Investor Press Release
Quanex Announces Fiscal Second Quarter 2003 Results; Best-Ever Second Quarter Sales From Continuing Operations; Company Buys Back 221,100 Common Shares
HOUSTON, May 29 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) announced fiscal second quarter results for the period ending April 30, 2003. Net sales were a record for the quarter at $254.6 million, 2% higher than a year ago and primarily attributable to slightly higher volumes and moderate price increases at MACSTEEL and Nichols Aluminum. Income from continuing operations was down 12% to $9.4 million compared to last year's record second quarter and resulted from decreased margins and profits in Quanex's non-core businesses. The Company commented that MACSTEEL reported good results for the quarter, but that demand was much softer than expected at its Engineered Products business due to a harsh winter season, which slowed its customers' activities in key market regions. Diluted earnings per share for the quarter were $.58. Income from continuing operations for the first six months of 2003 was $16.1 million, equal to the record set a year ago.
Net sales for the fiscal 2002 second quarter were $249.5 million. Net income and diluted earnings per share a year ago were $10.6 million and $.70, respectively.
Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "Second quarter results fell short of our expectations, and while we had a good quarter at MACSTEEL, severe winter weather in the Northeast and Midwest slowed construction activity and significantly impacted our door and window customers. Normally, we are ramping up our Engineered Products business early in the second quarter, but this year the spring thaw came much later and stronger order rates did not kick-in until recently.
"During the quarter, we also experienced production and quality problems at our Nichols Aluminum Alabama facility associated with the upgrade of our coating system, where painted coil was produced and shipped that did not fully meet our high quality standards," continued Jean. "Fortunately, production issues were resolved during the second quarter, painted coil demand is good and we expect painted sales for the third quarter at Alabama to exceed year ago levels.
"During the quarter, we purchased 221,100 shares of our outstanding common
stock. With our positive long term outlook for our core businesses, look for
us to continue buying back shares at today's prices," said Jean.
Quarterly Financials ($ in millions, except per share data) 2nd qtr 2003 2nd qtr 2002 Net Sales $ 254.6 $ 249.5 Operating Income 14.9 20.0 Net Income 9.4 10.6 EPS: Basic $.58 $.77 EPS: Diluted $.58 $.70 Segment Commentary VEHICULAR PRODUCTS ($ in millions) 2nd qtr 2003 2nd qtr 2002 Net sales: $ 118.0 $ 117.6 Operating income: 14.3 16.4
The Vehicular Products segment includes MACSTEEL, Piper Impact and Temroc Metals. The segment's main driver is North American light vehicle builds.
"Despite the fact that North American builds were down 4% for the fiscal second quarter versus a year ago, MACSTEEL experienced a good quarter with higher sales and operating income, clearly outperforming their market. Both sales and income were up over last year while operating margins remained the same. Solid operating performance, a richer mix and some price relief enabled MACSTEEL to overcome significant year-over-year scrap and energy cost increases. Toward the end of the second quarter, MACSTEEL's backlog dropped and we entered the third quarter with softer releases compared to last quarter and a year ago, consistent with reductions in the OEMs' recent build rates. Nevertheless, Phase VI, our value-added MACPLUS program, is essentially sold out and management is exploring opportunities to incrementally increase capacity," Jean said.
"Offsetting MACSTEEL's earnings improvement were operating losses at both Piper Impact and Temroc. Piper results were negatively affected from the demand erosion of its aluminum airbag components. The business, while posting a loss for the quarter, did report improved results over the prior two quarters, even with lower sales. Piper has made good progress in lowering the breakeven point over the last 12 months. While sales will be down significantly from 2002, Piper is on track to add about $10 million of new programs on an annualized basis. We also look forward to other programs now in the pipeline to begin kicking in later this year," said Jean.
BUILDING PRODUCTS ($ in millions) 2nd qtr 2003 2nd qtr 2002 Net sales: $ 136.6 $ 131.9 Operating income: 4.2 7.6
The Building Products segment includes Engineered Products and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures.
"Engineered Products results for the quarter were well below our expectations. Many of our larger door and window customers have strong positions in the Midwest and Northeast markets which were severely impacted by a long, wet and cold winter season. Our customers simply couldn't get any traction during this period, and in fact, business conditions remained slow until recently," said Jean.
