from $61.577M, a 65.9% drop)
• $275.587M — Cost of Sales (3 months) (Increased from $245.119M, impacting gross profit)
• $4.075M — Interest Expense, Net (3 months) (Increased significantly from $1.140M)
• $7.418M — Impairment on Intangible Assets (6 months) (New charge impacting net earnings)
• $930.872M — Unsatisfied Performance Obligations (Future revenue to be recognized from long-term contracts)
• $1.10 — Basic EPS (3 months) (Decreased from $1.40)
• $0.98 — Basic EPS (6 months) (Decreased from $2.83)

Key Players & Entities

• APOGEE ENTERPRISES, INC. (company) — Registrant
• Prism Assurance, Ltd. (company) — Wholly-owned insurance subsidiary
• FASB (regulator) — Financial Accounting Standards Board
• $358.194 million (dollar_amount) — Net sales for three months ended August 30, 2025
• $23.649 million (dollar_amount) — Net earnings for three months ended August 30, 2025
• $704.816 million (dollar_amount) — Net sales for six months ended August 30, 2025
• $20.962 million (dollar_amount) — Net earnings for six months ended August 30, 2025
• $7.418 million (dollar_amount) — Impairment on intangible assets for six months ended August 30, 2025
• $4.075 million (dollar_amount) — Interest expense, net, for three months ended August 30, 2025
• $930.872 million (dollar_amount) — Transaction prices associated with unsatisfied performance obligations at August 30, 2025

FAQ

Risk Factors

• Increased Cost of Sales [high — financial]: Cost of sales increased significantly to $275.587 million for the three months ended August 30, 2025, from $245.119 million in the prior year period. This directly impacted gross profit, which declined from $97.321 million to $82.607 million, indicating pressure on the company's core profitability.
• Higher Interest Expenses [high — financial]: Interest expense, net, surged to $4.075 million for the three months ended August 30, 2025, compared to $1.140 million in the same period last year. This substantial increase in financing costs further eroded net earnings.
• Impairment on Intangible Assets [medium — financial]: The company recorded an impairment on intangible assets of $7.418 million for the six months ended August 30, 2025. This non-recurring charge negatively impacted net earnings for the period.
• Management of Long-Term Contracts [medium — operational]: Apogee has $930.872 million in unsatisfied performance obligations. While this represents future revenue, managing these long-term contracts effectively is crucial to ensure profitability and avoid cost overruns.

Industry Context

Apogee Enterprises operates in the architectural products and services sector, which is influenced by construction cycles and demand for commercial and institutional buildings. The industry is competitive, with companies often managing complex, long-term projects. Trends include a focus on sustainable building materials and integrated design solutions.

Regulatory Implications

The adoption of ASU 2023-07 signifies Apogee's compliance with evolving segment disclosure requirements. Future adoption of ASU 2023-09 and ASU 2024-03 will require further disaggregation of income tax and expense information, respectively, necessitating robust internal data management.

What Investors Should Do

1. Monitor gross margin trends closely.
2. Analyze the impact of increased interest expense.
3. Evaluate the effective management of long-term contracts.
4. Scrutinize the reasons for the intangible asset impairment.

Glossary

ASU 2023-07

Accounting Standard Update that expands required disclosures for reportable segments, including significant segment expenses and other segment items. (Apogee adopted this standard, impacting how segment information is presented and potentially providing more transparency into segment performance.)

Unsatisfied Performance Obligations

Represents future revenue that a company has a contractual right to bill and deliver to a customer. It's a key indicator of future revenue streams. (Apogee has $930.872 million in these obligations, indicating a substantial backlog of future work to be performed and recognized as revenue.)

Contract Assets

Represents a company's right to consideration in exchange for goods or services that the company has transferred to a customer when that right is conditional on something other than the passage of time. (A decrease in contract assets from $71.842 million to $61.545 million may indicate a shift in how revenue is recognized or a change in customer payment terms.)

Contract Liabilities

Represents a company's obligation to transfer goods or services to a customer for which the company has received consideration from the customer. (An increase in contract liabilities from $35.193 million to $51.003 million suggests that Apogee has received payments in advance for future goods or services.)

Year-Over-Year Comparison

Compared to the prior year, Apogee Enterprises reported a 4.6% increase in net sales for both the three and six-month periods ended August 30, 2025. However, net earnings experienced a substantial decline, dropping 22.6% for the three-month period and a significant 65.9% for the six-month period. This divergence is primarily attributed to a sharp rise in the cost of sales and a dramatic increase in net interest expense, alongside a new impairment charge on intangible assets, which collectively eroded profitability despite revenue growth.

