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Quanex Building Products Announces First Quarter 2018 Results and Reaffirms Full Year 2018 Guidance

Solid Underlying Growth in NA and EU Engineered Components Segments

HOUSTON, March 05, 2018 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2018.

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “First quarter results tracked the typical seasonality of our businesses; however, raw material price and labor inflation pressured margins across the board.  We expect to recover some of the increase in raw materials prices in the coming months via contractual pass through or targeted price increases and we will work hard to cover the balance with operational efficiency improvements.  Excluding eliminated products, our legacy fenestration business in the U.S. grew at 4.4% during the quarter, which compares favorably to Ducker’s latest window shipment estimate of 4.2% growth for the three months ended December 31, 2017.  Similarly, underlying growth in our European Engineered Components segment was 5.4%.  We generated positive free cash flow during the first quarter of 2018, which allowed us to pay down bank debt during the quarter of the year where we have historically had to borrow.  Despite the recent gyrations in the stock market, the fundamentals for our business remain positive, and as such we are comfortable reaffirming our full year 2018 guidance and expect a strong second half of the year.”    

First Quarter 2018 Results Summary  

The Company reported the following selected financial results: 

       
    Three Months Ended January 31,  
      2018       2017    
Net Sales   $ 191.7     $ 195.1    
Net Income (Loss)   $ 4.9     $ (3.7 )  
Diluted EPS   $ 0.14     $ (0.11 )  
           
Adjusted Net Loss   $ (1.5 )   $ (1.4 )  
Adjusted Diluted EPS   $ (0.04 )   $ (0.04 )  
Adjusted EBITDA   $ 13.2     $ 13.0    
           

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table and Selected Segment Data table for additional information)

The slight decrease in net sales during the first quarter of 2018 was largely the result of portfolio rationalization and divestitures that occurred throughout 2017.  The loss of revenues in the first quarter of 2018 associated with the aforementioned actions that took place in 2017 was somewhat offset by solid underlying growth in the North American and European Engineered Components segments. (See Sales Analysis table for additional information)

The increase in earnings was predominantly attributable to lower stock-based compensation expense and a $6.5 million, or $0.19 per diluted share, net tax benefit as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  The Tax Cuts and Jobs Act reduces the federal corporate tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime.  The lower tax rate will be phased in over time since Quanex has an October 31 fiscal year-end.  Including the net tax benefit realized in the first quarter of 2018, the Company estimates that its effective tax rate for fiscal 2018 will be approximately 9%, or approximately 24% excluding the net tax benefit.  Quanex will continue to evaluate the impact of the tax reform through the remainder of fiscal 2018.

As of January 31, 2018, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was unchanged at 2.3x.  Quanex remains focused on generating Free Cash Flow to pay down debt and expects to end fiscal 2018 with a leverage ratio below 2.0x.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Recent Events

The stockholders approved each of the following proposals voted on at the Company’s annual meeting held on March 1, 2018.

  • Election of DirectorsRobert R. Buck, Susan F. Davis, Joseph D. Rupp and Curtis M. Stevens were elected to serve as directors on the Quanex Board of Directors until the Company’s Annual Meeting of Stockholders in 2019
  • Advisory Vote Approving Named Executive Officer Compensation - the stockholders supported Quanex’s executive officer compensation structure 
  • Ratification of Appointment of Grant Thornton LLP as Independent Public Accountantsthe stockholders ratified the Company’s appointment of Grant Thornton LLP as its independent registered public accounting firm for the fiscal year ending October 31, 2018

Additionally, Quanex’s Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock, payable March 29, 2018, to shareholders of record on March 15, 2018.

Conference Call and Webcast Information

The Company has scheduled a conference call for Tuesday, March 6, 2018, at 11:00 a.m. ET (10:00 a.m. CT).  To participate in the conference call dial (877) 388-2139 for domestic callers and (541) 797-2983 for international callers, in both cases using the conference passcode 1039546, and ask for the Quanex call a few minutes prior to the start time.  A link to the live audio webcast will also be available on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events.  A telephonic replay of the call will be available approximately two hours after the live broadcast ends and will be accessible through March 13, 2018.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 1039546. 

