Margin Expansion in All Operating Segments
Strong Growth Continues in EU Fenestration Segment
Solid Free Cash Flow Generation
Continue to Target Fiscal Year-End 2019 Leverage Ratio of 1.5x - 2.0x

HOUSTON, June 04, 2019 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended April 30, 2019.

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “We performed well during the second quarter from an operational standpoint and realized margin expansion in all segments, including an almost 400 basis point increase in our European Fenestration segment.  On a consolidated basis, we realized margin expansion of approximately 70 basis points.  On the revenue side, solid growth of more than 15%, excluding foreign exchange impact, in our European Fenestration segment was somewhat offset by softer sales in the U.S., mainly due to inclement weather and customer inventory destocking.  Despite this softness in the U.S., sales in our North American Fenestration segment grew at 1.0% during the quarter, which compares favorably to Ducker’s latest window shipment estimate of negative 4.0% growth for the three months ended March 31, 2019.  We also more than doubled the amount of free cash flow generated during the quarter, which allowed us to pay down $5 million in bank debt and buyback approximately $2.7 million in stock.  

“We continue to expect margin expansion on a consolidated basis for the full year as operational efficiency gains continue, volume ramps into the selling season and we benefit from pricing actions that were implemented early this year.  Going forward, our intention is to continue deleveraging the balance sheet while opportunistically repurchasing stock.  Our growth expectations for the full year haven’t materially changed with respect to our North American and European Fenestration segments; however, top line results in our North American Cabinet Components segment have been weaker than expected, but consistent with the latest industry data.  As such, we now expect full year 2019 consolidated revenue growth of 2% to 3%, but we are converting well and are maintaining our Adjusted EBITDA guidance of $97 million to $107 million.”  (See Forward Looking Statements and Non-GAAP Terminology Definitions and Disclaimers sections for additional information)             

Second Quarter 2019 Results Summary  

The Company reported the following selected financial results:

  Three Months Ended April 30,
  2019 2018
Net Sales $218.2 $214.2
Net (Loss) Income ($24.0) $4.1
Diluted EPS ($0.73) $0.12
     
Adjusted Net Income $6.3 $4.8
Adjusted Diluted EPS $0.19 $0.14
Adjusted EBITDA $23.4 $21.3
     
Cash provided by operating activities $20.4 $13.4
Free Cash Flow $13.6 $6.0
(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)

The increase in net sales during the second quarter of 2019 was largely due to above market growth in the European Fenestration segment coupled with price increases related to raw material inflation recovery. (See Sales Analysis table for additional information)

The decrease in reported earnings was primarily the result of a $30.0 million, or $0.91 per diluted share, non-cash goodwill impairment in the North American Cabinet Components segment, mostly due to softer than expected sales.  The increase in adjusted earnings was mainly attributable to operational efficiency gains and the successful implementation of pricing initiatives. 

As of April 30, 2019, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA decreased to 2.3x.  Quanex continues to expect to end fiscal 2019 with a leverage ratio between 1.5x and 2.0x.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

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.  During the three months ended April 30, 2019, Quanex repurchased 171,016 shares of common stock for approximately $2.7 million at an average price of $15.71 per share.  As of April 30, 2019, approximately $23.3 million remained under the existing share repurchase authorization.  

Recent Events

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share on Quanex’s common stock, payable June 28, 2019, to shareholders of record on June 14, 2019.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, June 5, 2019, 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 4390268, 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 June 12, 2019.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 4390268. 

