Best-Ever Net Sales and Income from Continuing Operations
Record Diluted Earnings per Share from Continuing Operations
FY2005 EPS Expected to be a Record $5.00 to $5.40 versus FY2004 of $2.30
HOUSTON, Feb. 24, 2005 (PRIMEZONE) -- Quanex Corporation (NYSE:NX) today reported record net sales and income from continuing operations for its fiscal first quarter. Diluted earnings per share from continuing operations of $1.31 also established a new record, over four times the year ago quarter of $0.27. Diluted earnings per share were $1.10 after taking into account the impact of the first quarter operating loss of Piper Impact and the associated loss on the sale of the business. The Company's return on invested capital was 11.6%, a 47% improvement from the year ago period.
Quarterly Highlights
-- Record first quarter net sales were $470.2 million, up 87% over
the year ago quarter.
-- Combined net sales from the Company's December 31, 2003,
acquisitions of MACSTEEL Monroe and TruSeal Technologies were
$123.7 million in the quarter.
-- Record income from continuing operations for the quarter was
$33.7 million compared to $6.6 million in the year ago quarter.
-- Combined first quarter earnings of MACSTEEL Monroe and TruSeal
Technologies contributed $0.36 (after interest expense) to
diluted earnings per share versus $0.04 per share reported for
one month's combined results in last year's first quarter.
-- Total debt to capitalization was 36.8%; cash and equivalents at
quarter end were $28.2 million.
-- The Company completed the acquisition of Mikron Industries, a
leading supplier of vinyl and composite window profiles serving
the North American market, on December 9, 2004.
-- Piper Impact was sold on January 25, 2005.
1st qtr 2005 1st qtr 2004 inc/(dcr)
Net Sales $470.2 $252.0 87%
Operating Income 59.1 11.0 437%
Income from Continuing Ops. 33.7 6.6 411%
EPS: Basic Earnings from
Continuing Ops. $1.35 $0.27 400%
EPS: Diluted Earnings
from Continuing Ops. 1.31 0.27 385%
Segment Commentary
Vehicular Products
1st qtr 2005 1st qtr 2004 inc/(dcr)
Net Sales $274.6 $131.0 110%
Operating Income 44.2 9.6 360%
The Vehicular Products segment is focused on providing customers with value-added, engineered steel bar and extrusion products. Key market drivers are light vehicle and heavy duty truck builds.
"North American light vehicle builds were up about 3% during our first quarter compared to the year ago quarter, and demand from heavy duty truck customers continued to grow, with overall production up some 60% over last year's first quarter. We ran all three of our engineered steel bar operations at very high utilization rates," said Raymond A. Jean, chairman and chief executive officer. "Segment operating income for the quarter compared to the year ago quarter benefited from new customer programs, cost improvements, higher selling prices, falling scrap costs and the acquisition of MACSTEEL Monroe. The Monroe facility is now demonstrating its strong earnings potential," continued Jean.
Building Products
1st qtr 2005 1st qtr 2004 inc/(dcr)
Net Sales $195.6 $121.0 62%
Operating Income 22.1 5.0 342%
The Building Products segment is focused on providing window and door OEM customers with engineered products and components, and is a large producer of common alloy aluminum sheet. Key market drivers are housing starts and remodeling activity.
"Housing starts and remodeling activity during our first quarter remained at surprisingly good levels considering the adverse impact winter weather always brings. Order rates at our window and door components business remained healthy," continued Jean. "Additionally, our aluminum sheet business had an especially strong first quarter. Shipments to our traditional building and construction customers remained excellent, while sales to our capital equipment, service center, and transportation customers remained above year ago levels. This strong demand allowed for higher selling prices during the quarter," Jean said.
Working Capital
"Last year, both our Vehicular Products and Building Products segments made outstanding progress in improving their respective working capital positions and this favorable trend continued into the first quarter. We measure our progress by the improvement in our conversion cycle, which is the sum of inventory days, plus trade receivable days, less payable days, all based on average daily sales. For the first quarter, our conversion cycle improved to 43 days from 57 days in the year ago quarter," said Jean.
Acquisitions
On December 9, 2004, the Company announced the purchase of Mikron Industries. Mikron is an industry-leading manufacturer of engineered vinyl and thermoplastic alloy composite window components, window coverings and door components. "The addition of Mikron is consistent with our strategy of growing our core Engineered Products business," Jean said. "Mikron will allow Quanex to further expand customer offerings into the rapidly growing vinyl and composite window markets and we expect it to be accretive to earnings in the first year," continued Jean.
