Investor Press Release

<< Back

Quanex Announces Fiscal Third Quarter 2003 Results

Reports $.84 Diluted EPS, Which Includes a $.13 Executive Life Insurance Benefit; Engineered Products Reports Best-Ever Net Sales & Operating Income

HOUSTON, Aug. 27 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) announced fiscal third quarter results for the period ending July 31, 2003. Net sales were $260.3 million, down from $266.9 million reported a year ago. Operating income was $18.1 million compared to $25.0 million last year. Quanex commented that Engineered Products posted best-ever operating income for the quarter. Operating income at the Company's two large process businesses -- MACSTEEL and Nichols Aluminum -- was down primarily due to lower volumes. Net income was $13.6 million for the quarter versus $24.3 million a year ago. Diluted earnings per share for the quarter were $.84 versus $1.42 for the same period last year.

Net income for the third quarter and the quarter a year ago each included an executive life insurance benefit. The benefit to third quarter's net income of $13.6 million was $2.2 million, or $.13 per diluted share. The benefit to last year's third quarter net income of $24.3 million was $9.0 million, or $.54 per diluted share. Excluding these life insurance benefits, diluted earnings per share for the current quarter and the prior year's quarter were $.71 and $.88, respectively.

Highlights

Regarding the Company's results, Raymond A. Jean, chairman and chief executive officer stated, "We're very pleased with the excellent results reported at our Engineered Products business, particularly after experiencing rather slow market conditions just a quarter ago. At MACSTEEL, where we are linked to 'Big 3' automotive performance, our new programs have been overshadowed by a drop in production schedules, while higher scrap costs have also taken a toll. Nichols Aluminum results were negatively impacted by lower volumes and higher conversion costs. Conversion costs are up, in part due to higher maintenance and energy costs. As to the balance sheet, cash provided by operating activities showed a marked improvement over both last quarter and year ago figures. Significant progress in managing our inventories and receivables was the key to this improvement."

     Quarterly Financials  ($ in millions, except per share data)

                                      3rd qtr 2003     3rd qtr 2002
     Net Sales                          $ 260.3         $ 266.9
     Operating Income                      18.1            25.0
     Net Income                            13.6            24.3
     EPS: Basic                            $.85           $1.56
     EPS: Diluted                          $.84           $1.42

    Segment Commentary
    VEHICULAR PRODUCTS  ($ in millions)
                                      3rd qtr 2003     3rd qtr 2002
    Net Sales                           $ 111.2         $ 117.4
    Operating Income                        9.5            14.7

The Vehicular Products segment includes MACSTEEL, Piper Impact and Temroc Metals. The segment's two main drivers are North American light vehicle builds and heavy truck builds.

"North American light vehicle sales remained at a relatively healthy pace during the quarter and vehicle inventories receded as overall light vehicle builds were down 7% for the quarter versus a year ago. MACSTEEL's largest market base is with the 'Big 3' automakers, and builds there were off about 10%. MACSTEEL's volume was off about 7% from last year and operating income was down. While we were successful in obtaining price relief in 2003, higher scrap prices largely offset those gains, even with the benefit of our scrap surcharges. MACSTEEL continues to work with the automotive transplants (NAM's) on domestic part sourcing. We've recently qualified on additional components and our share continues to grow. Qualification efforts are long term initiatives with the NAM's," Jean said.

"As has been the story with Piper Impact all year, the erosion in demand for its aluminum and steel airbag components continues. We suffered a setback in the quarter on what looked to be a very promising, high volume automotive drive train component which, as it turns out, was not selected for use by the automotive OEM. For the quarter, Piper had a sizeable loss, versus breaking even a year ago. Because of dimming prospects to develop major new programs targeting the automotive market in a reasonable timeframe, we are revisiting our strategic options for the business," continued Jean.

     BUILDING PRODUCTS  ($ in millions)
                                         3rd qtr 2003        3rd qtr 2002
    Net Sales                              $ 149.1             $ 149.5
    Operating Income                          12.3                14.3

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 record-setting and surpassed our expectations. Many of our larger door and window customers who suffered through a difficult late winter season came back stronger than expected during the third quarter and we saw very strong order entry at all of their businesses," said Jean.

"Nichols Aluminum results for the quarter benefited from higher selling prices and a slightly improved spread versus a year ago, the result of a better mix of painted sheet sales versus mill finished sheet. Building and construction customer activity remained at healthy levels during the quarter. However, slow business conditions in the other markets we serve reduced volumes, and along with higher conversion costs, caused results to trail last year," continued Jean.

