Quanex Building Products Corporation Fiscal 2011 Third Quarter Results
Performance, Before Certain Special Items, In-Line With Prior Year
Repurchased 169,600 Shares of Common Stock for $2.8 million
Truseal Instituted an Oil Based Raw Material Surcharge
HOUSTON, Aug. 25, 2011 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX), a leading manufacturer of engineered materials, components and systems serving domestic and international window and door OEMs through its Engineered Products and Aluminum Sheet Products groups, today released fiscal 2011 third quarter results for the period ending July 31, 2011. Net sales were $252.4 million, 12% higher than a year ago, due primarily to the acquisition of Edgetech.
Quanex reported diluted earnings from continuing operations of $0.24 per share, which included $0.01 per share from Edgetech's results. The $0.24 per share also included special expense items totaling $0.06 per share. In the third quarter of 2010, diluted earnings from continuing operations were $0.27 per share, which included special expense items of $0.02 per share. Excluding results of Edgetech and special expense items, third quarter 2011 earnings were even to a year ago.
Engineered Products Group (EPG) is focused on providing window and door OEMs with fenestration components, products, and systems. Key end markets are residential repair & remodel (R&R) and new home construction. Third quarter net sales were $124.1 million, which included $23.7 million of net sales from Edgetech. Excluding Edgetech, net sales were nearly flat compared to the third quarter of 2010, which had the benefit of a $1500 energy efficient window tax credit program. There were no similar tax credits in the third quarter of 2011.
Third quarter operating income was $14.1 million, which included $1.0 million of operating income from Edgetech. Edgetech's results were negatively impacted in the quarter by a step-up in inventory expense of $0.7 million related to the purchase method of accounting. Excluding Edgetech, operating income was equal to the third quarter of 2010 despite headwinds in the end markets. EPG experienced higher raw material costs in the quarter, which were generally offset by higher prices, surcharges and productivity improvements. Truseal, one of the company's warm edge, insulating glass spacer divisions, initiated an oil based raw material surcharge effective May 1. The surcharge helped Truseal offset the rising cost of butyl, a key raw material of the business.
3rd 3rd qtr qtr 2011 2010 ------ ------ Net sales $124.1 $101.7 Operating income $14.1 $13.1 (in millions)
Quanex believes there is value in measuring its sales performance against industry indexes. EPG compares its sales to US window shipments as reported by Ducker Worldwide, a market intelligence firm. For the 12 months ended July 31, 2011, EPG sales (excluding acquisitions) were down 1% compared to the previous 12 months, versus US window shipments that were down 6%. With the coupling of excellent businesses like Edgetech, the company is confident its long term initiatives will allow EPG to outperform the industry.
Edgetech Integration
With Quanex's purchase of Edgetech, its successful integration into EPG remains a high priority. Excellent progress was made in the quarter and the integration activities remain on schedule. As previously announced, Michael Hovan, Edgetech's past president, assumed the lead role for the sales and marketing team at EPG. A review of that organization's structure was undertaken, and from that evaluation, changes were made to ensure the fullest extent of EPG's value proposition (design/engineering/sales/logistics) is at the disposal of both current and future customers.
Aluminum Sheet Products Group is a leading provider of aluminum sheet through its Nichols Aluminum operation. Key end markets are residential repair & remodel (R&R) and new home construction. Shipments, net sales and operating income in the third quarter were 80 million pounds, $132.1 million and $7.4 million, respectively. Net sales were higher than a year ago due primarily to higher aluminum prices.
Both shipments and operating income were lower compared to the year ago quarter due to weaker demand for residential building & construction sheet. Operating income was further impacted by higher repair & maintenance costs and reduced value-added painted shipments compared to a year ago. Nichols' spread (sales less material costs) was up 13% and 4% from the year ago quarter and the sequential second quarter, respectively, due to aluminum prices that rose faster than material costs.
3rd 3rd qtr qtr 2011 2010 ------ ------ Net sales $132.1 $127.6 Operating income $7.4 $8.9 Shipped pounds 80 90 (in millions)
Nichols Aluminum compares its shipments to the industry's non-can sheet shipments as reported by the Aluminum Association. In the third quarter, Nichols' shipments were down 11% from a year ago, versus Association shipments that were up 4%. Nichols' underperformance is attributed to weaker building and construction demand, where it has a large presence, compared to stronger distribution and transportation demand, where it has a smaller presence.
