Quanex Building Products Announces First Quarter 2022 Results and Provides Full Year 2022 Guidance

HOUSTON, Texas, UNITED STATES


Robust Revenue Growth Across All Operating Segments
Balance Sheet & Liquidity Remain Strong
FY22 Guidance Points to Another Record Year of Revenue and Earnings

HOUSTON, March 03, 2022 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2022.  

The Company reported the following selected financial results:

  Three Months Ended January 31,
($ in millions, except per share data) 2022 2021
Net Sales $267.0 $230.1
Gross Margin $55.2 $53.8
Gross Margin % 20.7% 23.4
Net Income $11.2 $7.9
Diluted EPS $0.34 $0.24
     
Adjusted Net Income $11.3 $9.0
Adjusted Diluted EPS $0.34 $0.27
Adjusted EBITDA $24.4 $24.3
Adjusted EBITDA Margin % 9.1% 10.6%
     
Cash Used for Operating Activities ($21.7) ($3.4)
Free Cash Flow ($29.0) ($8.6)
(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, “Overall, we are pleased with our results for the first quarter of 2022, especially considering the challenges related to inflation and the supply chain. Demand was healthy during the quarter and we were able to report solid revenue growth. Labor absenteeism, caused by the Omicron variant, and supply chain challenges impacted the quarter, but these issues have started to stabilize. Rapid cost escalation and the time lags related to the contractual pricing mechanisms for passing through cost increases on certain raw materials to our customers in North America also played a role in margin compression during the first quarter. The rate of inflation is currently our biggest challenge, but we expect inflationary pressures to subside in the second half of the year, which should allow for margin expansion at that time.

“As is typical, we were a net borrower during the first quarter, but our balance sheet and liquidity remain strong. We are well-positioned and have the flexibility to consider multiple options as we continue to navigate the path towards creating value for shareholders. In the near-term we will stay focused on executing our plan, paying down debt and opportunistically repurchasing our stock. Our expectation is that we will be debt free by the end of our current fiscal year.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

First Quarter 2022 Results Summary   

The Company reported net sales of $267.0 million during the three months ended January 31, 2022, which represents year-over-year growth of 16.0%. The increase was largely attributable to volume increases in the fenestration segments combined with higher prices related to the pass through of raw material cost inflation. More specifically, Quanex realized net sales growth of 14.5% in its North American Fenestration segment, 15.5% in its North American Cabinet Components segment and 18.6% in its European Fenestration segment, excluding the foreign exchange impact. (See Sales Analysis table for additional information)

The increase in earnings for the three months ended January 31, 2022 was attributable to continued strong demand, operational efficiency gains and increased pricing; however, a decrease in margin percentage was driven by inflationary pressures and supply chain challenges.

Balance Sheet & Liquidity Update

As of January 31, 2022, Quanex had total debt of $78.0 million and its leverage ratio of Net Debt to LTM Adjusted EBITDA was 0.4x.   (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

The Company’s liquidity decreased slightly to $289.2 million as of January 31, 2022, consisting of $31.7 million in cash on hand plus availability under its Senior Secured Revolving Credit Facility due 2023, less letters of credit outstanding.

Share Repurchases

Quanex’s Board authorized a $75 million share repurchase program in December of 2021. 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 Company did not repurchase any shares of common stock during the three months ended January 31, 2022.

Outlook        

George Wilson, President and Chief Executive Officer, commented, “Demand remains healthy, but the rate of inflation continues to cause pressure on margins.  However, based on our improvements in labor performance, the expected continuation of our pass-through pricing strategy, conversations with our customers, and the latest macro data, we are now comfortable providing guidance for fiscal 2022, which points to another record year of revenue and earnings. We expect high-single digit revenue growth in our North American Fenestration segment, low to mid-single digit revenue growth in our North American Cabinet Components segment and mid-single digit revenue growth in our European Fenestration segment. Overall, on a consolidated basis and assuming the current inflation and supply chain challenges do not worsen materially, we estimate this will equate to net sales of $1.13 billion to $1.15 billion, which we expect will generate approximately $135 million to $140 million in Adjusted EBITDA* in fiscal 2022.   Due to the current inflationary environment, we expect revenue growth to be mostly driven by price as opposed to increased volume and we expect some margin expansion in the second half of the year.”

*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.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, March 4, 2022, 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 2054849, 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 11, 2022. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 2054849.  

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 (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. Quanex uses the Free Cash Flow metric to measure operational and cash management performance and assist with financial decision-making.   Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of the Company’s residual cash flow available for discretionary expenditures. Quanex believes Free Cash Flow is useful to investors in understanding and evaluating the Company’s financial and cash management performance. 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 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, 2021, 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 NET INCOME
(In thousands, except per share data)
(Unaudited)
     
  Three Months Ended January 31,
   2022   2021 
     
Net sales $267,040  $230,147 
Cost of sales  211,834   176,397 
Selling, general and administrative  30,823   30,861 
Restructuring charges  -   39 
Depreciation and amortization  10,257   11,015 
Operating income  14,126   11,835 
Interest expense  (523)  (751)
Other, net  54   192 
Income before income taxes  13,657   11,276 
Income tax expense  (2,418)  (3,424)
Net income $11,239  $7,852 
     
Earnings per common share, basic $0.34  $0.24 
Earnings per common share, diluted $0.34  $0.24 
     
Weighted average common shares outstanding:    
Basic  33,124   32,872 
Diluted  33,298   33,212 
     
