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Quanex Building Products Announces Second Quarter 2017 Results and Reaffirms Full Year 2017 Guidance
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Consolidation of U.S. Vinyl Profiles Business Complete 
Solid Margin Performance Continues

HOUSTON, May 30, 2017 (GLOBE NEWSWIRE) --  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the quarter ended April 30, 2017.

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Second quarter results came in as expected, despite weather related weakness in April.  We completed the consolidation of our U.S. vinyl profiles business ahead of schedule and we are pleased with the progress of negotiations held with various cabinet customers related to margin dilutive revenue.  In fact, we realized slight margin expansion in the cabinet components segment despite continued excessive overtime costs.  We also saw margin expansion in our European engineered components segment.  As anticipated, revenues were down year-over-year in our North American engineered components segment, driven by a further $17 million reduction due to the previously disclosed re-sourcing effort by a large vinyl profiles customer.  Despite the lower top line, margins remained flat in this segment.  The U.S. vinyl profiles business consolidation is behind us, and while still early, we feel we have turned the corner at Woodcraft.  As such, we are confident in achieving our second half margin expansion and cash flow expectations and are comfortable with our previously disclosed 2017 guidance.”

Second Quarter 2017 Results Summary   

The Company reported net sales of $209.1 million for the three months ended April 30, 2017, compared to $229.5 million for the three months ended April 30, 2016.  Similar to the first quarter of 2017, the decrease was primarily attributable to Quanex’s previously disclosed decision to walk away from less profitable business in an effort to protect margins. (See Sales Analysis table for additional information)

Net income decreased to $1.5 million during the second quarter of 2017, compared to net income of $3.9 million in the second quarter of 2016.  Adjusted EBITDA decreased to $20.5 million during the second quarter of 2017, compared to $24.3 million during the second quarter of 2016.  The decrease was largely due to lower volumes as the Company continues the transition away from less profitable business combined with elevated legal expenses during the quarter.  (See Non-GAAP Terminology Definitions and Disclaimers section and Selected Segment Data table for additional information)

As of April 30, 2017, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.7x.  The Company’s leverage ratio increased quarter-over-quarter mainly as a result of adding approximately $16 million in debt related to a capital lease for a new warehouse servicing Quanex’s U.K. vinyl profiles business.  The Company remains focused on generating Free Cash Flow to pay down debt and anticipates a significant improvement in the leverage ratio by year-end 2017.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

 
    Three Months Ended April 30, 2017   Three Months Ended April 30, 2016
($ in thousands, except per share data)   Results
Before
Adjustments
  Adjustments   Adjusted
Results
  Results
Before
Adjustments
  Adjustments   Adjusted
Results
Net sales   $ 209,133     $ -     $ 209,133     $ 229,460     $ -     $ 229,460  
Cost of sales (1)     162,132       (90 )     162,042       176,497       (90 )     176,407  
Selling, general and administrative (2)     26,916       (353 )     26,563       28,591       212       28,803  
Restructuring charges (3)     1,080       (1,080 )     -       -       -       -  
EBITDA     19,005       1,523       20,528       24,372       (122 )     24,250  
Depreciation and amortization (4)     14,380       (1,692 )     12,688       13,816       -       13,816  
Operating income (loss)     4,625       3,215       7,840       10,556       (122 )     10,434  
Interest expense     (2,391 )     -       (2,391 )     (5,633 )     -       (5,633 )
Other, net (5)     (135 )     155       20       848       (835 )     13  
Income (loss) before income taxes     2,099       3,370       5,469       5,771       (957 )     4,814  
Income tax (expense) benefit (6)     (637 )     (1,040 )     (1,677 )     (1,836 )     304       (1,532 )
Net income (loss)   $ 1,462     $ 2,330     $ 3,792     $ 3,935     $ (653 )   $ 3,282  
                         
Diluted earnings per share   $ 0.04         $ 0.11     $ 0.11         $ 0.10  
                         
(1) Cost of sales adjustment relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition.
(2) SG&A adjustments are for acquisition related transaction costs and in 2017, gain on sale of fixed assets related to the closure of the plant in Mexico and a one-time employee benefit adjustment.
(3) Restructuring charges relate to the closure of several manufacturing plant facilities.
(4) D&A adjustments relate to accelerated amortization for restructured PP&E and intangible assets.
(5) Other, net adjustments relate to foreign currency transaction (gains) losses.
(6) Effective tax rate reflects impacts of adjustments on a with and without basis.
 

