Quanex Building Products Announces Second Quarter 2017 Results and Reaffirms Full Year 2017 Guidance

Houston, Texas, UNITED STATES


Consolidation of U.S. Vinyl Profiles Business Complete 
Solid Margin Performance Continues

HOUSTON, May 30, 2017 (GLOBE NEWSWIRE) --  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the quarter ended April 30, 2017.

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Second quarter results came in as expected, despite weather related weakness in April.  We completed the consolidation of our U.S. vinyl profiles business ahead of schedule and we are pleased with the progress of negotiations held with various cabinet customers related to margin dilutive revenue.  In fact, we realized slight margin expansion in the cabinet components segment despite continued excessive overtime costs.  We also saw margin expansion in our European engineered components segment.  As anticipated, revenues were down year-over-year in our North American engineered components segment, driven by a further $17 million reduction due to the previously disclosed re-sourcing effort by a large vinyl profiles customer.  Despite the lower top line, margins remained flat in this segment.  The U.S. vinyl profiles business consolidation is behind us, and while still early, we feel we have turned the corner at Woodcraft.  As such, we are confident in achieving our second half margin expansion and cash flow expectations and are comfortable with our previously disclosed 2017 guidance.”

Second Quarter 2017 Results Summary   

The Company reported net sales of $209.1 million for the three months ended April 30, 2017, compared to $229.5 million for the three months ended April 30, 2016.  Similar to the first quarter of 2017, the decrease was primarily attributable to Quanex’s previously disclosed decision to walk away from less profitable business in an effort to protect margins. (See Sales Analysis table for additional information)

Net income decreased to $1.5 million during the second quarter of 2017, compared to net income of $3.9 million in the second quarter of 2016.  Adjusted EBITDA decreased to $20.5 million during the second quarter of 2017, compared to $24.3 million during the second quarter of 2016.  The decrease was largely due to lower volumes as the Company continues the transition away from less profitable business combined with elevated legal expenses during the quarter.  (See Non-GAAP Terminology Definitions and Disclaimers section and Selected Segment Data table for additional information)

As of April 30, 2017, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.7x.  The Company’s leverage ratio increased quarter-over-quarter mainly as a result of adding approximately $16 million in debt related to a capital lease for a new warehouse servicing Quanex’s U.K. vinyl profiles business.  The Company remains focused on generating Free Cash Flow to pay down debt and anticipates a significant improvement in the leverage ratio by year-end 2017.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

 
  Three Months Ended April 30, 2017 Three Months Ended April 30, 2016
($ in thousands, except per share data) Results
Before
Adjustments
 Adjustments Adjusted
Results
 Results
Before
Adjustments
 Adjustments Adjusted
Results
Net sales $209,133  $-  $209,133  $229,460  $-  $229,460 
Cost of sales (1)  162,132   (90)  162,042   176,497   (90)  176,407 
Selling, general and administrative (2)  26,916   (353)  26,563   28,591   212   28,803 
Restructuring charges (3)  1,080   (1,080)  -   -   -   - 
EBITDA  19,005   1,523   20,528   24,372   (122)  24,250 
Depreciation and amortization (4)  14,380   (1,692)  12,688   13,816   -   13,816 
Operating income (loss)  4,625   3,215   7,840   10,556   (122)  10,434 
Interest expense  (2,391)  -   (2,391)  (5,633)  -   (5,633)
Other, net (5)  (135)  155   20   848   (835)  13 
Income (loss) before income taxes  2,099   3,370   5,469   5,771   (957)  4,814 
Income tax (expense) benefit (6)  (637)  (1,040)  (1,677)  (1,836)  304   (1,532)
Net income (loss) $1,462  $2,330  $3,792  $3,935  $(653) $3,282 
             
Diluted earnings per share $0.04    $0.11  $0.11    $0.10 
             
(1) Cost of sales adjustment relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition.
(2) SG&A adjustments are for acquisition related transaction costs and in 2017, gain on sale of fixed assets related to the closure of the plant in Mexico and a one-time employee benefit adjustment.
(3) Restructuring charges relate to the closure of several manufacturing plant facilities.
(4) D&A adjustments relate to accelerated amortization for restructured PP&E and intangible assets.
(5) Other, net adjustments relate to foreign currency transaction (gains) losses.
(6) Effective tax rate reflects impacts of adjustments on a with and without basis.
 

