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Quanex Building Products Announces First Quarter 2021 Results and Increases Full Year 2021 Guidance

Solid Growth and Significant Margin Expansion Realized Across All Operating Segments
Balance Sheet Remains Strong
Positive Outlook Intact

HOUSTON, March 04, 2021 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2021.

The Company reported the following selected financial results:

    Three Months Ended January 31,  
    2021   2020  
Net Sales   $230.1   $196.6  
Gross Margin   $53.8   $39.2  
Gross Margin %   23.4%   19.9%  
Net Income   $7.9   $0.0  
Diluted EPS   $0.24   $0.00  
           
Adjusted Net Income   $9.0   $1.2  
Adjusted Diluted EPS   $0.27   $0.04  
Adjusted EBITDA   $24.3   $15.7  
Adjusted EBITDA Margin %   10.6%   8.0%  
           
Cash Used for Operating Activities   ($3.4)   ($3.7)  
Free Cash Flow   ($8.6)   ($13.0)  
 
(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table Selected Segment Data table and Free Cash Flow Reconciliation table for additional information)

George Wilson, President and Chief Executive Officer, stated, “We posted another very strong quarter as demand for our products remained high throughout the first quarter of 2021. In fact, we realized solid growth and significant margin expansion in each of our operating segments. On a consolidated basis, net sales increased by 17.1% and Adjusted EBITDA margin improved by approximately 260 basis points year-over-year as compared to the first quarter of 2020. Once again, volumes during the quarter were especially strong in Europe, and we remain optimistic on the global economic outlook despite the ongoing challenges related to the COVID-19 pandemic.  

“Our balance sheet is strong, and we were able to repay $5.0 million in bank debt while repurchasing approximately $1.9 million of our common stock during the quarter. We are especially proud of this accomplishment since we are typically a net borrower during the first quarter of each year. We will remain focused on managing working capital and generating cash as the year progresses. Overall, we are delighted with the way our business is performing and we continue to be well positioned to benefit from tailwinds in the residential housing industry.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

First Quarter 2021 Results Summary   

The increase in net sales during the three months ended January 31, 2021 was primarily the result of increased demand for the Company’s products across all product lines and operating segments. (See Sales Analysis table for additional information)

The increase in earnings for the first quarter of 2021 was largely due to higher volumes and improved operating leverage. The increase in earnings was somewhat offset by an increase in selling, general and administrative expenses, which was mostly attributable to elevated medical costs coupled with an increase in stock-based compensation expense that resulted from the shareholder value created by the appreciation of Quanex’s stock price during the period.

Balance Sheet & Liquidity Update

As of January 31, 2021, the Company had total debt of $113.6 million and its leverage ratio of Net Debt to LTM Adjusted EBITDA remained unchanged at 0.6x.   (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Quanex’s liquidity was $265.9 million as of January 31, 2021, consisting of $43.4 million in cash on hand plus availability under its Senior Secured Revolving Credit Facility due 2023, less letters of credit outstanding.

Share Repurchases

The Company’s Board of Directors authorized a $60 million share repurchase program in September of 2018. Repurchases under this program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements, and other relevant factors. The program does not have an expiration date or a limit on the number of shares that may be repurchased.   Quanex repurchased 76,495 shares of common stock for approximately $1.9 million at an average price of $25.20 per share during the three months ended January 31, 2021. As of January 31, 2021, approximately $9.3 million remained under the existing share repurchase authorization.   

Outlook        

George Wilson, President and Chief Executive Officer, commented, “Our outlook remains positive, and we continue to be optimistic about the economic recovery. It appears that the typical seasonality in our business may not be as pronounced this year, but we do expect inflationary pressures to be a factor as the year unfolds. Based on our strong first quarter results and ongoing conversations with our customers, we are raising our expectations for the year and now expect approximately 12% sales growth in our North American Fenestration segment, approximately 5% sales growth in our North American Cabinet Components segment, and approximately 22% sales growth in our European Fenestration segment. Overall, on a consolidated basis and assuming there is no adverse impact from the ongoing pandemic, we now believe this will equate to net sales of approximately $945 million to $965 million, which we expect will generate between $112 million and $122 million in Adjusted EBITDA* in fiscal 2021.”

*When Quanex provides expectations for Adjusted EBITDA on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and corresponding GAAP measures is generally not available without unreasonable effort. Certain items required for such a reconciliation are outside of the Company’s control and/or cannot be reasonably predicted or estimated, such as the provision for income taxes.

Recent Events

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share on the Company’s common stock, payable March 30, 2021, to shareholders of record on March 15, 2021.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, March 5, 2021, 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 9481425, 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 12, 2021. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 9481425.  