About Quanex

Quanex Building Products Corporation is an industry-leading manufacturer of components sold to Original Equipment Manufacturers (OEMs) in the building products industry.  Quanex designs and produces energy-efficient fenestration products in addition to kitchen and bath cabinet components.
For more information contact Scott Zuehlke, Vice President, Investor Relations & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

Adjusted Net Income (Loss) (defined as net income further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, gain/loss on the sale of fixed assets, restructuring charges, other net adjustments related to foreign currency transaction gain/loss and effective tax rates reflecting impacts of adjustments on a with and without basis) and Adjusted EPS are non-GAAP financial measures that Quanex believes provide a consistent basis for comparison between periods and more accurately reflects operational performance, as they are not influenced by certain income or expense items not affecting ongoing operations. EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net) and Adjusted EBITDA (defined as EBITDA further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, gain/loss on the sale of fixed assets, and restructuring charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making.  Net Debt is calculated using the sum of current maturities of long-term debt and long-term debt, minus cash and cash equivalents.  The leverage ratio of Net Debt to LTM Adjusted EBITDA is a financial measure that Quanex believes is useful to investors and financial analysts in evaluating the Company’s leverage.  In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in Quanex’s credit agreement.  Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures.   The Company believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding Quanex’s financial performance when comparing results to other investment opportunities.  The presented non-GAAP measures may not be the same as those used by other companies.  The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with U.S. GAAP. 

Forward Looking Statements

Statements that use the words “estimated,” “expect,” “could,” “should,” “believe,” “will,” “might,” or similar words reflecting future expectations or beliefs are forward-looking statements. The forward-looking statements include, but are not limited to, the Company’s future operating results, future financial condition, future uses of cash and other expenditures, expenses and tax rates, expectations relating to Quanex’s industry, and the Company’s future growth, including any guidance discussed in this press release.  The statements and guidance set forth in this release are based on current expectations.  Actual results or events may differ materially from this release.  For a complete discussion of factors that may affect Quanex’s future performance, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017, under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”.  Any forward-looking statements in this press release are made as of the date hereof, and Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.

 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
(In thousands, except per share data) 
(Unaudited) 
             
    Three Months Ended January 31,    
      2018       2017      
             
Net sales   $   191,666     $   195,096      
Cost of sales       154,440         154,947      
Selling, general and administrative       24,076         27,445      
Restructuring charges       366         1,139      
Depreciation and amortization       13,273         15,406      
Operating loss       (489 )       (3,841 )    
Interest expense       (2,441 )       (2,160 )    
Other, net       317         661      
Loss before income taxes       (2,613 )       (5,340 )    
Income tax benefit       7,560         1,614      
Net income (loss)   $   4,947     $   (3,726 )    
             
Income (loss) per common share, basic   $   0.14     $   (0.11 )    
Income (loss) per common share, diluted   $   0.14     $   (0.11 )    
             
Weighted average common shares outstanding:            
Basic       34,662         34,055      
Diluted       35,286         34,055      
             
Cash dividends per share   $   0.04     $   0.04      
             


 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(In thousands) 
(Unaudited) 
         
    January 31, 2018   October 31, 2017
ASSETS        
Current assets:        
Cash and cash equivalents   $   13,757     $   17,455  
Accounts receivable, net       62,119         79,411  
Inventories, net        95,843         87,529  
Prepaid and other current assets       7,451         7,406  
Total current assets       179,170         191,801  
Property, plant and equipment, net       213,014         211,131  
Goodwill        226,927         222,194  
Intangible assets, net       138,743         139,778  
Other assets       9,180         8,975  
Total assets   $   767,034     $   773,879  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $   39,868     $   44,150  
Accrued liabilities       29,559         38,871  
Income taxes payable       2,664         2,192  
Current maturities of long-term debt       20,773         21,242  
Total current liabilities       92,864         106,455  
Long-term debt       215,362         218,184  
Deferred pension and postretirement benefits       5,293         4,433  
Deferred income taxes       14,771         21,960  
Other liabilities       15,787         16,000  
Total liabilities       344,077         367,032  
Stockholders’ equity:        
Common stock       375         375  
Additional paid-in-capital       253,638         255,719  
Retained earnings       228,293         225,704  
Accumulated other comprehensive loss       (14,623 )       (25,076 )
Treasury stock at cost       (44,726 )       (49,875 )
Total stockholders’ equity       422,957         406,847  
Total liabilities and stockholders' equity   $   767,034     $   773,879  
         