Recent Events

Quanex’s Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock, payable June 30, 2017, to shareholders of record on June 15, 2017.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, May 31, 2017, 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 18485556, 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 7, 2017.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 18485556. 

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 of Investor Relations & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

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 related to the plant closure in Mexico, one-time employee benefit adjustment and restructuring charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making.  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 Quanex believes is useful to investors and financial analysts in evaluating the Company’s leverage.  In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in Quanex’s credit agreement.  Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures.   Adjusted Net (Loss) Income is a non-GAAP financial measure that excludes certain charges and credits because the Company believes that such items are not indicative of its core operating results and trends, and do not provide meaningful comparisons with other reporting periods.  Quanex believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding the Company’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.  Quanex 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, 2016, 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 April 30, Six Months Ended April 30,
   2017   2016   2017   2016 
         
Net sales $209,133  $229,460  $404,229  $430,928 
Cost of sales  162,132   176,497   317,079   335,845 
Selling, general and administrative  26,916   28,591   54,361   59,879 
Restructuring charges  1,080   -   2,219   - 
Depreciation and amortization  14,380   13,816   29,786   26,786 
Operating income  4,625   10,556   784   8,418 
Interest expense  (2,391)  (5,633)  (4,551)  (12,124)
Other, net  (135)  848   526   (1,513)
Income (loss) before income taxes  2,099   5,771   (3,241)  (5,219)
Income tax (expense) benefit  (637)  (1,836)  977   1,905 
Net income (loss) $1,462  $3,935  $(2,264) $(3,314)
         
Income (loss) per common share, basic $0.04  $0.12  $(0.07) $(0.10)
Income (loss) per common share, diluted $0.04  $0.11  $(0.07) $(0.10)
         
Weighted average common shares outstanding:        
Basic  34,146   33,873   34,099   33,818 
Diluted  34,769   34,449   34,099   33,818 
         
Cash dividends per share $0.04  $0.04  $0.08  $0.08 
         


QUANEX BUILDING PRODUCTS CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited) 
      
  April 30, 2017 October 31, 2016 
ASSETS     
Current assets:     
Cash and cash equivalents $14,513  $25,526  
Accounts receivable, net  79,735   83,625  
Inventories, net  91,675   84,335  
Prepaid and other current assets  8,111   10,488  
Total current assets  194,034   203,974  
Property, plant and equipment, net  213,468   198,497  
Goodwill  219,883   217,035  
Intangible assets, net  147,231   154,180  
Other assets  7,834   6,667  
Total assets $782,450  $780,353  
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:     
Accounts payable $41,239  $47,781  
Accrued liabilities  39,639   55,101  
Income taxes payable  1,603   732  
Current maturities of long-term debt  20,206   10,520  
Total current liabilities  102,687   114,134  
Long-term debt  266,442   259,011  
Deferred pension and postretirement benefits  9,848   8,167  
Deferred income taxes  15,372   18,322  
Other liabilities  14,670   12,888  
Total liabilities  409,019   412,522  
Stockholders’ equity:     
Common stock  375   376  
Additional paid-in-capital  255,119   254,540  
Retained earnings  208,629   214,047  
Accumulated other comprehensive loss  (32,189)  (38,765) 
Treasury stock at cost  (58,503)  (62,367) 
Total stockholders’ equity  373,431   367,831  
Total liabilities and stockholders' equity $782,450  $780,353  
      


QUANEX BUILDING PRODUCTS CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW  
(In thousands)  
(Unaudited)  
      