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, Senior Vice President, Chief Financial Officer & 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, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges, asset impairment 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, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges and asset impairment charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making.  Net Debt is defined as total debt (outstanding balance on the revolving credit facility plus financial lease obligations) less cash and cash equivalents. The leverage ratio of Net Debt to LTM Adjusted EBITDA is a financial measure that the Company believes is useful to investors and financial analysts in evaluating Quanex’s leverage.   In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in the Company’s credit agreement. Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures.   Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of Quanex’s residual cash flow available for discretionary 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 following: impacts from public health issues (including pandemics, such as the recent COVID-19 pandemic) on the economy and the demand for Quanex’s products, 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, 2020, and the Company’s Quarterly Reports on Form 10-Q 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 January 31,
      2021       2020  
         
Net sales   $ 230,147     $ 196,597  
Cost of sales     176,397       157,427  
Selling, general and administrative     30,861       24,132  
Restructuring charges     39       153  
Depreciation and amortization     11,015       12,905  
Operating income     11,835       1,980  
Interest expense     (751 )     (1,582 )
Other, net     192       36  
Income before income taxes     11,276       434  
Income tax expense     (3,424 )     (424 )
Net income   $ 7,852     $ 10  
         
Earnings per common share, basic   $ 0.24     $ 0.00  
Earnings per common share, diluted   $ 0.24     $ 0.00  
                 
Weighted average common shares outstanding:                
Basic     32,872       32,861  
Diluted     33,212       33,078  
                 
Cash dividends per share   $ 0.08     $ 0.08  
         

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
    January 31, 2021   October 31, 2020
ASSETS        
Current assets:        
Cash and cash equivalents   $ 43,426     $ 51,621  
Accounts receivable, net     82,538       88,287  
Inventories, net     76,076       61,181  
Prepaid and other current assets     7,213       6,217  
Total current assets     209,253       207,306  
Property, plant and equipment, net     182,371       184,104  
Operating Lease Right-of-Use Assets     53,252       51,824  
Goodwill     149,941       146,154  
Intangible assets, net     91,806       93,068  
Other assets     7,648       9,129  
Total assets   $ 694,271     $ 691,585  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 62,553     $ 77,335  
Accrued liabilities     37,450       38,289  
Income taxes payable     3,768       6,465  
Current maturities of long-term debt     704       692  
Current Operating Lease Liabilities     7,738       7,459  
Total current liabilities     112,213       130,240  
Long-term debt     112,090       116,728  
Noncurrent Operating Lease Liabilities     46,086       44,873  
Deferred pension and postretirement benefits     10,871       10,923  
Deferred income taxes     21,580       19,116  
Other liabilities     13,723       13,946  
Total liabilities     316,563       335,826  
Stockholders’ equity:        
Common stock     373       373  
Additional paid-in-capital     252,277       253,458  
Retained earnings     218,732       213,517  
Accumulated other comprehensive loss     (24,424 )     (33,024 )
Treasury stock at cost     (69,250 )     (78,565 )
Total stockholders’ equity     377,708       355,759  
Total liabilities and stockholders' equity   $ 694,271     $ 691,585  
         

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
         
    Three Months Ended January 31,
      2021       2020  
Operating activities:        
Net income   $ 7,852     $ 10  
Adjustments to reconcile net income to cash used for operating activities:        
Depreciation and amortization     11,015       12,905  
Stock-based compensation     523       (239 )
Deferred income tax     1,925       (413 )
Other, net     3,189       1,096  
Changes in assets and liabilities:                
Decrease in accounts receivable     7,103       18,641  
Increase in inventory     (14,061 )     (10,657 )
(Increase) decrease in other current assets     (873 )     1,200  
Decrease in accounts payable     (14,577 )     (12,063 )
Decrease in accrued liabilities     (2,692 )     (12,519 )
Decrease in income taxes payable     (2,790 )     (936 )
(Decrease) increase in deferred pension and postretirement benefits     (52 )     448  
Decrease in other long-term liabilities     (399 )     (405 )
Other, net     442       (725 )
Cash used for operating activities     (3,395 )     (3,657 )
Investing activities:        
Capital expenditures     (5,246 )     (9,312 )
Proceeds from disposition of capital assets     64       -  
Cash used for investing activities     (5,182 )     (9,312 )
Financing activities:        
Borrowings under credit facilities     -       34,500  
Repayments of credit facility borrowings     (5,000 )     (24,500 )
Repayments of other long-term debt     (541 )     (285 )
Common stock dividends paid     (2,637 )     (2,659 )
Issuance of common stock     10,030       3,075  
Payroll tax paid to settle shares forfeited upon vesting of stock     (492 )     (454 )
Purchase of treasury stock     (1,927 )     (4,639 )
Cash (used for) provided by financing activities     (567 )     5,038  
Effect of exchange rate changes on cash and cash equivalents     949       177  
Decrease in cash and cash equivalents     (8,195 )     (7,754 )
Cash and cash equivalents at beginning of period     51,621       30,868  
Cash and cash equivalents at end of period   $ 43,426     $ 23,114  
         