Outlook

The Company's two target markets are vehicular products and building products. Overall North American light vehicle builds year-to-date are below comparable year-ago levels by 4%. More important to the Company's results are the "Big 3" light vehicle builds, which are down 7% for the year, and are expected to be down 10% for the third calendar quarter versus last year. As a result, Quanex expects MACSTEEL to report modestly lower results in its fiscal fourth quarter compared to a year ago. Share gains and higher prices will be a plus for MACSTEEL in the quarter but will be offset by lower volumes and high scrap prices. Piper Impact is expecting another difficult quarter, and at this time the Company expects the business to report a fourth quarter loss.

Within the Building Products segment, the Company expects Nichols Aluminum to post lower volumes and earnings for the fourth quarter versus a year ago. Business activity at Engineered Products remains robust and Quanex expects the division to exceed quarterly results from last year. Housing starts and remodeling expenditures for 2003 are now expected to be flat to up slightly over last year's excellent performance. Based on the factors discussed above, the Company expects its fourth quarter diluted earnings per share to be in the range of $.70 to $.85.

Other

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 $397,000 and $326,000 for the third quarter of 2003 and 2002 respectively, and would have reduced diluted earnings per share by $.02 and $.02 respectively.

Dividend Declared

The Board of Directors declared a quarterly cash dividend of $.17 per share on the Company's common stock, payable September 30, 2003 to shareholders of record on September 15, 2003.

Corporate Profile

Quanex is an industry-leading manufacturer of engineered materials and components for the vehicular products and building products markets.

Financial Statistics as of 07/31/03

Book value per common share: $26.93; Total debt to capitalization: 13.89%; Return on invested capital: 10.00%; Return on common equity: 10.67%; Actual number of common shares outstanding: 16,079,973

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 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                                  Nine months ended
          July 31,                                             July 31,
      2003         2002                                    2003          2002

    $260,277     $266,891    Net sales                   $744,396    $720,634
     217,838      216,469    Cost of sales                625,331     591,882
                             Selling, general and
      12,643       14,099     administrative expense       40,238      39,960
      11,728       11,292    Depreciation and
                              amortization                 35,769      33,884
      18,068       25,031    Operating income              43,058      54,908
        (542)      (1,070)   Interest expense              (2,113)     (9,179)
         ---          346    Capitalized interest             ---       1,879
       2,152        9,020    Retired executive life
                              insurance benefit             2,152       9,020
         399         (375)   Other, net                     2,211       1,469
      20,077       32,952    Income before income taxes    45,308      58,097
      (6,454)      (8,615)   Income tax expense           (15,537)    (17,668)
     $13,623      $24,337    Net income                   $29,771     $40,429

                             Weighted average common
                              shares outstanding:

      16,055       15,560    Basic                         16,176      14,303
      16,267       16,557    Diluted                       16,401      16,093

                             Earnings per common share:

       $0.85        $1.56    Basic                          $1.84       $2.83

       $0.84        $1.42    Diluted                        $1.82       $2.55
       $0.17        $0.16    Cash dividends per share       $0.51       $0.48


     QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION
     (In thousands)
     (Unaudited)


       Three months ended                                 Nine months ended
             July 31,                                          July 31,
        2003          2002                                 2003        2002

                               Vehicular Products:

    $ 111,153      $ 117,416       Net sales            $ 338,103   $ 337,489
       $9,459      $  14,709       Operating income     $  33,682   $  41,807

                               Building Products:

    $ 149,124      $ 149,475       Net sales            $ 406,293   $ 383,145
    $  12,298      $  14,330       Operating income     $  20,683   $  24,347

                               Corporate and Other:

                                   Intercompany sales
    $     ---      $     ---        elimination         $     ---   $     ---
    $  (3,689)     $  (4,008)      Corporate charges    $ (11,307)  $ (11,246)

                               Total:
    $ 260,277      $ 266,891       Net sales            $ 744,396   $ 720,634
    $  18,068      $  25,031       Operating income     $  43,058   $  54,908


         QUANEX CORPORATION
         CONSOLIDATED BALANCE SHEETS
         (In thousands)
         (Unaudited)

            July 31,                                         October 31,
       2003          2002                                  2002        2001
                                Assets
    $  10,831    $   1,340    Cash and equivalents     $  18,283   $  29,573
                              Accounts and notes
      117,071      110,684     receivable, net           116,122     109,706
        6,421       26,041    Other receivables              ---         ---
      100,344       93,229    Inventories                 90,756      83,109
        9,033       15,244    Other current assets        10,640      14,490
      243,700      246,538      Total current assets     235,801     236,878
      340,226      356,754    Property, plant
                                 and equipment, net      353,132     357,635
       66,436       66,436    Goodwill, net               66,436      59,226
       30,920       30,869    Other assets                33,771      43,892
    $ 681,282    $ 700,597    Total assets             $ 689,140   $ 697,631

