Investor Press Release
Quanex Announces Fiscal First Quarter 2004 Results
Engineered Products Reports Record First Quarter Operating Income; Integration of MACSTEEL Monroe and TruSeal Technologies Proceeding Well
HOUSTON, Feb. 26 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) announced fiscal first quarter results for the period ending January 31, 2004. Net sales for the quarter were $281.2 million, 23% higher than a year ago. Net sales included one month's results from the Company's acquisitions of MACSTEEL Monroe and TruSeal Technologies of $27.4 million. The Company commented that first quarter demand at its Vehicular Products and Building Products segments was very strong and that backlogs for the second quarter remained at high levels. Net income for Quanex was $6.4 million, down 6% compared to last year's record first quarter. Diluted earnings per share were $.39, the Company's second best first quarter. Monroe and TruSeal contributed about $.05 (after interest expense) to the diluted earnings per share figure in January and the first quarter.
Net sales for the first quarter 2003 were $229.5 million. Net income and diluted earnings per share for the first quarter 2003 were $6.8 million and $.41, respectively.
Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "We delivered near record first quarter results, driven by very strong customer demand across most product lines. During the quarter, we continued to be challenged by runaway steel scrap costs and the severe impact those costs had on the otherwise solid operating results at MACSTEEL. North American light vehicle builds were about flat compared to a year ago. Heavy duty truck builds continue to post gains, with builds up some 25% during the quarter versus a year ago. Housing activity remained brisk through calendar year-end, which allowed Engineered Products, excluding TruSeal, to post record first quarter operating income," Jean said.
"We have made excellent progress to date integrating Monroe and TruSeal into Quanex. We are very impressed by the quality of the management teams and are excited by the long term earnings potential of both businesses. We are comfortable with our previous guidance that the two acquisitions will contribute $.40 to $.50 to our fiscal 2004 diluted earnings per share."
Quarterly Financials ($ in millions, except per share data) 1st qtr 2004 1st qtr 2003 inc/dcr Net Sales $281.2 $229.5 23% Operating Income 10.7 10.1 6% Net Income 6.4 6.8 -6% EPS: Basic $ .39 $ .41 -5% EPS: Diluted .39 .41 -5% Segment Commentary VEHICULAR PRODUCTS ($ in millions) 1st qtr 2004 1st qtr 2003 Net Sales $141.0 $108.9 Operating Income 8.7 9.9
The Vehicular Products segment includes MACSTEEL, along with the newly acquired North Star Steel Monroe facility, Piper Impact and Temroc Metals. The segment's main drivers are North American light vehicle builds and heavy duty truck builds.
"North American light vehicle builds remained at healthy levels during the quarter, and MACSTEEL benefited from improving heavy duty truck production. Excluding Monroe, MACSTEEL shipments were up about 10% for the quarter, while operating income was down some 20%. Skyrocketing steel scrap costs were an issue during the quarter as MACSTEEL's scrap costs were up some $65 per ton over a year ago. Offsetting part of this cost increase was MACSTEEL's higher scrap surcharge effective January 1, 2004, productivity gains from lean initiatives and higher value added product sales. Further bolstering demand has been a strengthening of the secondary markets from the oil patch to defense. We see real strength in MACSTEEL's business going forward with our backlog some 50% higher than a year ago," Jean said.
"Piper Impact continues to struggle with the reduction of their base business. They narrowed the loss during the quarter versus the year ago period, and we are getting closer to finalizing a review of our strategic options," said Jean.
BUILDING PRODUCTS ($ in millions) 1st qtr 2004 1st qtr 2003 Net Sales $140.2 $120.6 Operating Income 5.5 4.2
The Building Products segment includes Engineered Products, including the recent acquisition of TruSeal Technologies, and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures.
"Engineered Products, excluding TruSeal's excellent first month results, reported record income in our first quarter even though January's inclement winter did begin to slow the business," continued Jean. "Housing starts and remodeling activity ended the calendar year at very high levels and the momentum has clearly carried over into 2004. This level of activity is an excellent indicator of the underlying strength in this business segment."