 

QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW AND NET DEBT RECONCILIATIONS
(In thousands)
(Unaudited)
         
The following table reconciles the Company's calculation of Free Cash Flow, a non-GAAP measure, to its most directly comparable GAAP measure. The Company defines Free Cash Flow as cash provided by operating activities less capital expenditures.
         
    Three Months Ended January 31,
      2021       2020  
Cash used for operating activities   $ (3,395 )   $ (3,657 )
Capital expenditures     (5,246 )     (9,312 )
Free Cash Flow   $ (8,641 )   $ (12,969 )
         
         
The following table reconciles the Company's Net Debt which is defined as total debt principal of the Company plus finance lease obligations minus cash.
    As of January 31,
      2021       2020  
Revolving Credit Facility   $ 98,000     $ 152,500  
Finance Lease Obligations     15,619       16,047  
Total Debt (1)     113,619       168,547  
Less: Cash and cash equivalents     43,426       23,114  
Net Debt   $ 70,193     $ 145,433  
         
(1) Excludes outstanding letters of credit and deferred financing fees.      
       

 

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 and Adjusted EPS   January 31, 2021     January 31, 2020  
    Net
Income
  Diluted
EPS
    Net
Income
  Diluted
EPS
 
Net income as reported   $ 7,852     $ 0.24       $ 10     $ 0.00    
Reconciling items from below     1,157       0.03         1,216       0.04    
Adjusted net income and adjusted EPS   $ 9,009     $ 0.27       $ 1,226     $ 0.04    
                     
Reconciliation of Adjusted EBITDA   Three Months Ended
January 31, 2021
    Three Months Ended
January 31, 2020
 
    Reconciliation         Reconciliation      
Net income as reported   $ 7,852           $ 10        
Income tax expense     3,424             424        
Other, net     (192 )           (36 )      
Interest expense     751             1,582        
Depreciation and amortization     11,015             12,905        
EBITDA     22,850             14,885        
Reconciling items from below     1,478             771        
Adjusted EBITDA   $ 24,328           $ 15,656        
                     
Reconciling Items   Three Months Ended
January 31, 2021
    Three Months Ended
January 31, 2020
 
    Income
Statement
  Reconciling
Items
    Income
Statement
  Reconciling
Items
 
Net sales   $ 230,147     $ -       $ 196,597     $ -    
Cost of sales     176,397       -         157,427       -    
Selling, general and administrative     30,861       (1,439 ) (1 )     24,132       (618 ) (1 )
Restructuring charges     39       (39 ) (2 )     153       (153 ) (2 )
EBITDA     22,850       1,478         14,885       771    
Depreciation and amortization     11,015       -         12,905       (731 ) (3 )
Operating income     11,835       1,478         1,980       1,502    
Interest expense     (751 )     -         (1,582 )     -    
Other, net     192       78   (4 )     36       60   (4 )
Income before income taxes     11,276       1,556         434       1,562    
Income tax expense     (3,424 )     (399 ) (5 )     (424 )     (346 ) (5 )
Net income   $ 7,852     $ 1,157       $ 10     $ 1,216    
                     
Diluted earnings per share   $ 0.24           $ 0.00        
                     
                     
(1) Transaction and advisory fees, $1.4 million related to the loss on a sale of a plant in 2021, and $0.6 million related to executive severance charges in 2020.
(2) Restructuring charges related to the closure of manufacturing plant facilities.
(3) Accelerated depreciation and amortization for equipment replacement in the North American Fenestration segment in 2020.
(4) Foreign currency transaction losses.                    
(5) Impact on a with and without basis.  
                     