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, Vice President, Investor Relations & 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, gain/loss on the sale of fixed assets, restructuring 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, gain/loss on the sale of fixed assets, and restructuring charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making.  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.  The Company is not able to provide reconciliations of Adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of Quanex’s control and/or cannot be reasonably predicted, such as the provision for income taxes.  Net Debt is calculated using the sum of current maturities of long-term debt and long-term debt, minus 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 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, 2018, 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 NET (LOSS) INCOME
(In thousands, except per share data)
(Unaudited)
                 
  Three Months Ended April 30, Six Months Ended April 30,
   2019  2018 (1)  2019  2018 (1)
                 
Net sales $218,203  $214,212  $415,011  $405,878 
Cost of sales  171,378   169,030   329,935   323,546 
Selling, general and administrative  23,722   23,863   51,748   47,971 
Restructuring charges  84   242   187   608 
Depreciation and amortization  12,404   13,310   24,976   26,583 
Asset impairment charges  29,978   -   29,978   - 
Operating (loss) income  (19,363)  7,767   (21,813)  7,170 
Interest expense  (2,602)  (2,502)  (5,044)  (4,943)
Other, net  (54)  264   202   689 
(Loss) income before income taxes  (22,019)  5,529   (26,655)  2,916 
Income tax (expense) benefit  (1,955)  (1,393)  (968)  6,167 
Net (loss) income $(23,974) $4,136  $(27,623) $9,083 
                 
(Loss) income per common share, basic $(0.73) $0.12  $(0.84) $0.26 
(Loss) income per common share, diluted $(0.73) $0.12  $(0.84) $0.26 
                 
Weighted average common shares outstanding:                
Basic  32,951   34,796   33,026   34,731 
Diluted  32,951   35,115   33,026   35,166 
                 
Cash dividends per share $0.08  $0.04  $0.16  $0.08 
                 
(1) Updated to reflect adoption of ASU 2017-07.                
                 

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
  April 30, 2019
  October 31, 2018 (1)
ASSETS        
Current assets:        
Cash and cash equivalents $20,262  $29,003 
Accounts receivable, net  80,646   84,014 
Inventories, net  86,581   70,730 
Prepaid and other current assets  8,458   7,296 
Total current assets  195,947   191,043 
Property, plant and equipment, net  197,182   201,370 
Goodwill  190,638   219,627 
Intangible assets, net  114,921   121,919 
Other assets  8,354   9,255 
Total assets $707,042  $743,214 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable $48,743  $52,389 
Accrued liabilities  31,554   45,968 
Income taxes payable  2,971   2,780 
Current maturities of long-term debt  1,082   1,224 
Total current liabilities  84,350   102,361 
Long-term debt  224,743   209,332 
Deferred pension and postretirement benefits  5,797   4,218 
Deferred income taxes  16,417   17,510 
Other liabilities  14,847   14,571 
Total liabilities  346,154   347,992 
Stockholders’ equity:        
Common stock  374   374 
Additional paid-in-capital  253,679   254,678 
Retained earnings  210,406   243,904 
Accumulated other comprehensive loss  (28,127)  (30,705)
Treasury stock at cost  (75,444)  (73,029)
Total stockholders’ equity  360,888   395,222 
Total liabilities and stockholders' equity $707,042  $743,214 
         
(1) Updated to reflect accounting change to FIFO cost method.  
   
   

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
         
  Six Months Ended April 30,
   2019   2018 
Operating activities:        
Net (loss) income $(27,623) $9,083 
Adjustments to reconcile net (loss) income to cash provided by operating activities:        
Depreciation and amortization  24,976   26,583 
Stock-based compensation  1,043   211 
Deferred income tax  (1,256)  (8,087)
Asset impairment charges  29,978   - 
Other, net  1,078   (321)
Changes in assets and liabilities:        
Decrease in accounts receivable  3,479   3,357 
Increase in inventory  (15,522)  (4,623)
Decrease in other current assets  (681)  (1,047)
(Decrease) increase in accounts payable  (2,617)  378 
Decrease in accrued liabilities  (14,716)  (5,220)
Increase in income taxes payable  183   25 
Increase in deferred pension and postretirement benefits  1,567   1,457 
Decrease in other long-term liabilities  (131)  (38)
Other, net  385   (143)
Cash provided by operating activities  143   21,615 
Investing activities:        
Capital expenditures  (13,022)  (15,213)
Proceeds from disposition of capital assets    298     180 
Cash used for investing activities    (12,724)    (15,033)
Financing activities:        
Borrowings under credit facilities    57,500     21,500 
Repayments of credit facility borrowings    (42,500)    (34,000)
Repayments of other long-term debt    (784)    (442)
Common stock dividends paid    (5,335)    (2,800)
Issuance of common stock    27     2,564 
Payroll tax paid to settle shares forfeited upon vesting of stock    (322)    (706)
Purchase of treasury stock    (4,702)    - 
Cash provided by (used for) financing activities    3,884     (13,884)
Effect of exchange rate changes on cash and cash equivalents    (44)    (55)
Decrease in cash and cash equivalents    (8,741)    (7,357)
Cash and cash equivalents at beginning of period    29,003     17,455 
Cash and cash equivalents at end of period $  20,262  $  10,098 
         