Corporate and Other Items
Corporate expenses in the quarter were $6.9 million and included, in part, the following items: acquisition related expenses; ERP program expenses; stock based compensation expenses; LIFO expense.
Cash Position
Quanex had a cash balance of $62.4 million and total debt outstanding stood at $1.7 million at the end of the quarter. Cash provided by operating activities from continuing operations for the nine months ended was $9.9 million. The company's $270 million revolving credit facility remained untapped, but due to the facility's EBITDA covenant requirements, the available capacity at quarter end was approximately $204 million. Future uses of cash could be to fund organic growth activities, pay common stock dividends, make acquisitions, and repurchase outstanding shares. During the third quarter, Quanex purchased 169,600 shares of common stock at an average price of $16.42, including commissions. From the end of the third quarter through August 24, the company purchased an additional 239,050 shares of common stock at an average price of $12.21, including commissions.
Business Outlook
Stagnant home construction and R&R activity, high levels of homes available for sale, high unemployment and a tight credit market continues to create a difficult business environment for Quanex. A case for a lack of recovery in the housing market in 2012 continues to build, and the company now anticipates flat to reduced customer demand in the coming quarters. In light of these new expectations, 2011 segment guidance has been reduced at the Aluminum Sheet Products Group.
For 2011, operating income guidance for the Aluminum Sheet Products Group is estimated at about $22 million, compared to previous guidance of about $25 million. The Group earned $30 million in 2010. Operating income in 2011 is down from 2010 due to reduced mill-finished shipments, reduced painted shipments and higher costs, offset somewhat by a higher spread.
For 2011, operating income guidance for the Engineered Products Group is unchanged at about $30 million (excludes an estimated $2 million from Edgetech's results). The Group earned $34 million in 2010. Operating income in 2011 is down from 2010 due to expenses associated with the Group's long term growth initiatives, and higher raw material costs.
Segment guidance excludes certain 2011 expenses that are detailed in the table below:
Quanex Acquisition (excluding Related Total (in millions) Edgetech) Items Quanex ---------- ----------- ------- Corporate expenses $ 24.0 $ 4.0 $ 28.0 LIFO charge (income) $ 5.0 $ -- $ 5.0 Capital expenditures $ 25.0 $ 2.0 $ 27.0
Corporate expenses and capital expenditures include $2 million and $6 million, respectively, of costs associated with the launch of Quanex's $30 million, multi-year ERP program.
Non-GAAP Financial Measures
Income from Continuing Operations before special items is a non-GAAP financial measure. The company believes this non-GAAP financial measure provides a consistent basis for comparison between periods and enhances the understanding of the performance of its operations.
Set forth below is a reconciliation of reported income from continuing operations and reported diluted earnings per share from continuing operations to income from continuing operations before special items and diluted earnings per share from continuing operations before special items. The company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.
Three months ended July 31, ---------------------------------- 2011 2010 ---------------- ---------------- Diluted Diluted (in millions except diluted EPS) Income EPS Income EPS ------- ------- ------- ------- Income (loss) from continuing operations, as reported $ 9.0 $ 0.24 $ 10.4 $ 0.27 After tax Non-GAAP adjustments: LIFO charge (income) $ 1.2 $ 0.03 $ 0.6 $ 0.02 Acquisition related costs $ 0.9 $ 0.02 $ -- $ -- ERP program costs $ 0.2 $ 0.01 $ -- $ -- ------- ------- ------- ------- Income from continuing operations, excluding special items $ 11.3 $ 0.30 $ 11.0 $ 0.29 ======= ======= ======= =======
Organic Growth Initiatives
EPG's organic programs are focused on driving profitable growth through one sales and marketing organization, coupled with the engineering collaboration of its family of businesses: Mikron, Homeshield, Truseal and Edgetech. Activities are focused on both national and regional window and door companies. EPG is also collectively working to develop new products and systems that provide its customers with the latest innovations in energy efficiency.