 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW 
(In thousands) 
(Unaudited) 
       
  Three Months Ended January 31,
    2018     2017 (1)
Operating activities:      
Net income (loss) $   4,947     $   (3,726 )
Adjustments to reconcile net income (loss) to cash provided by operating activities:    
Depreciation and amortization     13,273         15,406  
Stock-based compensation     580         2,226  
Deferred income tax     (8,483 )       (3,684 )
Other, net     130         1,241  
Changes in assets and liabilities:      
Decrease in accounts receivable     18,378         21,143  
Increase in inventory     (6,926 )       (7,622 )
Decrease (increase) in other current assets     73         (438 )
Decrease in accounts payable     (4,523 )       (7,232 )
Decrease in accrued liabilities     (10,629 )       (17,971 )
Increase in income taxes     344         2,761  
Increase in deferred pension and postretirement benefits     860         837  
Increase in other long-term liabilities     181         366  
Other, net     (13 )       (226 )
Cash provided by operating activities     8,192         3,081  
Investing activities:      
Acquisitions, net of cash acquired     -         (8,497 )
Capital expenditures     (7,811 )       (8,141 )
Proceeds from disposition of capital assets     65         390  
Cash used for investing activities     (7,746 )       (16,248 )
Financing activities:      
Borrowings under credit facilities     9,500         24,000  
Repayments of credit facility borrowings     (13,750 )       (20,875 )
Repayments of other long-term debt     (255 )       (429 )
Common stock dividends paid     (1,397 )       (1,372 )
Issuance of common stock     2,231         1,383  
Payroll tax paid to settle shares forfeited upon vesting of stock     (706 )       (957 )
Cash (used for) provided by financing activities     (4,377 )       1,750  
Effect of exchange rate changes on cash and cash equivalents     233         (35 )
Decrease in cash and cash equivalents     (3,698 )       (11,452 )
Cash and cash equivalents at beginning of period     17,455         25,526  
Cash and cash equivalents at end of period $   13,757     $   14,074  
       
(1) Updated to reflect adoption of ASU 2016-09.      
       


                     
QUANEX BUILDING PRODUCTS CORPORATION 
NON-GAAP FINANCIAL MEASURE DISCLOSURE 
(In thousands, except per share data) 
(Unaudited) 
                     
    Three Months Ended     Three Months Ended  
Reconciliation of Adjusted Net Income (Loss) and Adjusted EPS   January 31, 2018     January 31, 2017  
    Net
Income
  Diluted
EPS
    Net
Income
  Diluted
EPS
 
Net income (loss) as reported   $   4,947     $   0.14       $   (3,726 )   $   (0.11 )  
Reconciling items from below       (6,485 )       (0.18 )         2,358         0.07    
Adjusted net loss and adjusted EPS   $   (1,538 )   $   (0.04 )     $   (1,368 )   $   (0.04 )  
                     
Reconciliation of Adjusted EBITDA   Three Months Ended
January 31, 2018
    Three Months Ended
January 31, 2017
 
    Reconciliation         Reconciliation      
Net income (loss) as reported   $   4,947           $   (3,726 )      
Income tax benefit       (7,560 )             (1,614 )      
Other, net       (317 )             (661 )      
Interest expense       2,441               2,160        
Depreciation and amortization       13,273               15,406        
EBITDA       12,784               11,565        
Reconciling items from below       378               1,470        
Adjusted EBITDA   $   13,162           $   13,035        
                     