Fiscal 2005 Outlook
Overall customer demand in the Company's two target markets, vehicular products and building products, is expected to remain robust through fiscal 2005.
Vehicular Products segment - Light vehicle build rates for the second fiscal quarter are expected to remain at healthy levels, albeit down from a year ago, particularly for the domestic producers. However, new programs, ongoing excellent heavy truck demand and the strength in secondary markets including farm and construction equipment, capital goods and defense will keep the segment at high operating rates throughout the second quarter.
Building Products segment - The drivers within the segment remain positive, supported by favorable interest rates and an improving job outlook. The segment will also benefit from very strong organic growth, a more balanced supply/demand aluminum marketplace and the Mikron acquisition.
Taken together, Quanex expects to report record fiscal 2005 diluted earnings per share from continuing operations in the range of $5.00 to $5.40, a significant improvement over fiscal 2004's $2.30. For the second quarter, the Company expects diluted earnings per share from continuing operations to be in the range of $1.40 to $1.50, up from the $0.43 reported in the second quarter 2004. Quanex cautions that the combination of short cycle businesses and volatile raw material input costs makes forecasting problematic.
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 SEC financial statements. Expensing stock options in the first quarter would have reduced net income by about $0.5 million, and would have reduced diluted earnings per share by $0.02.
On January 26, 2005, the Company irrevocably elected, pursuant to the indenture governing its 2.50% convertible senior debentures due 2034, to settle the principal amount of the debentures in cash when they become convertible and are surrendered by the holders thereof. Allowing for this election and using an average stock price of $42.55 for its first fiscal quarter, the Company's diluted earnings per share were reduced by $0.04. The Company estimates that for each $3.00 increase in its stock price, diluted earnings per share will be reduced by $0.01 per quarter. For the second fiscal quarter, the Company expects diluted earnings per share to be reduced by about $0.05, which is reflected in the second quarter guidance.
Dividend Declared
The Board of Directors declared the Company's quarterly cash dividend of $0.135 per share on the common stock, payable March 31, 2005, to shareholders of record on March 15, 2005.
Corporate Profile
Quanex Corporation, with 2004 sales of $1.5 billion, is an industry-leading manufacturer of value-added, engineered materials and components serving the vehicular products and building products markets.
Financial Statistics as of 01/31/05
Book value per common share: $21.13; Total debt to capitalization: 36.76%; Return on invested capital: 11.50%; Return on common equity: 15.67%; Actual number of common shares outstanding: 25,082,452
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," "believe," "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 21, 2004) 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's website at www.quanex.com.
The Quanex Corporation logo is available at: http://www.primezone.com/newsroom/prs/?pkgid=1117
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended
January 31,
----------------------
2005 2004
--------- ---------
Net sales $ 470,183 $ 252,007
Cost of sales 373,812 217,814
Selling, general and
administrative expense 22,134 12,013
Depreciation and amortization 15,119 11,587
Gain on sale of land -- (454)
--------- ---------
Operating income 59,118 11,047
Interest expense (2,383) (925)
Retired executive life insurance
benefit -- --
Other, net (1,920) 440
--------- ---------
Income from continuing operations
before taxes 54,815 10,562
Income tax expense (21,104) (3,915)
--------- ---------
Income from continuing operations 33,711 6,647
Gain (loss) from discontinued operations,
net of taxes (5,476) (220)
--------- ---------
Net income $ 28,235 $ 6,427
========= =========
Basic earnings per common share:
Earnings from continuing operations $ 1.35 $ 0.27
Gain (loss) from discontinued operations $ (0.22) $ (0.01)
--------- ---------
Basic earnings per share $ 1.13 $ 0.26
--------- ---------
Diluted earnings per common share:
Earnings from continuing operations $ 1.31 $ 0.27
Gain (loss) from discontinued operations $ (0.21) $ (0.01)
--------- ---------
Diluted earnings per share $ 1.10 $ 0.26
--------- ---------
Weighted average common shares outstanding:
Basic 24,984 24,477
Diluted 25,770 24,884
Cash dividends per share $ 0.1350 $ 0.1133
QUANEX CORPORATION
INDUSTRY SEGMENT INFORMATION
(In thousands)
(Unaudited)
Three months ended
January 31,
--------------------------
2005 2004
--------- ---------
Net sales:
Vehicular Products $ 274,576 $ 131,046