         

 

QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW RECONCILIATION
(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 April 30, Six Months Ended April 30,
   2019   2018   2019   2018 
Cash provided by operating activities $20,386  $13,423  $143  $21,615 
Capital expenditures  (6,751)  (7,402)  (13,022)  (15,213)
Free Cash Flow $13,635  $6,021  $(12,879) $6,402 
                 
                 

 

QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands, except per share data)
(Unaudited)
                     
                     
  Three Months Ended  Three Months Ended  Six Months Ended  Six Months Ended 
Reconciliation of Adjusted Net Income and Adjusted EPS April 30, 2019  April 30, 2018  April 30, 2019  April 30, 2018 
  Net
Income
 Diluted
EPS
  Net
Income
 Diluted
EPS
  Net
Income
 Diluted
EPS
  Net
Income
 Diluted
EPS
 
Net (loss) income as reported $(23,974) $(0.73)  $4,136  $0.12   $(27,623) $(0.84)  $9,083  $0.26  
Reconciling items from below  30,250   0.92    665   0.02    31,584   0.96    (5,555)  (0.16) 
Adjusted net income and adjusted EPS $6,276  $0.19   $4,801  $0.14   $3,961  $0.12   $3,528  $0.10  
                     
Reconciliation of Adjusted EBITDA Three Months Ended
April 30, 2019
  Three Months Ended
April 30, 2018
  Six Months Ended
April 30, 2019
  Six Months Ended
April 30, 2018
 
  Reconciliation    Reconciliation    Reconciliation    Reconciliation   
Net (loss) income as reported $(23,974)    $4,136     $(27,623)    $9,083    
Income tax expense (benefit)  1,955      1,393      968      (6,167)   
Other, net  54      (264)     (202)     (689)   
Interest expense  2,602      2,502      5,044      4,943    
Depreciation and amortization  12,404      13,310      24,976      26,583    
EBITDA  (6,959)     21,077      3,163      33,753    
Reconciling items from below  30,311      244      32,282      622    
Adjusted EBITDA $23,352     $21,321     $35,445     $34,375    
                     
Reconciling Items Three Months Ended
April 30, 2019
  Three Months Ended
April 30, 2018
  Six Months Ended
April 30, 2019
  Six Months Ended
April 30, 2018
 
  Income
Statement
 Reconciling
Items
  Income
Statement
 Reconciling
Items
  Income
Statement
 Reconciling
Items
  Income
Statement
 Reconciling
Items
 