Recent Events

Quanex’s Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock, payable June 30, 2017, to shareholders of record on June 15, 2017.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, May 31, 2017, 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 18485556, 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 June 7, 2017.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 18485556. 

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 of Investor Relations & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

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 related to the plant closure in Mexico, one-time employee benefit adjustment 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.   Adjusted Net (Loss) Income is a non-GAAP financial measure that excludes certain charges and credits because the Company believes that such items are not indicative of its core operating results and trends, and do not provide meaningful comparisons with other reporting periods.  Quanex believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding the Company’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.  Quanex 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, 2016, 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 INCOME (LOSS)  
(In thousands, except per share data)   
(Unaudited) 
                 
                 
    Three Months Ended April 30,   Six Months Ended April 30,
      2017       2016       2017       2016  
                 
Net sales   $ 209,133     $ 229,460     $ 404,229     $ 430,928  
Cost of sales     162,132       176,497       317,079       335,845  
Selling, general and administrative     26,916       28,591       54,361       59,879  
Restructuring charges     1,080       -       2,219       -  
Depreciation and amortization     14,380       13,816       29,786       26,786  
Operating income     4,625       10,556       784       8,418  
Interest expense     (2,391 )     (5,633 )     (4,551 )     (12,124 )
Other, net     (135 )     848       526       (1,513 )
Income (loss) before income taxes     2,099       5,771       (3,241 )     (5,219 )
Income tax (expense) benefit     (637 )     (1,836 )     977       1,905  
Net income (loss)   $ 1,462     $ 3,935     $ (2,264 )   $ (3,314 )
                 
Income (loss) per common share, basic   $ 0.04     $ 0.12     $ (0.07 )   $ (0.10 )
Income (loss) per common share, diluted   $ 0.04     $ 0.11     $ (0.07 )   $ (0.10 )
                 
Weighted average common shares outstanding:                
Basic     34,146       33,873       34,099       33,818  
Diluted     34,769       34,449       34,099       33,818  
                 
Cash dividends per share   $ 0.04     $ 0.04     $ 0.08     $ 0.08  
                 


QUANEX BUILDING PRODUCTS CORPORATION    
CONDENSED CONSOLIDATED BALANCE SHEETS    
(In thousands)    
(Unaudited)  
           
    April 30, 2017   October 31, 2016  
ASSETS          
Current assets:          
Cash and cash equivalents   $ 14,513     $ 25,526    
Accounts receivable, net     79,735       83,625    
Inventories, net     91,675       84,335    
Prepaid and other current assets     8,111       10,488    
Total current assets     194,034       203,974    
Property, plant and equipment, net     213,468       198,497    
Goodwill     219,883       217,035    
Intangible assets, net     147,231       154,180    
Other assets     7,834       6,667    
Total assets   $ 782,450     $ 780,353    
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable   $ 41,239     $ 47,781    
Accrued liabilities     39,639       55,101    
Income taxes payable     1,603       732    
Current maturities of long-term debt     20,206       10,520    
Total current liabilities     102,687       114,134    
Long-term debt     266,442       259,011    
Deferred pension and postretirement benefits     9,848       8,167    
Deferred income taxes     15,372       18,322    
Other liabilities     14,670       12,888    
Total liabilities     409,019       412,522    
Stockholders’ equity:          
Common stock     375       376    
Additional paid-in-capital     255,119       254,540    
Retained earnings     208,629       214,047    
Accumulated other comprehensive loss     (32,189 )     (38,765 )  
Treasury stock at cost     (58,503 )     (62,367 )  
Total stockholders’ equity     373,431       367,831    
Total liabilities and stockholders' equity   $ 782,450     $ 780,353    
           


QUANEX BUILDING PRODUCTS CORPORATION    
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW    
(In thousands)    
(Unaudited)    
           
