Apogee (APOG) Closes EFCO Acquisition, Expands Portfolio

Apogee Enterprises, Inc. (NASDAQ:APOG) has closed the previously announced acquisition of 100% of the stock of privately held EFCO Corporation. The buyout will fortify the company’s presence in mid-size commercial buildings, broaden product offerings, as well as expand geographic presence across the U.S.

Why EFCO?

Headquartered in Monett, MO, EFCO structurally has similar operations to those across the Apogee businesses, including productivity and supply chain. The company boasts a diversified product offering, such as architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects. EFCO generated revenues of more than $250 million in 2016.

Financial Terms of the Deal

Apogee acquired EFCO from Pella Corporation, for roughly $195 million. Apogee funded the buyout through the expansion of its existing credit facility. EFCO is the ninth independent operating unit in the Apogee portfolio and will be reported as part of the architectural framing systems segment.

Benefits for Apogee

Apogee anticipates that the EFCO acquisition will add $200–$220 million to its revenues and be accretive to EBITDA and earnings per share, excluding transaction-related costs, in fiscal 2018. The acquisition will also help to capture $10–$15 million in annual synergies, by fiscal 2020. Further, Apogee expects significant margin enhancement opportunities, post the buyout.

Acquisitions Drive Growth

Apogee continues to benefit from its diligent acquisition strategy. In Dec 2016, the company acquired Sotawall Limited, a leading designer and fabricator of high-performance, unitized curtainwall systems for commercial construction projects in North America. The Sotawall buyout added $69 million to Apogee’s framing systems backlog in fourth-quarter fiscal 2017. The acquisition is also anticipated to bolster revenues for the architectural framing systems segment and be accretive to the company’s earnings in fiscal 2018 and 2019.

Outlook

For first-quarter fiscal 2018, excluding any revenues or earnings from EFCO, Apogee estimates revenues to be up around 10% and earnings per share to be down roughly 10%, compared to the prior-year period. The company’s fiscal first-quarter results will be affected by the projected revenue decline for the architectural services segment in the first half of fiscal 2018, as well as transaction-related costs from the Sotawall and EFCO acquisitions.

The long-term outlook for Apogee’s architectural services segment remains positive, following a considerable increase in segment backlog in fourth-quarter fiscal 2017, alongwith significant backlog growth expected in the fiscal first quarter. This backlog growth will likely support architectural services segment revenue growth in fiscal 2019 and beyond.

Excluding the impact of the EFCO acquisition, Apogee reaffirmed its fiscal 2018 outlook, projecting revenues to be up around 10%. It envisions earnings of $3.35–$3.55 per share in fiscal 2018.

Share Price Performance

In the last one year, Apogee has outperformed the Zacks classified Glass Products sub-industry with respect to price performance. While the stock rallied 31%, the industry recorded a gain of 23.8% over the same time frame.

Zacks Rank

Apogee currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader sector include AGCO Corporation (NYSE:AGCO) , Applied Industrial Technologies, Inc. (NYSE:AIT) and Deere & Company (NYSE:DE) . All three stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an estimated long-term earnings growth rate of 12.11%. Applied Industrial Technologies has an estimated long-term earnings growth of 12%, while Deere has an estimated long-term earnings growth of 9.17%.

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