"Nichols Aluminum had a good sales quarter and operating income was slightly improved from a year ago. Shipments remained strong to our traditional building and construction markets and our higher margin coated sheet was sold out in the quarter. The Golden facility, which supplies food packaging and container products, also reported good customer activity. As with Engineered Products, Nichols' first quarter is seasonally their slowest sales period. Currently, we have a good backlog of business and customer activity in the secondary markets is improving," said Jean.
Demand in the Company's two target markets, vehicular products and building products, continues to be bolstered by a rebounding economy and favorable interest rates. Business conditions and the economy are expected to continue to gain strength throughout 2004.
In Quanex's Vehicular Products segment, business activity looks very promising going forward; however, the unprecedented sharp spikes in scrap prices remain an ongoing concern at MACSTEEL. The January and February cost increases have been particularly painful because of their sheer magnitude, and are well in excess of our current scrap surcharge. This situation will result in a temporary, yet significant reduction in margins at MACSTEEL in the second quarter.
In the Building Products segment, order activity remains strong, and while weather sensitive, the Company expects better second quarter results, excluding TruSeal, compared to a year ago. At Nichols Aluminum, both rising London Metal Exchange (LME) ingot prices and scrap prices remain an issue, however, sales prices have also increased, mitigating part of an expected second quarter margin squeeze. Housing starts for 2004 are expected to moderate only slightly from last year's record 1.85 million units. Building Products' other driver, remodeling expenditures, is also expected to remain at healthy levels.
Taken together, the sales outlook remains positive. However, uncertainties surrounding the cost of steel and aluminum scrap in the second quarter and their eventual recovery complicates the Company's ability to accurately forecast its earnings for both the second quarter and the year. At this time, Quanex expects its fiscal second quarter 2004 diluted earnings per share to be down significantly from the year ago period. The Company will publish second quarter diluted earnings per share guidance when it releases its second quarter update in April. Guidance for the year will be provided once the Company has a better sense of its annualized cost of steel scrap.
The Company continues to account for stock options using the current transition provisions of SFAS No. 123. Accordingly, Quanex does not reflect the option expense in its income statement or diluted earnings per share. However, the Company does disclose the impact on net income and diluted earnings per share in the footnotes to its SEC financial statements. Expensing stock options would have reduced net income by about $563,000 and $357,000 for the first quarter of 2004 and 2003 respectively, and would have reduced diluted earnings per share by $.03 and $.02, respectively.
The Board of Directors declared the Company's quarterly cash dividend of $.17 per share on the Company's common stock, payable March 31, 2004 to shareholders of record on March 15, 2004.
Quanex is a $1.3 billion industry-leading manufacturer of value-added engineered materials and components serving the Vehicular Products and Building Products markets.
Financial Statistics as of 1/31/04
Book value per common share: $27.74; Total debt to capitalization: 33.51%; Return on invested capital: 8.32%; Return on common equity: 9.78%; Actual number of common shares outstanding: 16,421,724
Definitions Book value per common share -- calculated as total stockholders' equity as of balance sheet date divided by actual number of common shares outstanding; Total debt to capitalization -- calculated as the sum of both the current and long term portion of debt, as of balance sheet date, divided by the sum of both the current and long term portion of debt plus total stockholders' equity as of balance sheet date; Return on invested capital -- calculated as the total of the prior 12 months net income plus prior 12 months after-tax interest expense and capitalized interest, the sum of which is divided by the trailing five quarters average total debt (current and long term) and total stockholders' equity; Return on common equity -- calculated as the prior 12 months net income, divided by the trailing five quarters average common stockholders' equity.
Statements that use the words "expect," "should," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The statements found above are based on current expectations. Actual results or events may differ materially from this release. Factors that could impact future results may include, without limitation, the effect of both domestic and global economic conditions, the impact of competitive products and pricing, and the availability and cost of raw materials. For a more complete discussion of factors that may affect the Company's future performance, please refer to the Company's most recent 10-K filing (December 29, 2003) under the Securities Exchange Act of 1934, in particular the sections titled, "Private Securities Litigation Reform Act" contained therein.