 Six Months Ended April 30,  
  2017   2016   
Operating activities:     
Net loss$(2,264) $(3,314)  
Adjustments to reconcile net loss to cash provided by operating activities:     
Depreciation and amortization 29,786   26,786   
Stock-based compensation 3,222   3,830   
Deferred income tax (4,233)  (4,253)  
Excess tax benefit from share-based compensation (98)  (1)  
Other, net 1,355   1,503   
Changes in assets and liabilities, net of effects from acquisitions:     
Decrease in accounts receivable 4,564   3,059   
Increase in inventory (6,593)  (5,181)  
Increase in other current assets (506)  (1,527)  
Decrease in accounts payable (7,170)  (157)  
Decrease in accrued liabilities (8,426)  (1,769)  
Increase in income taxes payable 3,215   3,394   
Increase in deferred pension and postretirement benefits 1,682   1,659   
Increase in other long-term liabilities 945   695   
Other, net 195   (136)  
Cash provided by operating activities 15,674   24,588   
Investing activities:     
Acquisitions, net of cash acquired (8,497)  (245,904)  
Capital expenditures (17,550)  (17,419)  
Proceeds from disposition of capital assets 593   935   
Cash used for investing activities (25,454)  (262,388)  
Financing activities:     
Borrowings under credit facilities 53,500   332,800   
Repayments of credit facility borrowings (52,250)  (79,775)  
Debt issuance costs -   (8,713)  
Repayments of other long-term debt (1,363)  (1,165)  
Common stock dividends paid (2,749)  (2,731)  
Issuance of common stock 1,726   3,042   
Excess tax benefit from share-based compensation 98   1   
Cash (used for) provided by financing activities (1,038)  243,459   
Effect of exchange rate changes on cash and cash equivalents (195)  217   
(Decrease) increase in cash and cash equivalents (11,013)  5,876   
Cash and cash equivalents at beginning of period 25,526   23,125   
Cash and cash equivalents at end of period$14,513  $29,001   
      


QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)
           
This table provides operating income (loss), EBITDA, and Adjusted EBITDA by reportable segment.  Non-operating expense and income tax expense are not allocated to the reportable segments.
           
  NA Engineered
Components
 EU Engineered
Components
 NA Cabinet
Components
 Unallocated
Corp & Other
 Total
Three months ended April 30, 2017          
Net sales $116,410  $34,205  $59,147  $(629) $209,133 
Cost of sales  88,424   23,764   50,281   (337)  162,132 
Selling, general and administrative  13,466   5,198   4,401   3,851   26,916 
Restructuring charges  914   -   166   -   1,080 
Depreciation and amortization  8,669   2,306   3,265   140   14,380 
Operating income (loss)  4,937   2,937   1,034   (4,283)  4,625 
Depreciation and amortization  8,669   2,306   3,265   140   14,380 
EBITDA  13,606   5,243   4,299   (4,143)  19,005 
Transaction related costs  -   -   -   232   232 
Mexico restructuring, gain on sale of fixed assets  -   -   (67)  -   (67)
One-time employee benefit adjustment  -   -   188   -   188 
PPA-Inventory Step-up  -   90   -   -   90 
Restructuring charges  914   -   166   -   1,080 
Adjusted EBITDA $14,520  $5,333  $4,586  $(3,911) $20,528 
Adjusted EBITDA Margin %  12.5%  15.6%  7.8%    9.8%
           
Three months ended April 30, 2016          
Net sales $134,519  $36,965  $59,555  $(1,579) $229,460 
Cost of sales  101,193   25,518   50,801   (1,015)  176,497 
Selling, general and administrative  16,456   5,890   4,233   2,012   28,591 
Depreciation and amortization  7,153   2,393   4,129   141   13,816 
Operating income (loss)  9,717   3,164   392   (2,717)  10,556 
Depreciation and amortization  7,153   2,393   4,129   141   13,816 
EBITDA  16,870   5,557   4,521   (2,576)  24,372 
Transaction related costs  -   -   -   (212)  (212)
PPA-Inventory Step-up  -   90   -   -   90 
Adjusted EBITDA $16,870  $5,647  $4,521  $(2,788) $24,250 
Adjusted EBITDA Margin %  12.5%  15.3%  7.6%    10.6%
           