Net sales $218,203  $-   $214,212  $-   $415,011  $-   $405,878  $-  
Cost of sales  171,378   -    169,030   -    329,935   -    323,546   -  
Selling, general and administrative  23,722   (249) (1)   23,863   (2) (1)  51,748   (2,117) (1)  47,971   (14) (1)
Restructuring charges  84   (84) (2)   242   (242) (2)  187   (187) (2)  608   (608) (2)
Asset impairment charges  29,978   (29,978) (3)   -   -    29,978   (29,978) (3)  -   -  
EBITDA  (6,959)  30,311    21,077   244    3,163   32,282    33,753   622  
Depreciation and amortization  12,404   -    13,310   (504) (4)  24,976   -    26,583   (852) (4)
Operating loss  (19,363)  30,311    7,767   748    (21,813)  32,282    7,170   1,474  
Interest expense  (2,602)  -    (2,502)  -    (5,044)  -    (4,943)  -  
Other, net  (54)  24  (5)   264   132  (5)  202   45  (5)  689   (167) (5) 
(Loss) income before income taxes  (22,019)  30,335    5,529   880    (26,655)  32,327    2,916   1,307  
Income tax (expense) benefit  (1,955)  (85)(6)  (1,393)  (215) (6)  (968)  (743) (6)  6,167   (6,862) (6)
Net (loss) income $(23,974) $30,250   $4,136  $665   $(27,623) $31,584   $9,083  $(5,555) 
                     
Diluted (loss) earnings per share $(0.73)    $0.12     $(0.84)    $0.26    
                     
(1) Transaction and advisory fees, and in the six months ended April 30,2019, $1.2 million of severance related to a reorganization.
(2) Restructuring charges relate to the closure of several manufacturing plant facilities.
(3) Asset impairment charges relate to a goodwill impairment in the North American Cabinet Components segment.
(4) Accelerated depreciation for plant re-layout in the North American Cabinet Components segment.
(5) Foreign currency transaction losses (gains).
(6) Impact on a with and without basis.  Six months ended April 30, 2019 and 2018 include $0.2 million and $6.5 million, respectively, adjustment related to the Tax Cuts and Jobs Act. 
 
 


QUANEX BUILDING PRODUCTS CORPORATION 
SELECTED SEGMENT DATA 
(In thousands) 
(Unaudited) 
           
This table provides 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 (1) EU Fenestration (1) NA Cabinet
Components
 Unallocated
Corp & Other
 Total
Three months ended April 30, 2019                    
Net sales $  115,346  $  41,623  $  62,836  $  (1,602) $  218,203 
Cost of sales    90,031     28,906     53,699     (1,258)    171,378 
Selling, general and administrative    12,213     5,696     4,505     1,308     23,722 
Restructuring charges    84     -      -      -      84 
Depreciation and amortization    6,758     2,219     3,305     122     12,404 
Asset impairment charges    -      -      29,978     -      29,978 
Operating income (loss)    6,260     4,802     (28,651)    (1,774)    (19,363)
Depreciation and amortization    6,758     2,219     3,305     122     12,404 
EBITDA    13,018     7,021     (25,346)    (1,652)    (6,959)
Asset impairment charges    -      -      29,978     -      29,978 
Transaction and advisory fees    -      -      -      249     249 
Restructuring charges    84     -      -      -      84 
Adjusted EBITDA  $  13,102  $  7,021  $  4,632  $  (1,403) $  23,352 
Adjusted EBITDA Margin %  11.4%  16.9%  7.4%      10.7%
                     
Three months ended April 30, 2018 (2)                    
Net sales $  114,157  $  38,824  $  62,668  $  (1,437) $  214,212 
Cost of sales    88,385     27,589     54,135     (1,079)    169,030 
Selling, general and administrative (3)    13,343     6,178     4,454     (112)    23,863 
Restructuring charges    238     -      4     -      242 
Depreciation and amortization    6,808     2,527     3,839     136     13,310 
Operating income (loss)    5,383     2,530     236     (382)    7,767 
Depreciation and amortization    6,808     2,527     3,839     136     13,310 
EBITDA    12,191     5,057     4,075     (246)    21,077 
Transaction and advisory fees    -      -      -      2     2 
Restructuring charges    238     -      4     -      242 
Adjusted EBITDA  $  12,429  $  5,057  $  4,079  $  (244) $  21,321 
Adjusted EBITDA Margin %  10.9%  13.0%  6.5%      10.0%
                     