  Six Months Ended April 30,    
    2017       2016      
Operating activities:          
Net loss $ (2,264 )   $ (3,314 )    
Adjustments to reconcile net loss to cash provided by operating activities:          
Depreciation and amortization   29,786       26,786      
Stock-based compensation   3,222       3,830      
Deferred income tax   (4,233 )     (4,253 )    
Excess tax benefit from share-based compensation   (98 )     (1 )    
Other, net   1,355       1,503      
Changes in assets and liabilities, net of effects from acquisitions:          
Decrease in accounts receivable   4,564       3,059      
Increase in inventory   (6,593 )     (5,181 )    
Increase in other current assets   (506 )     (1,527 )    
Decrease in accounts payable   (7,170 )     (157 )    
Decrease in accrued liabilities   (8,426 )     (1,769 )    
Increase in income taxes payable   3,215       3,394      
Increase in deferred pension and postretirement benefits   1,682       1,659      
Increase in other long-term liabilities   945       695      
Other, net   195       (136 )    
Cash provided by operating activities   15,674       24,588      
Investing activities:          
Acquisitions, net of cash acquired   (8,497 )     (245,904 )    
Capital expenditures   (17,550 )     (17,419 )    
Proceeds from disposition of capital assets   593       935      
Cash used for investing activities   (25,454 )     (262,388 )    
Financing activities:          
Borrowings under credit facilities   53,500       332,800      
Repayments of credit facility borrowings   (52,250 )     (79,775 )    
Debt issuance costs   -       (8,713 )    
Repayments of other long-term debt   (1,363 )     (1,165 )    
Common stock dividends paid   (2,749 )     (2,731 )    
Issuance of common stock   1,726       3,042      
Excess tax benefit from share-based compensation   98       1      
Cash (used for) provided by financing activities   (1,038 )     243,459      
Effect of exchange rate changes on cash and cash equivalents   (195 )     217      
(Decrease) increase in cash and cash equivalents   (11,013 )     5,876      
Cash and cash equivalents at beginning of period   25,526       23,125      
Cash and cash equivalents at end of period $ 14,513     $ 29,001      
           


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 April 30, 2017                    
Net sales   $ 116,410     $ 34,205     $ 59,147     $ (629 )   $ 209,133  
Cost of sales     88,424       23,764       50,281       (337 )     162,132  
Selling, general and administrative     13,466       5,198       4,401       3,851       26,916  
Restructuring charges     914       -       166       -       1,080  
Depreciation and amortization     8,669       2,306       3,265       140       14,380  
Operating income (loss)     4,937       2,937       1,034       (4,283 )     4,625  
Depreciation and amortization     8,669       2,306       3,265       140       14,380  
EBITDA     13,606       5,243       4,299       (4,143 )     19,005  
Transaction related costs     -       -       -       232       232  
Mexico restructuring, gain on sale of fixed assets     -       -       (67 )     -       (67 )
One-time employee benefit adjustment     -       -       188       -       188  
PPA-Inventory Step-up     -       90       -       -       90  
Restructuring charges     914       -       166       -       1,080  
Adjusted EBITDA   $ 14,520     $ 5,333     $ 4,586     $ (3,911 )   $ 20,528  
Adjusted EBITDA Margin %     12.5 %     15.6 %     7.8 %         9.8 %
                     
Three months ended April 30, 2016                    
Net sales   $ 134,519     $ 36,965     $ 59,555     $ (1,579 )   $ 229,460  
Cost of sales     101,193       25,518       50,801       (1,015 )     176,497  
Selling, general and administrative     16,456       5,890       4,233       2,012       28,591  
Depreciation and amortization     7,153       2,393       4,129       141       13,816  
Operating income (loss)     9,717       3,164       392       (2,717 )     10,556  
Depreciation and amortization     7,153       2,393       4,129       141       13,816  
EBITDA     16,870       5,557       4,521       (2,576 )     24,372  
Transaction related costs     -       -       -       (212 )     (212 )
PPA-Inventory Step-up     -       90       -       -       90  
Adjusted EBITDA   $ 16,870     $ 5,647     $ 4,521     $ (2,788 )   $ 24,250  
Adjusted EBITDA Margin %     12.5 %     15.3 %     7.6 %         10.6 %
                     