For further information, visit the Company's website at www.quanex.com . Financial Contact: Jeff Galow, 713/877-5327 Media Contact: Valerie Calvert, 713/877-5305 QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three months ended January 31, 2004 2003 Net sales $281,156 $229,509 Cost of sales 245,086 194,525 Selling, general and administrative expense 13,108 12,855 Depreciation and amortization 12,730 12,014 Gain on sale of land (454) --- Operating income 10,686 10,115 Interest expense (820) (975) Other, net 335 1,459 Income before income taxes 10,201 10,599 Income tax expense (3,774) (3,816) Net income $6,427 $6,783 Weighted average common shares outstanding: Basic 16,318 16,406 Diluted 16,589 16,648 Earnings per common share: Basic $0.39 $0.41 Diluted $0.39 $0.41 Cash dividends per share $0.17 $0.17 QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION (In thousands) (Unaudited) Three months ended January 31, 2004 2003 Net sales: Vehicular Products $140,979 $108,932 Building Products 140,177 120,577 Net sales $281,156 $229,509 Operating income: Vehicular Products $8,680 $9,887 Building Products 5,511 4,167 Corporate and Other (3,505) (3,939) Operating income $10,686 $10,115 QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) January 31, October 31, 2004 2003 2003 2002 Assets $10,182 $5,425 Cash and equivalents $22,108 $18,283 Accounts and notes receivable, 165,393 103,710 net 123,185 116,122 125,436 100,797 Inventories 79,322 90,756 16,609 12,600 Other current assets 8,116 10,640 317,620 222,532 Total current assets 232,731 235,801 Property, plant and equipment, 408,315 349,674 net 335,904 353,132 137,730 66,436 Goodwill, net 66,436 66,436 60,121 35,604 Other assets 30,792 33,771 $923,786 $674,246 Total assets $665,863 $689,140 Liabilities and stockholders' equity $117,728 $79,219 Accounts payable $89,435 $76,588 47,647 39,512 Accrued liabilities 39,209 48,973 7,043 7,180 Income taxes payable 7,381 4,839 --- 2,746 Other current liabilities 46 3,970 3,727 445 Current portion of long-term debt 3,877 434 176,145 129,102 Total current liabilities 139,948 134,804 225,902 70,051 Long-term debt 15,893 75,131 945 2,176 Deferred pension credits 8,323 4,960 Deferred postretirement welfare 7,824 8,152 benefits 7,845 7,928 41,446 30,464 Deferred income taxes 34,895 29,210 15,962 14,196 Other liabilities 13,800 15,712 468,224 254,141 Total liabilities 220,704 267,745 455,562 420,105 Total stockholders' equity 445,159 421,395 Total liabilities and $923,786 $674,246 stockholders' equity $665,863 $689,140 QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Three months ended January 31, 2004 2003 Operating activities: Net income $6,427 $6,783 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of land (454) --- Depreciation and amortization 12,838 12,107 Deferred income taxes 1,501 1,254 Deferred pension and postretirement benefits (7,399) (2,560) 12,913 17,584 Changes in assets and liabilities, net of effects from acquisitions and dispositions: Decrease (Increase) in accounts and notes receivable (1,790) 12,412 Increase in inventory (6,416) (10,041) Increase in accounts payable 6,370 2,631 Increase (Decrease) in accrued liabilities 2,380 (9,461) Increase (Decrease) in income taxes payable (487) 2,341 Other, net (2,078) (3,476) Cash provided by operating activities 10,892 11,990 Investment activities: Acquisitions, net of cash acquired (231,913) --- Proceeds from sale of land 637 --- Capital expenditures, net of retirements (4,166) (8,520) Other, net (602) (1,147) Cash used for investment activities (236,044) (9,667) Financing activities: Bank revolver and note repayments, net 210,000 (5,000) Purchases of Quanex common stock --- (6,711) Common dividends paid (2,789) (2,638) Issuance of common stock, net 6,715 810 Other, net (709) (1,642) Cash used for financing activities 213,217 (15,181) Effect of exchange rate changes on cash and equivalents 9 --- Decrease in cash (11,926) (12,858) Beginning of period cash and equivalents 22,108 18,283 End of period cash and equivalents $10,182 $5,425
SOURCE Quanex Corporation