Six months ended April 30, 2017          
Net sales $227,483  $65,774  $112,144  $(1,172) $404,229 
Cost of sales  174,817   46,302   96,518   (558)  317,079 
Selling, general and administrative  27,201   9,970   8,511   8,679   54,361 
Restructuring charges  1,480   -   739   -   2,219 
Depreciation and amortization  18,747   4,362   6,400   277   29,786 
Operating income (loss)  5,238   5,140   (24)  (9,570)  784 
Depreciation and amortization  18,747   4,362   6,400   277   29,786 
EBITDA  23,985   9,502   6,376   (9,293)  30,570 
Transaction related costs  -   -   -   292   292 
Mexico restructuring, loss on sale of fixed assets  -   -   190   -   190 
One-time employee benefit adjustment  -   -   188   -   188 
PPA-Inventory Step-up  -   104   -   -   104 
Restructuring charges  1,480   -   739   -   2,219 
Adjusted EBITDA $25,465  $9,606  $7,493  $(9,001) $33,563 
Adjusted EBITDA Margin %  11.2%  14.6%  6.7%    8.3%
           
Six months ended April 30, 2016          
Net sales $255,567  $70,033  $108,080  $(2,752) $430,928 
Cost of sales  194,921   49,165   93,340   (1,581)  335,845 
Selling, general and administrative  30,978   11,474   8,331   9,096   59,879 
Depreciation and amortization  14,361   4,851   7,274   300   26,786 
Operating income (loss)  15,307   4,543   (865)  (10,567)  8,418 
Depreciation and amortization  14,361   4,851   7,274   300   26,786 
EBITDA  29,668   9,394   6,409   (10,267)  35,204 
Transaction related costs  -   -   -   4,878   4,878 
PPA-Inventory Step-up  -   284   2,287   -   2,571 
Adjusted EBITDA $29,668  $9,678  $8,696  $(5,389) $42,653 
Adjusted EBITDA Margin %  11.6%  13.8%  8.0%    9.9%
           


QUANEX BUILDING PRODUCTS CORPORATION 
SALES ANALYSIS 
(In thousands) 
(Unaudited)
           
  Sales Bridge for Three Months Ended April 30, 2017
  NA Engineered EU Engineered NA Cabinet Unallocated  
  Components Components Components Corporate & Other Consolidated
           
Net sales, three months ended April 30, 2016 $134,519  $36,965  $59,555  $(1,579) $229,460 
Market volume  (1,129)  1,778   4,986   950   6,585 
Eliminated products  (18,841)  (642)  (5,391)  -   (24,874)
Price changes  276   256   593   -   1,125 
Foreign currency impacts  -   (4,152)  -   -   (4,152)
Raw material pass through adjustments  1,585   -   (596)  -   989 
Net Sales, three months ended April 30, 2017 $116,410  $34,205  $59,147  $(629) $209,133 
           
  Sales Bridge for Six Months Ended April 30, 2017
  NA Engineered EU Engineered NA Cabinet Unallocated  
  Components Components Components Corporate & Other Consolidated
           
Net sales, six months ended April 30, 2016 $255,567  $70,033  $108,080  $(2,752) $430,928 
Market volume  (696)  5,342   10,143   1,580   16,369 
Eliminated products  (29,806)  (642)  (6,493)  -   (36,941)
Price changes  265   91   1,009   -   1,365 
Foreign currency impacts  -   (9,050)  -   -   (9,050)
Raw material pass through adjustments  2,153   -   (595)  -   1,558 
Net Sales, six months ended April 30, 2017 $227,483  $65,774  $112,144  $(1,172) $404,229