Reconciling Items   Three Months Ended
January 31, 2018
    Three Months Ended
January 31, 2017
 
    Income
Statement
  Reconciling
Items
    Income
Statement
  Reconciling
Items
 
Net sales   $   191,666     $   -        $   195,096     $   -     
Cost of sales       154,440         -            154,947         (14 )  (1 )
Selling, general and administrative       24,076         (12 )  (2  )       27,445         (317 )  (2 )
Restructuring charges       366         (366 )  (3  )       1,139         (1,139 )  (3 )
EBITDA       12,784         378           11,565         1,470    
Depreciation and amortization       13,273         -            15,406         (2,533 )  (4 )
Operating loss       (489 )       378           (3,841 )       4,003    
Interest expense       (2,441 )       -            (2,160 )       -     
Other, net       317         (299 )  (5  )       661         (630 )  (5 )
Loss before income taxes       (2,613 )       79           (5,340 )       3,373    
Income tax benefit       7,560         (6,564 )  (6  )       1,614         (1,015 )  (6 )
Net income (loss)   $   4,947     $   (6,485 )     $   (3,726 )   $   2,358    
                     
Diluted earnings (loss) per share   $   0.14           $   (0.11 )      
                     
(1) Relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition. 
(2) Acquisition related transaction costs and loss on sale of fixed assets related to the closure of a plant in 2017. 
(3) Restructuring charges relate to the closure of several manufacturing plant facilities. 
(4) Accelerated depreciation and amortization for restructured PP&E and intangible assets. 
(5) Foreign currency transaction gains. 
(6) Impact on a with and without basis.  Includes $6.5 million adjustment related to the Tax Cuts and Jobs Act in 2018. 
                     


                               
QUANEX BUILDING PRODUCTS CORPORATION 
SEGMENT RECONCILIATION 
(In thousands) 
(Unaudited) 
                       
The following tables reconcile the Company's segment presentation to account for the transfer of operating facilities from the North American Engineered Components segment to the Cabinet Components segment, as previously reported in our earnings release for the three-months ended January 31, 2017, to the current presentation: 
                                         
    NA Engineered
Components
  EU Engineered
Components
  NA Cabinet
Components
  Unallocated
Corp & Other
  Total  
Three months ended January 31, 2017                      
As previously reported                      
Net sales   $   111,073     $   31,569   $   52,997     $   (543 )   $   195,096    
Cost of sales       86,393         22,538       46,237         (221 )       154,947    
Selling, general and administrative       13,735         4,772       4,110         4,828         27,445    
Restructuring costs       566         -        573         -          1,139    
Depreciation and amortization       10,078         2,056       3,135         137         15,406    
Operating income (loss)   $   301     $   2,203   $   (1,058 )   $   (5,287 )   $   (3,841 )  
                       
Reclassification                      
Net sales   $   (4,990 )   $   -    $   5,633     $   (643 )   $   -     
Cost of sales       (4,415 )       -        5,058         (643 )       -     
Selling, general and administrative       (204 )       -        204         -          -     
Restructuring costs       -          -        -          -          -     
Depreciation and amortization       (140 )       -        140         -          -     
Operating income (loss)   $   (231 )   $   -    $   231     $   -      $   -     
                       
Current presentation                      
Net sales   $   106,083     $   31,569   $   58,630     $   (1,186 )   $   195,096    
Cost of sales       81,978         22,538       51,295         (864 )       154,947    
Selling, general and administrative       13,531         4,772       4,314         4,828         27,445    
Restructuring costs       566         -        573         -          1,139    
Depreciation and amortization       9,938         2,056       3,275         137         15,406    
Operating income (loss)   $   70     $   2,203   $   (827 )   $   (5,287 )   $   (3,841 )  
                       


                               
QUANEX BUILDING PRODUCTS CORPORATION 
SELECTED SEGMENT DATA 
(In thousands) 
(Unaudited) 
                       