Six months ended April 30, 2019                    
Net sales $  224,395  $  76,877  $  116,688  $  (2,949) $  415,011 
Cost of sales    177,184     53,431     101,555     (2,235)    329,935 
Selling, general and administrative    25,290     11,406     9,430     5,622     51,748 
Restructuring charges    187     -      -      -      187 
Depreciation and amortization    13,630     4,456     6,644     246     24,976 
Asset impairment charges    -      -      29,978     -      29,978 
Operating income (loss)    8,104     7,584     (30,919)    (6,582)    (21,813)
Depreciation and amortization    13,630     4,456     6,644     246     24,976 
EBITDA    21,734     12,040     (24,275)    (6,336)    3,163 
Asset impairment charges    -      -      29,978     -      29,978 
Transaction and advisory fees    -      -      -      2,117     2,117 
Restructuring charges    187     -      -      -      187 
Adjusted EBITDA  $  21,921  $  12,040  $  5,703  $  (4,219) $  35,445 
Adjusted EBITDA Margin %  9.8%  15.7%  4.9%      8.5%
                     
Six months ended April 30, 2018 (2)                    
Net sales $  216,883  $  72,820  $  118,590  $  (2,415) $  405,878 
Cost of sales    168,482     52,421     104,351     (1,708)    323,546 
Selling, general and administrative (3)    26,845     11,506     9,088     532     47,971 
Restructuring charges    489     -      119     -      608 
Depreciation and amortization    13,819     4,976     7,525     263     26,583 
Operating income (loss)    7,248     3,917     (2,493)    (1,502)    7,170 
Depreciation and amortization    13,819     4,976     7,525     263     26,583 
EBITDA    21,067     8,893     5,032     (1,239)    33,753 
Transaction related costs    -      -      -      14     14 
Restructuring charges    489     -      119     -      608 
Adjusted EBITDA  $  21,556  $  8,893  $  5,151  $  (1,225) $  34,375 
Adjusted EBITDA Margin %  9.9%  12.2%  4.3%      8.5%
           
(1) NA Fenestration and EU Fenestration were previously named "NA Engineered Components" and "EU Engineered Components," respectively.    
(2) Updated to reflect the adoption of ASU 2017-07.          
(3) Updated to reflect a reduction in corporate allocations of $0.3 and $0.9 million during the three and six months ended April 30, 2018 due to a change in allocation methodology during the fourth quarter of 2018. 
 
 

 

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
         
   Three Months Ended  Six Months Ended
  April 30, 2019 April 30, 2018 April 30, 2019 April 30, 2018
         
NA Fenestration:       
 United States - fenestration$  99,144  $  97,005  $  193,029  $  184,787 
 International - fenestration   8,096     8,897     16,302     15,906 
 United States - non-fenestration   4,803     4,697     8,308     8,843 
 International - non-fenestration   3,303     3,558     6,756     7,347 
  $  115,346  $  114,157  $  224,395  $  216,883 
EU Fenestration (1):       
 International - fenestration$  34,973  $  32,847  $  65,696  $  62,716 
 International - non-fenestration   6,650     5,977     11,181     10,104 
  $  41,623  $  38,824  $  76,877  $  72,820 
NA Cabinet Components:       
 United States - fenestration$  2,997  $  3,403  $  6,349  $  6,850 
 United States - non-fenestration   59,220     58,698     109,181     110,703 
 International - non-fenestration   619     567     1,158     1,037 
  $  62,836  $  62,668  $  116,688  $  118,590 
Unallocated Corporate & Other:       
 Eliminations$  (1,602) $  (1,437) $  (2,949) $  (2,415)
  $  (1,602) $  (1,437) $  (2,949) $  (2,415)
         
Net Sales$  218,203  $  214,212  $  415,011  $  405,878 
         
(1) Reflects reductions of $2.8 million and $4.4 million in revenue associated with foreign currency exchange rate impacts for the three and six months ended April 30, 2019.