On September 12-14, 2011, Quanex will be exhibiting at GlassBuild America, the largest gathering of glass, window and door components companies in North America. Quanex will be highlighting its components, products, and systems, as well as communicating its new marketing strategy to national and regional window and door companies.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of $0.04 per share on the company's common stock, payable September 30, 2011, to shareholders of record on September 15, 2011.
Financial Statistics as of 07/31/11
Book value per common share: $11.80; Total debt to capitalization: 0.4%; Return on invested capital: 2.6%; Actual number of common shares outstanding: 37,312,532.
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.
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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, references to synergies derived from the acquisition of Edgetech, future operating results and financial condition of Quanex and Edgetech and future uses of cash. The statements in this release 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, the availability and cost of raw materials, and customer demand. For a more complete discussion of factors that may affect the company's future performance, please refer to the company's 10-K filing on December 20, 2010, under the Securities Exchange Act of 1934, in particular the section titled, "Private Securities Litigation Reform Act" contained therein.
QUANEX BUILDING PRODUCTS CORPORATION SEGMENT INFORMATION (In thousands) (Unaudited) Three months ended Nine months ended July 31, July 31, --------------------- --------------------- 2011 2010 2011 2010 ---------- --------- ---------- --------- Net Sales: $124,119 $101,746 Engineered Products $290,623 $259,272 132,130 127,600 334,328 326,252 ---------- --------- Aluminum Sheet Products ---------- --------- 256,249 229,346 Building Products 624,951 585,524 (3,836) (4,143) (9,618) (9,513) ---------- --------- Eliminations ---------- --------- $252,413 $225,203 $615,333 $576,011 ========== ========= Net Sales ========== ========= Operating Income (Loss): $ 14,146 $ 13,131 Engineered Products $ 15,411 $ 22,969 7,417 8,866 14,027 19,732 ---------- --------- Aluminum Sheet Products ---------- --------- 21,563 21,997 Building Products 29,438 42,701 (6,926) (5,798) (24,752) (18,976) ---------- --------- Corporate and Other ---------- --------- $ 14,637 $ 16,199 Operating Income $ 4,686 $ 23,725 ========== ========= (Loss) ========== =========
QUANEX BUILDING PRODUCTS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three months ended Nine months ended July 31, July 31, --------------------- --------------------- 2011 2010 2011 2010 ---------- --------- ---------- --------- $252,413 $225,203 Net sales $615,333 $576,011 Cost of sales (exclusive of items shown 209,667 184,799 separately below) 524,834 478,559 18,912 17,566 Selling, general and administrative 61,230 52,719 9,197 6,639 24,583 21,008 ---------- --------- Depreciation and amortization ---------- --------- 14,637 16,199 Operating income (loss) 4,686 23,725 (110) (106) Interest expense (341) (333) (311) 997 127 2,502 ---------- --------- Other, net ---------- --------- Income (loss) from continuing 14,216 17,090 operations before income taxes 4,472 25,894 (5,200) (6,661) (1,573) (9,998) ---------- --------- Income tax benefit (expense) ---------- --------- Income (loss) from continuing 9,016 10,429 operations 2,899 15,896 -- (148) Income (loss) from discontinued (12) (1,108) ---------- --------- operations, net of taxes ---------- --------- $ 9,016 $ 10,281 $ 2,887 $ 14,788 ========== ========= Net income (loss) ========== ========= Basic earnings per common share: Earnings (loss) from continuing $ 0.24 $ 0.28 operations $ 0.08 $ 0.43 -- -- Income (loss) from discontinued -- (0.03) ---------- --------- operations ---------- --------- $ 0.24 $ 0.28 $ 0.08 $ 0.40 ---------- --------- Basic earnings (loss) per share ---------- --------- Diluted earnings per common share: Earnings (loss) from continuing $ 0.24 $ 0.27 operations $ 0.08 $ 0.42 -- -- Income (loss) from discontinued -- (0.03) ---------- --------- operations ---------- --------- $ 0.24 $ 0.27 $ 0.08 $ 0.39 ---------- --------- Diluted earnings (loss) per share ---------- --------- Weighted average common shares outstanding: 37,125 37,350 Basic 37,103 37,349 37,684 37,983 Diluted 37,710 37,882
QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) July 31, October 31, 2011 2010 ---------- -------------------------- ----------- Assets $ 62,420 Cash and equivalents $ 187,178 100,829 Accounts receivable, net 87,007 65,296 Inventories 45,200 13,210 Deferred income taxes 10,547 Prepaid and other current 8,916 assets 8,229 Current assets of -- discontinued operations 462 ---------- -------------------------- ----------- 250,671 Total current assets 338,623 Property, plant and 157,118 equipment, net 135,517 8,512 Deferred income taxes 30,563 69,611 Goodwill 25,189 91,081 Intangible assets, net 44,668 17,340 Other assets 16,690 ---------- -------------------------- ----------- $594,333 Total assets $ 591,250 ========== ========================== =========== Liabilities and stockholders' equity $ 75,586 Accounts payable $ 70,986 36,856 Accrued liabilities 43,447 746 Income taxes payable -- Current maturities of 352 long-term debt 327 Current liabilities of -- discontinued operations 30 ---------- -------------------------- ----------- 113,540 Total current liabilities 114,790 1,323 Long-term debt 1,616 Deferred pension and 4,631 postretirement benefits 3,667 Non-current environmental 11,322 reserves 12,027 23,351 Other liabilities 17,718 ---------- -------------------------- ----------- 154,167 Total liabilities 149,818 Total stockholders' 440,166 equity 441,432 ---------- -------------------------- ----------- Total liabilities and $594,333 stockholders' equity $ 591,250 ========== ========================== ===========
QUANEX BUILDING PRODUCTS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Nine months ended July 31, ---------------------- 2011 2010 ---------- ---------- Operating activities: Net income (loss) $ 2,887 $ 14,788 (Income) loss from discontinued operations 12 1,108 Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities from continuing operations: Depreciation and amortization 24,635 21,060 Gain on bargain purchase -- (1,272) Deferred income taxes (295) 6,524 Stock-based compensation 3,599 3,218 Changes in assets and liabilities, net of effects from acquisitions and dispositions: Decrease (increase) in accounts receivable (4,991) 1,601 Decrease (increase) in inventory (9,778) (5,788) Decrease (increase) in other current assets 244 (889) Increase (decrease) in accounts payable (2,801) 7,961 Increase (decrease) in accrued liabilities (6,879) 5,084 Increase (decrease) in income taxes payable (1,392) 11,934 Increase (decrease) in deferred pension and postretirement benefits 965 (2,706) Other, net 3,686 1,533 ---------- ---------- Cash provided by (used for) operating activities from continuing operations 9,892 64,156 Cash provided by (used for) operating activities from discontinued operations (68) (415) ---------- ---------- Cash provided by (used for) operating activities 9,824 63,741 ---------- ---------- Investing activities: Acquisitions, net of cash acquired (110,845) (1,590) Capital expenditures (16,969) (11,779) Proceeds from property insurance claim -- 392 Proceeds from executive life insurance 683 -- Other, net 75 40 ---------- ---------- Cash provided by (used for) investing activities from continuing operations (127,056) (12,937) Cash provided by (used for) investing activities from discontinued operations -- 90 ---------- ---------- Cash provided by (used for) investing activities (127,056) (12,847) ---------- ---------- Financing activities: Repayments of long-term debt (333) (319) Common stock dividends paid (4,500) (3,775) Issuance of common stock from stock option exercises, including related tax benefits 1,089 495 Purchase of treasury stock (4,289) (2,169) Other, net 392 (235) ---------- ---------- Cash provided by (used for) financing activities from continuing operations (7,641) (6,003) Cash provided by (used for) financing activities from discontinued operations (392) 235 ---------- ---------- Cash provided by (used for) financing activities (8,033) (5,768) ---------- ---------- Effect of exchange rate changes on cash and equivalents 47 23 LESS: (Increase) decrease in cash and equivalents from discontinued operations 460 90 ---------- ---------- Increase (decrease) in cash and equivalents from continuing operations (124,758) 45,239 Cash and equivalents at beginning of period 187,178 123,499 ---------- ---------- Cash and equivalents at end of period $ 62,420 $ 168,738 ========== ==========
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SOURCE: Quanex Building Products Corporation
CONTACT: Financial Contact: Jeff Galow, 713-877-5327;
Media Contact: Valerie Calvert, 713-877-5305
www.quanex.com