"Nichols Aluminum results for the quarter had the benefit of strong volume, higher selling prices and improved spread versus a year ago, which was more than offset by the poor operating performance at the Alabama (NAA) finishing facility, which in turn negatively impacted margins for our Building Products segment. A capital project of about $2 million was approved last year to allow NAA to ramp up the capacity of its existing paint line. However, due to a number of unexpected problems, low quality painted coil was produced and shipped. During the second quarter, management changes were made, quality was restored, and we are currently working closely with customers sorting out remaining issues. We do not expect these production issues at NAA to impact third quarter results in a material way," continued Jean.
The Company's two target markets are vehicular products and building products. North American light vehicle builds year-to-date are below year-ago levels, and the OEMs' calendar second quarter build rates are now projected to be 10% below last year. As a result, for the third quarter, the Company expects MACSTEEL to report slightly lower results compared to a year ago. Share gains, higher prices and scrap surcharges will be a plus in the third quarter compared to last year, but will be offset by lower volume and higher scrap costs. Demand is projected to rebound slightly later in the quarter.
Within the Building Products segment, the Company now expects Nichols to post flat sales and lower operating earnings for the third quarter. Rising scrap prices, with little change in mill finish selling prices, will negatively impact their results. Business activity at Engineered Products has returned to the healthy levels expected for this time of year and management anticipates third quarter results to be in line with a year ago. New housing starts for 2003 are expected to be down about 5% from last year while remodeling expenditures are expected to be in line with 2002.
Because of the current uncertainty in the economy, near term results cannot be easily forecasted. At this point, it is difficult to predict what North American light vehicle build rates will be for the remainder of 2003. In addition, the Company also experienced further tightening in spread due to tight scrap supplies, particularly for its aluminum scrap. Based on the factors discussed above, a broader earnings range is prudent. Therefore, the Company now expects its third quarter diluted earnings per share to be in the range of $.65 to $.80. For fiscal 2003, the Company now expects diluted earnings per share to be in the range of $2.65 to $2.90.
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 financial statements. Expensing stock options would have reduced net income by about $378,000 and $325,000 for the second quarter of 2003 and 2002 respectively, and would have reduced diluted earnings per share by $.02 for both periods.
In December, 2002, the Company's Board of Directors approved a program to purchase up to one million shares (6%) of its outstanding common stock. During the second quarter, the Company purchased 221,100 shares at an average price of $30.72, and year-to-date, the Company has purchased 438,600 shares at an average price of $30.76.
The Board of Directors declared a quarterly cash dividend of $.17 per share on the Company's common stock, payable June 30, 2003 to shareholders of record on June 16, 2003.
Quanex is an industry-leading manufacturer of engineered materials and components for the vehicular products and building products markets.
Financial Statistics as of 04/30/03
Book value per common share: $26.25; Total debt to capitalization: 16.33%; Return on invested capital: 12.25%; Return on common equity: 14.01%; Actual number of common shares outstanding: 16,031,494
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 5 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 5 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 and below 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 20, 2002) 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 website at www.quanex.com . QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three months ended Six months ended April 30, April 30, 2003 2002 2003 2002 $254,610 $249,500 Net sales $484,119 $453,743 213,368 204,371 Cost of sales 407,493 375,413 Selling, general and 14,340 13,697 administrative expense 27,595 25,861 Depreciation and 12,027 11,399 amortization 24,041 22,592 14,875 20,033 