Key Financial Figures

• $0.33 — ich registered Common stock, par value $0.33 1/3 per share APOG The Nasdaq Stock Mar

Filing Documents

• apog-20250830.htm (10-Q) — 1536KB
• apog-ex311_20250830.htm (EX-31.1) — 9KB
• apog-ex312_20250830.htm (EX-31.2) — 9KB
• apog-ex321_20250830.htm (EX-32.1) — 4KB
• apog-ex322_20250830.htm (EX-32.2) — 4KB
• 0000006845-25-000152.txt ( ) — 7931KB
• apog-20250830.xsd (EX-101.SCH) — 51KB
• apog-20250830_cal.xml (EX-101.CAL) — 76KB
• apog-20250830_def.xml (EX-101.DEF) — 211KB
• apog-20250830_lab.xml (EX-101.LAB) — 631KB
• apog-20250830_pre.xml (EX-101.PRE) — 436KB
• apog-20250830_htm.xml (XML) — 1277KB

Financial Information

PART I Financial Information

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets 3 Consolidated Results of Operations 4 Consolidated Statements of Comprehensive Earnings 5 Consolidated Statements of Cash Flows 6 Consolidated Statements of Shareholders' Equity 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 9

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 33

Controls and Procedures

Item 4. Controls and Procedures 33

Other Information

PART II Other Information

Legal Proceedings

Item 1. Legal Proceedings 34

Risk Factors

Item 1A. Risk Factors 34

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34

Other Information

Item 5. Other Information 34

Exhibits

Item 6. Exhibits 35

Signatures

Signatures 36 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except stock data) August 30, 2025 March 1, 2025 Assets Current assets Cash and cash equivalents $ 39,526 $ 41,448 Receivables, net 195,324 185,590 Inventories, net 102,463 92,305 Contract assets 61,545 71,842 Other current assets 61,248 50,919 Total current assets 460,106 442,104 Property, plant and equipment, net of accumulated depreciation of $ 478,793 and $ 469,480 259,177 268,139 Operating lease right-of-use assets 56,053 62,314 Goodwill 236,653 235,775 Intangible assets, net 116,485 128,417 Other non-current assets 26,209 38,520 Total assets $ 1,154,683 $ 1,175,269 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 95,412 $ 98,804 Accrued compensation and benefits 39,095 48,510 Contract liabilities 51,003 35,193 Operating lease liabilities 16,187 15,290 Other current liabilities 60,195 87,659 Total current liabilities 261,892 285,456 Long-term debt 270,000 285,000 Non-current operating lease liabilities 46,143 51,632 Non-current self-insurance reserves 31,048 30,382 Other non-current liabilities 45,385 34,901 Commitments and contingent liabilities (Note 6) Shareholders' equity Junior preferred stock of $ 1.00 par value; authorized 200,000 shares; zero issued and outstanding — — Common stock of $ 0.33 -1/3 par value; authorized 50,000,000 shares; issued and outstanding 21,516,390 and 21,417,631 , respectively 7,172 7,139 Additional paid-in capital 158,065 156,075 Retained earnings 367,578 359,976 Accumulated other comprehensive loss ( 32,600 ) ( 35,292 ) Total shareholders' equity 500,215 487,898 Total liabilities and shareholders' equity $ 1,154,683 $ 1,175,269 See accompanying notes to consolidated financial statements. 3 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended (In thousands, except per share data) August 30, 2025 August 31, 2024 Au

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Basis of presentation The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this Form 10-Q should be read in conjunction with the Company's Form 10-K for the year ended March 1, 2025. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein. The results of operations for the three- and six-month periods ended August 30, 2025, are not necessarily indicative of the results to be expected for the full year. Adoption of new accounting standards On November 27, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07, Improvements to Reportable Segment Disclosures, which expands the required disclosure for reportable segments. This guidance requires entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all segment disclosures which are currently required annually. This ASU additionally requires entities to disclose the title and position of the individual or the name of the group or committee identified as its chief operating decision-maker. We adopted this guidance in the fourth quarter of fiscal 2025 for the annual requirements and in the first quarter of fiscal 2026 for the interim requirements. Accounting standards not yet adopted On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The ASU is effective for our fiscal 2026 annual financial statements and for our interim financial statements beginning fiscal 2027. This guidance expands the existing disclosure requir

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