Building Products 195,607 120,961
--------- ---------
Net sales $ 470,183 $ 252,007
--------- ---------
Operating income:
Vehicular Products $ 44,219 $ 9,592
Building Products 22,147 4,960
Corporate and Other (7,248) (3,505)
--------- ---------
Operating Income $ 59,118 $ 11,047
--------- ---------
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
January 31, October 31,
--------------------------------------------------------------------
2005 2004 2004 2003
--------------------------------------------------------------------
Assets
$ 28,191 $ 10,182 Cash and equivalents $ 41,743 $ 22,108
Accounts and notes
196,600 133,308 receivable, net 176,358 104,009
143,075 113,579 Inventories 115,367 68,626
10,742 8,987 Deferred income taxes 10,744 5,320
4,840 6,528 Other current assets 2,363 1,499
Current assets of
-- 29,734 discontinued operations 9,759 31,886
--------------------------------------------------------------------
383,448 302,318 Total current assets 356,334 233,448
Property, plant and
1,017,387 842,887 equipment 842,147 742,602
Less accumulated
(585,510) (455,158) depreciation (491,165) (443,869)
---------- --------- --------- ---------
Property, plant and
431,877 387,729 equipment, net 350,982 298,733
197,088 137,730 Goodwill, net 134,670 66,436
Cash surrender value
insurance policies,
24,122 25,061 net 24,439 24,536
88,463 29,283 Intangibles, net 27,556 2,755
9,350 5,808 Other assets 9,391 3,517
Long-term assets of
discontinued
2,678 53,100 operations 26,150 53,689
--------------------------------------------------------------------
$1,137,026 $ 941,029 Total assets $ 929,522 $ 683,114
====================================================================
Liabilities and
stockholders' equity
$ 161,924 $ 109,281 Accounts payable $ 161,674 $ 80,791
54,579 43,587 Accrued liabilities 45,844 33,764
8,997 7,186 Income taxes payable 4,127 7,641
Current maturities of
483 3,727 long-term debt 456 3,877
Current liabilities of
1,166 12,720 discontinued operations 4,102 14,592
--------------------------------------------------------------------
Total current
227,149 176,501 liabilities 216,203 140,665
307,669 225,902 Long-term debt 130,496 15,893
6,709 262 Deferred pension credits 8,804 7,781
Deferred postretirement
7,709 7,824 welfare benefits 7,745 7,845
45,284 56,842 Deferred income taxes 53,983 49,938
Non-current environmental
8,966 13,488 reserves 8,188 13,517
3,076 2,474 Other liabilities 2,973 283
Long-term liabilities
of discontinued
383 2,174 operations 423 2,033
--------------------------------------------------------------------
606,945 485,467 Total liabilities 428,815 237,955
Total stockholders'
530,081 455,562 equity 500,707 445,159
--------------------------------------------------------------------
Total liabilities and
$1,137,026 $ 941,029 stockholders' equity $ 929,522 $ 683,114
====================================================================
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Three months ended
January 31,
----------------------
2005 2004
--------- ---------
Operating activities:
Net income $ 28,235 $ 6,427
Loss from discontinued operations 5,476 220
Net income from continuing operations
Adjustments to reconcile net income to
cash provided by operating activities:
Gain on sale of land -- (454)
Depreciation and amortization 15,269 11,695
Deferred income taxes 2 1,501
Deferred pension and postretirement
benefits (2,131) (7,540)
--------- ---------
46,851 11,849
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Decrease (Increase) in accounts and
notes receivable (8,922) (4,507)
Decrease (Increase) in inventory (17,778) (5,255)
Increase (Decrease) in accounts
payable (12,669) 6,567
Increase (Decrease) in accrued
liabilities (8,057) 3,765
Increase (Decrease) in income
taxes payable 12,327 (767)
Other, net (673) (2,210)
Operating cash flow from discontinued
operations (664) 1,479
--------- ---------
Cash provided by operating activities 10,415 10,921
Investment activities:
Acquisitions , net of cash acquired (197,376) (231,913)
Proceeds from sale of land -- 637
Proceeds from sale of discontinued
operations 11,592 --
Capital expenditures, net of retirements (8,816) (3,950)
Other, net (353) (617)
Cash used for investment activities
from discontinued operations (179) (201)
--------- ---------
Cash used for investment activities (195,132) (236,044)
Financing activities:
Bank borrowings (repayments), net 170,025 210,000
Issuance of debentures -- --
Purchases of Quanex common stock -- --
Common dividends paid (3,473) (2,789)
Issuance of common stock, net 4,438 6,715
Other, net 165 (738)
--------- ---------
Cash provided by financing activities 171,155 213,188
--------- ---------
Effect of exchange rate changes on
cash and equivalents 10 9
Decrease in cash (13,552) (11,926)
Beginning of period cash
and equivalents 41,743 22,108
--------- ---------
End of period cash and equivalents $ 28,191 $ 10,182
========= =========