Operating income 24,990 29,877 (596) (4,668) Interest expense (1,571) (8,109) --- 803 Capitalized interest --- 1,533 353 446 Other, net 1,812 1,844 14,632 16,614 Income before income taxes 25,231 25,145 (5,267) (5,982) Income tax expense (9,083) (9,053) $9,365 $10,632 Net income $16,148 $16,092 Weighted average common shares outstanding: 16,064 13,881 Basic 16,238 13,665 16,286 16,107 Diluted 16,470 15,848 Earnings per common share: $0.58 $0.77 Basic $0.99 $1.18 $0.58 $0.70 Diluted $0.98 $1.10 $0.17 $0.16 Cash dividends per share $0.34 $0.32 QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION (In thousands) (Unaudited) Three months ended Six months ended April 30, April 30, 2003 2002 2003 2002 Vehicular Products: $118,018 $117,640 Net sales $226,950 $220,073 $14,336 $16,356 Operating income $24,223 $27,098 Building Products: $136,592 $131,860 Net sales $257,169 $233,670 $4,218 $7,643 Operating income $8,385 $10,017 Corporate and Other: Intercompany sales $--- $--- elimination $--- $--- $(3,679) $(3,966) Corporate charges $(7,618) $(7,238) Total: $254,610 $249,500 Net sales $484,119 $453,743 $14,875 $20,033 Operating income $24,990 $29,877 QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) April 30, October 31, 2003 2002 2002 2001 Assets $806 $3,898 Cash and equivalents $18,283 $29,573 Accounts and notes 125,917 113,290 receivable, net 116,122 109,706 105,991 87,394 Inventories 90,756 83,109 12,398 14,636 Other current assets 10,640 14,490 245,112 219,218 Total current assets 235,801 236,878 Property, plant and 343,980 360,019 equipment, net 353,132 357,635 66,436 66,726 Goodwill, net 66,436 59,226 34,926 47,228 Other assets 33,771 43,892 $690,454 $693,191 Total assets $689,140 $697,631 Liabilities and stockholders' equity $83,763 $87,051 Accounts payable $76,588 $76,831 38,800 49,735 Accrued expenses 48,973 50,659 1,311 2,686 Income taxes payable 4,839 1,087 1,375 4,035 Other current liabilities 3,970 5,593 Current portion of 424 434 long-term debt 434 420 125,673 143,941 Total current liabilities 134,804 134,590 81,694 171,037 Long-term debt 75,131 219,608 7,048 6,434 Deferred pension credits 4,960 7,962 Deferred postretirement 8,182 7,811 welfare benefits 7,928 7,777 33,064 31,761 Deferred income taxes 29,210 29,282 13,997 17,277 Other liabilities 15,712 18,435 269,658 378,261 Total liabilities 267,745 417,654 Total stockholders' 420,796 314,930 equity 421,395 279,977 Total liabilities and $690,454 $693,191 stockholders' equity $689,140 $697,631 QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Three months ended Six months ended April 30, April 30, 2003 2002 2003 2002 Operating activities: $9,365 $10,632 Net income $16,148 $16,092 Gain on sale of Piper (405) --- Utah property (405) --- Depreciation and 12,114 11,486 amortization 24,221 22,765 2,601 1,071 Deferred income taxes 3,855 2,480 Deferred pension and 4,902 59 postretirement benefits 2,342 (1,494) 28,577 23,248 46,161 39,843 Increase in accounts and (22,207) (20,414) notes receivable (9,795) (1,715) Decrease (Increase) in (5,194) 564 inventory (15,235) (1,887) Increase in accounts 4,544 21,411 payable 7,175 9,556 Increase (Decrease) in (712) 5,139 accrued expenses (10,173) (1,922) Increase (Decrease) in (5,869) 161 income taxes payable (3,528) 1,599 (1,315) 2,473 Other, net (4,791) (424) Cash provided (used) by (2,176) 32,582 operating activities 9,814 45,050 Investment activities: Acquisition of Colonial Craft, net of cash --- (17,365) acquired --- (17,365) Proceeds from sale of 2,832 --- Piper Utah property 2,832 --- Capital expenditures, (6,292) (8,819) net of retirements (14,812) (20,109) Cash used by other (1,857) (171) investment activities (3,004) (646) Cash used by investment (5,317) (26,355) activities (14,984) (38,120) Financing activities: Bank borrowings 11,700 (35,000) (repayments), net 6,700 (40,000) --- (7,029) Prepayment of note payable --- (7,029) Purchases of Quanex (6,804) --- common stock (13,515) --- (2,741) (2,253) Common dividends paid (5,379) (4,412) Issuance of common 764 18,093 stock, net 1,574 20,453 Cash used by other (45) (1,318) financing activities (1,687) (1,617) Cash provided (used) 2,874 (27,507) by financing activities (12,307) (32,605) (4,619) (21,280) Decrease in cash (17,477) (25,675) Beginning of period cash 5,425 25,178 and equivalents 18,283 29,573 End of period cash and $806 $3,898 equivalents $806 $3,898 Financial Contact: Jeff Galow, 713/877-5327 Media Contact: Valerie Calvert, 713/877-5305
SOURCE Quanex Corporation