Six months ended April 30, 2017                    
Net sales   $ 227,483     $ 65,774     $ 112,144     $ (1,172 )   $ 404,229  
Cost of sales     174,817       46,302       96,518       (558 )     317,079  
Selling, general and administrative     27,201       9,970       8,511       8,679       54,361  
Restructuring charges     1,480       -       739       -       2,219  
Depreciation and amortization     18,747       4,362       6,400       277       29,786  
Operating income (loss)     5,238       5,140       (24 )     (9,570 )     784  
Depreciation and amortization     18,747       4,362       6,400       277       29,786  
EBITDA     23,985       9,502       6,376       (9,293 )     30,570  
Transaction related costs     -       -       -       292       292  
Mexico restructuring, loss on sale of fixed assets     -       -       190       -       190  
One-time employee benefit adjustment     -       -       188       -       188  
PPA-Inventory Step-up     -       104       -       -       104  
Restructuring charges     1,480       -       739       -       2,219  
Adjusted EBITDA   $ 25,465     $ 9,606     $ 7,493     $ (9,001 )   $ 33,563  
Adjusted EBITDA Margin %     11.2 %     14.6 %     6.7 %         8.3 %
                     
Six months ended April 30, 2016                    
Net sales   $ 255,567     $ 70,033     $ 108,080     $ (2,752 )   $ 430,928  
Cost of sales     194,921       49,165       93,340       (1,581 )     335,845  
Selling, general and administrative     30,978       11,474       8,331       9,096       59,879  
Depreciation and amortization     14,361       4,851       7,274       300       26,786  
Operating income (loss)     15,307       4,543       (865 )     (10,567 )     8,418  
Depreciation and amortization     14,361       4,851       7,274       300       26,786  
EBITDA     29,668       9,394       6,409       (10,267 )     35,204  
Transaction related costs     -       -       -       4,878       4,878  
PPA-Inventory Step-up     -       284       2,287       -       2,571  
Adjusted EBITDA   $ 29,668     $ 9,678     $ 8,696     $ (5,389 )   $ 42,653  
Adjusted EBITDA Margin %     11.6 %     13.8 %     8.0 %         9.9 %
                     


QUANEX BUILDING PRODUCTS CORPORATION  
SALES ANALYSIS  
(In thousands)  
(Unaudited)
                     
    Sales Bridge for Three Months Ended April 30, 2017
    NA Engineered   EU Engineered   NA Cabinet   Unallocated    
    Components   Components   Components   Corporate & Other   Consolidated
                     
Net sales, three months ended April 30, 2016   $ 134,519     $ 36,965     $ 59,555     $ (1,579 )   $ 229,460  
Market volume     (1,129 )     1,778       4,986       950       6,585  
Eliminated products     (18,841 )     (642 )     (5,391 )     -       (24,874 )
Price changes     276       256       593       -       1,125  
Foreign currency impacts     -       (4,152 )     -       -       (4,152 )
Raw material pass through adjustments     1,585       -       (596 )     -       989  
Net Sales, three months ended April 30, 2017   $ 116,410     $ 34,205     $ 59,147     $ (629 )   $ 209,133  
                     
    Sales Bridge for Six Months Ended April 30, 2017
    NA Engineered   EU Engineered   NA Cabinet   Unallocated    
    Components   Components   Components   Corporate & Other   Consolidated
                     
Net sales, six months ended April 30, 2016   $ 255,567     $ 70,033     $ 108,080     $ (2,752 )   $ 430,928  
Market volume     (696 )     5,342       10,143       1,580       16,369  
Eliminated products     (29,806 )     (642 )     (6,493 )     -       (36,941 )
Price changes     265       91       1,009       -       1,365  
Foreign currency impacts     -       (9,050 )     -       -       (9,050 )
Raw material pass through adjustments     2,153       -       (595 )     -       1,558  
Net Sales, six months ended April 30, 2017   $ 227,483     $ 65,774     $ 112,144     $ (1,172 )   $ 404,229  
                     

 

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