 

QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands)
(Unaudited)
                     
Reconciliation of Last Twelve Months Adjusted EBITDA   Three Months Ended
January 31, 2021
  Three Months Ended
October 31, 2020
  Three Months Ended
July 31, 2020
  Three Months Ended
April 30, 2020
  Total
                     
    Reconciliation   Reconciliation   Reconciliation   Reconciliation   Reconciliation
Net income as reported   $ 7,852     $ 22,152     $ 10,833   $ 5,501     $ 46,338  
Income tax expense     3,424       4,906       4,345     2,129       14,804  
Other, net     (192 )     (164 )     220     (300 )     (436 )
Interest expense     751       935       1,165     1,563       4,414  
Depreciation and amortization     11,015       11,378       11,060     11,886       45,339  
EBITDA     22,850       39,207       27,623     20,779       110,459  
Selling, general and administrative (1)     1,439       -       -     780       2,219  
Restructuring charges (2)     39       145       73     251       508  
Adjusted EBITDA   $ 24,328     $ 39,352     $ 27,696   $ 21,810     $ 113,186  
                     
(1) Transaction and advisory fees, loss on the sale of a plant, and executive severance charges.
(2) Restructuring charges relate to the closure of manufacturing plant facilities.
                     

 

QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)
                     
This table provides gross margin, operating (loss) income, EBITDA, and Adjusted EBITDA by reportable segment. Non-operating expense and income tax expense are not allocated to the reportable segments.
                     
    NA Fenestration   EU Fenestration   NA Cabinet
Components
  Unallocated
Corp & Other
  Total
                     
Three months ended January 31, 2021                    
Net sales   $ 128,116     $ 49,091     $ 53,994     $ (1,054 )   $ 230,147  
Cost of sales     99,393       31,791       45,874       (661 )     176,397  
Gross Margin     28,723       17,300       8,120       (393 )     53,750  
Gross Margin %     22.4 %     35.2 %     15.0 %         23.4 %
Selling, general and administrative     12,370       6,595       4,863       7,033       30,861  
Restructuring charges     39       -       -       -       39  
Depreciation and amortization     5,111       2,518       3,270       116       11,015  
Operating income (loss)     11,203       8,187       (13 )     (7,542 )     11,835  
Depreciation and amortization     5,111       2,518       3,270       116       11,015  
EBITDA     16,314       10,705       3,257       (7,426 )     22,850  
Loss on sale of plant     -       -       -       1,439       1,439  
Restructuring charges     39       -       -       -       39  
Adjusted EBITDA   $ 16,353     $ 10,705     $ 3,257     $ (5,987 )   $ 24,328  
Adjusted EBITDA Margin %     12.8 %     21.8 %     6.0 %         10.6 %
                     
Three months ended January 31, 2020                    
Net sales   $ 110,452     $ 36,766     $ 50,044     $ (665 )   $ 196,597  
Cost of sales     88,696       25,244       43,842       (355 )     157,427  
Gross Margin     21,756       11,522       6,202       (310 )     39,170  
Gross Margin %     19.7 %     31.3 %     12.4 %         19.9 %
Selling, general and administrative     13,055       5,950       4,853       274       24,132  
Restructuring charges     91       -       62       -       153  
Depreciation and amortization     6,979       2,408       3,402       116       12,905  
Operating income (loss)     1,631       3,164       (2,115 )     (700 )     1,980  
Depreciation and amortization     6,979       2,408       3,402       116       12,905  
EBITDA     8,610       5,572       1,287       (584 )     14,885  
Transaction and advisory fees     -       -       -       55       55  
Severance related to reorganization     -       -       -       563       563  
Restructuring charges     91       -       62       -       153  
Adjusted EBITDA   $ 8,701     $ 5,572     $ 1,349     $ 34     $ 15,656  
Adjusted EBITDA Margin %     7.9 %     15.2 %     2.7 %         8.0 %
                     

 

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
 
    Three Months Ended
    January 31, 2021   January 31, 2020
         
NA Fenestration:      
  United States - fenestration $ 112,300     $ 96,847  
  International - fenestration   7,778       6,434  
  United States - non-fenestration   5,398       4,563  
  International - non-fenestration   2,640       2,608  
    $ 128,116     $ 110,452  
EU Fenestration (1):      
  International - fenestration $ 41,354     $ 30,964  
  International - non-fenestration   7,737       5,802  
    $ 49,091     $ 36,766  
NA Cabinet Components:      
  United States - fenestration $ 2,974     $ 3,147  
  United States - non-fenestration   50,502       46,450  
  International - non-fenestration   518       447  
    $ 53,994     $ 50,044  
Unallocated Corporate & Other:      
  Eliminations $ (1,054 )   $ (665 )
    $ (1,054 )   $ (665 )
         
Net Sales $ 230,147     $ 196,597  
         
(1) Reflects increase of $1.7 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2021.
 

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Source: Quanex Building Products Corporation