This table provides operating income (loss), EBITDA, and Adjusted EBITDA by reportable segment.  Non-operating expense and income tax expense are not allocated to the reportable segments. 
                                           
    NA Engineered
Components
  EU Engineered
Components
  NA Cabinet
Components
  Unallocated
Corp & Other
  Total  
Three months ended January 31, 2018                      
Net sales   $   102,727     $   33,996     $   55,922     $   (979 )   $   191,666    
Cost of sales       80,026         24,833         50,210         (629 )       154,440    
Selling, general and administrative       13,827         5,450         4,788         11         24,076    
Restructuring charges       251         -          115         -          366    
Depreciation and amortization       7,012         2,449         3,686         126         13,273    
Operating income (loss)       1,611         1,264         (2,877 )       (487 )       (489 )  
Depreciation and amortization       7,012         2,449         3,686         126         13,273    
EBITDA       8,623         3,713         809         (361 )       12,784    
Transaction related costs       -          -          -          12         12    
Restructuring charges       251         -          115         -          366    
Adjusted EBITDA    $   8,874     $   3,713     $   924     $   (349 )   $   13,162    
Adjusted EBITDA Margin %     8.6 %     10.9 %     1.7 %         6.9 %  
                       
Three months ended January 31, 2017                      
Net sales   $   106,083     $   31,569     $   58,630     $   (1,186 )   $   195,096    
Cost of sales       81,978         22,538         51,295         (864 )       154,947    
Selling, general and administrative       13,531         4,772         4,314         4,828         27,445    
Restructuring charges       566         -          573         -          1,139    
Depreciation and amortization       9,938         2,056         3,275         137         15,406    
Operating income (loss)       70         2,203         (827 )       (5,287 )       (3,841 )  
Depreciation and amortization       9,938         2,056         3,275         137         15,406    
EBITDA       10,008         4,259         2,448         (5,150 )       11,565    
Transaction related costs       -          -          -          60         60    
Mexico restructuring, loss on sale of fixed assets       -          -          257         -          257    
Restructuring charges       566         -          573         -          1,139    
PPA-Inventory Step-up       -          14         -          -          14    
Adjusted EBITDA    $   10,574     $   4,273     $   3,278     $   (5,090 )   $   13,035    
Adjusted EBITDA Margin %     10.0 %     13.5 %     5.6 %         6.7 %  
                       
                       


 
QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
         
     Three Months Ended 
    January 31, 2018   January 31, 2017 (1)
NA Engineered Components:      
  United States - fenestration (2) $   88,216     $   89,711  
  International - fenestration     7,008         6,341  
  United States - non-fenestration     4,147         5,831  
  International - non-fenestration     3,356         4,200  
    $   102,727     $   106,083  
EU Engineered Components  (3):                                     
  United States - fenestration $   -     $   35  
  International - fenestration (4)     29,869         28,905  
  International - non-fenestration     4,127         2,629  
    $   33,996     $   31,569  
NA Cabinet Components:      
  United States - fenestration $   3,445     $   3,332  
  United States - non-fenestration (5)                                                                                          52,006         54,691  
  International - non-fenestration     471         607  
    $   55,922     $   58,630  
Unallocated Corporate & Other:      
  Eliminations $   (979 )   $   (1,186 )
    $   (979 )   $   (1,186 )
         
Net Sales $   191,666     $   195,096  
         
(1) Updated to reflect transfer of operating facilities from NA Engineered Components to NA Cabinet Components.  See Reconciliation for additional details.
(2) Reflects the loss of revenue associated with eliminated products of $5.2 million for the three-months ended January 31, 2018.
(3) Reflects a gain of $3.1 million in revenue associated with foreign currency exchange rate impacts.
(4) Reflects loss of revenue associated with eliminated products of $2.4 million for the three-months ended January 31, 2018.
(5) Reflects the loss of revenue associated with eliminated products of $2.4 million for the three-months ended January 31, 2018.
         

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