                              Liabilities and
                               stockholders' equity
    $  76,072    $  81,123    Accounts payable         $  76,588   $  76,831
       37,886       51,931    Accrued liabilities         48,973      50,659
        1,602        3,544    Income taxes payable         4,839       1,087
          ---        4,945    Other current liabilities    3,970       5,593
                              Current portion of
          425       81,434     long-term debt                434         420
      115,985      222,977      Total current
                                 liabilities             134,804     134,590
       69,394       10,203    Long-term debt              75,131     219,608
        6,019        6,281    Deferred pension credits     4,960       7,962
                              Deferred postretirement
        8,035        7,848     welfare benefits            7,928       7,777
       34,941       32,595    Deferred income taxes       29,210      29,282
       13,910       15,820    Other liabilities           15,712      18,435
      248,284      295,724      Total liabilities        267,745     417,654
      432,998      404,873      Total stockholders'
                                 equity                  421,395     279,977
                              Total liabilities and
    $ 681,282    $ 700,597      stockholders' equity   $ 689,140   $ 697,631


     QUANEX CORPORATION
     CONSOLIDATED STATEMENTS OF CASH FLOW
     (In thousands)
     (Unaudited)

        Three months ended                                Nine months ended
             July 31,                                          July 31,
         2003        2002                                  2003        2002
                           Operating activities:

    $  13,623    $  24,337   Net income                $  29,771   $  40,429
                             Adjustments to reconcile
                               net income:
                              Gain on sale of Piper
          ---          ---     Utah property                (405)        ---
                              Loss on early
          ---          922     extinguishment of debt        ---         922
                              Retired executive life
       (2,152)      (9,020)    insurance benefit          (2,152)     (9,020)
                              Depreciation and
       11,811       11,342     amortization               36,032      34,107
        3,908          (43)   Deferred income taxes        7,763       2,437
                              Deferred pension and
       (1,176)        (116)    postretirement benefits     1,166      (1,610)
       26,014       27,422                                72,175      67,265

                             Changes in assets and
                              liabilities, net of effects
                              from acquisitions and
                              dispositions:
                              Decrease (Increase) in
                               accounts and notes
        8,846        2,008     receivable                   (949)        293
                              Decrease (Increase)
        5,647       (5,835)    in inventory               (9,588)     (7,722)
                              Increase (Decrease)
       (7,691)      (5,878)    in accounts payable          (516)      3,678
                              Increase (Decrease)
         (914)       1,225     in accrued liabilities    (11,087)       (697)
                              Increase (Decrease)
          291          858     in income taxes payable    (3,237)      2,457
          (70)         685    Other, net                  (4,861)        261
                           Cash provided by operating
       32,123       20,485  activities                    41,937      65,535

                           Investment activities:
                              Acquisition of Colonial
          ---           82     Craft, net of cash acquired   ---     (17,283)
                              Proceeds from sale of
          ---          ---     Piper Utah property         2,832         ---
                              Capital expenditures,
       (7,940)      (7,991)    net of retirements        (22,752)    (28,100)
         (379)        (497)   Other, net                  (3,383)     (1,143)
                           Cash used by investment
       (8,319)      (8,406) activities                   (23,303)    (46,526)

                           Financing activities:
                              Bank revolver and
      (11,700)     (19,000)    note repayments, net       (5,000)    (66,029)
                              Redemption and purchase
          ---       (1,314)    of subordinated debentures    ---      (1,314)
                              Purchases of Quanex common
          ---          ---     stock                     (13,515)        ---
       (2,741)      (2,600)   Common dividends paid       (8,120)     (7,012)
                              Issuance of common
        1,235       10,263     stock, net                  2,809      30,716
         (573)      (1,986)   Other, net                  (2,260)     (3,603)
                           Cash used by financing
      (13,779)     (14,637) activities                   (26,086)    (47,242)
                           Increase (Decrease)
       10,025       (2,558) in cash                       (7,452)    (28,233)
                           Beginning of period cash
          806        3,898  and equivalents               18,283      29,573
                           End of period cash
    $  10,831    $   1,340  and equivalents            $  10,831   $   1,340

     Financial Contact:  Jeff Galow, 713/877-5327
     Media Contact:  Valerie Calvert, 713/877-5305

SOURCE Quanex Corporation

X