Cash dividends per share $0.08  $0.08 
     


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
     
  January 31, 2022 October 31, 2021
ASSETS    
Current assets:    
Cash and cash equivalents $31,719  $40,061 
Accounts receivable, net  99,355   108,309 
Inventories, net  117,384   92,529 
Prepaid and other current assets  11,621   8,148 
Total current assets  260,079   249,047 
Property, plant and equipment, net  175,294   178,630 
Operating lease right-of-use assets  50,700   52,708 
Goodwill  147,793   149,205 
Intangible assets, net  78,750   82,410 
Other assets  5,656   5,323 
Total assets $718,272  $717,323 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $75,457  $86,765 
Accrued liabilities  39,564   56,156 
Income taxes payable  7,473   6,038 
Current maturities of long-term debt  836   846 
Current operating lease liabilities  8,298   8,196 
Total current liabilities  131,628   158,001 
Long-term debt  76,691   52,094 
Noncurrent operating lease liabilities  43,415   45,367 
Deferred pension and postretirement benefits  4,658   4,737 
Deferred income taxes  22,597   21,965 
Other liabilities  14,784   15,377 
Total liabilities  293,773   297,541 
Stockholders’ equity:    
Common stock  373   373 
Additional paid-in-capital  250,204   254,162 
Retained earnings  268,370   259,718 
Accumulated other comprehensive loss  (24,929)  (21,770)
Treasury stock at cost  (69,519)  (72,701)
Total stockholders’ equity  424,499   419,782 
Total liabilities and stockholders' equity $718,272  $717,323 
     


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
     
  Three Months Ended January 31,
   2022   2021 
Operating activities:    
Net income $11,239  $7,852 
Adjustments to reconcile net income to cash used for operating activities:    
Depreciation and amortization  10,257   11,015 
Stock-based compensation  552   523 
Deferred income tax  854   1,925 
Other, net  1,218   3,189 
Changes in assets and liabilities:    
Decrease in accounts receivable  8,340   7,103 
Increase in inventory  (25,318)  (14,061)
Increase in other current assets  (3,534)  (873)
Decrease in accounts payable  (8,391)  (14,577)
Decrease in accrued liabilities  (18,248)  (2,692)
Increase (decrease) in income taxes payable  1,391   (2,790)
Decrease in deferred pension and postretirement benefits  (80)  (52)
Increase (decrease) in other long-term liabilities  404   (399)
Other, net  (335)  442 
Cash used for operating activities  (21,651)  (3,395)
Investing activities:    
Capital expenditures  (7,370)  (5,246)
Proceeds from disposition of capital assets  10   64 
Cash used for investing activities  (7,360)  (5,182)
Financing activities:    
Borrowings under credit facilities  28,000   - 
Repayments of credit facility borrowings  (3,000)  (5,000)
Repayments of other long-term debt  (228)  (541)
Common stock dividends paid  (2,587)  (2,637)
Issuance of common stock  55   10,030 
Payroll tax paid to settle shares forfeited upon vesting of stock  (1,383)  (492)
Purchase of treasury stock  -   (1,927)
Cash provided by (used for) financing activities  20,857   (567)
Effect of exchange rate changes on cash and cash equivalents  (188)  949 
Decrease in cash and cash equivalents  (8,342)  (8,195)
Cash and cash equivalents at beginning of period  40,061   51,621 
Cash and cash equivalents at end of period $31,719  $43,426 
     


QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW AND NET DEBT 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 January 31,
   2022   2021 
Cash used for operating activities  (21,651) $(3,395)
Capital expenditures  (7,370)  (5,246)
Free Cash Flow $(29,021) $(8,641)
     
     
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,
   2022   2021 
Revolving Credit Facility $63,000  $98,000 
Finance Lease Obligations  15,048   15,619 
Total Debt (1)  78,048   113,619 
Less: Cash and cash equivalents  31,719   43,426 
Net Debt $46,329  $70,193 
     
(1) Excludes outstanding letters of credit.    
     


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, 2022  January 31, 2021 
  Net
Income
 Diluted
EPS
  Net
Income
 Diluted
EPS
 
Net income as reported $ 11,239 $ 0.34  $ 7,852 $ 0.24 
Net Income reconciling items from below 33 -  1,157 0.03 
Adjusted net income and adjusted EPS $ 11,272 $ 0.34  $ 9,009 $ 0.27 
           
Reconciliation of Adjusted EBITDA Three Months Ended
January 31, 2022
  Three Months Ended
January 31, 2021
 
           
  Reconciliation    Reconciliation   
Net income as reported $ 11,239    $ 7,852   
Income tax expense 2,418    3,424   
Other, net (54)    (192)   
Interest expense 523    751   
Depreciation and amortization 10,257    11,015   
EBITDA 24,383    22,850   
EBITDA reconciling items from below -    1,478   
Adjusted EBITDA $ 24,383    $ 24,328   
           
Reconciling Items Three Months Ended
January 31, 2022
  Three Months Ended
January 31, 2021
 
  Income
Statement
 Reconciling
Items
  Income
Statement
 Reconciling
Items
 
Net sales $ 267,040  $-  $ 230,147 $- 
Cost of sales 211,834 -  176,397 - 
Selling, general and administrative 30,823 -  30,861 (1,439)(1)
Restructuring charges - -  39 (39)(2)
EBITDA 24,383 -  22,850 1,478 
Depreciation and amortization 10,257 -  11,015 - 
Operating income 14,126 -  11,835 1,478 
Interest expense (523) -  (751) - 
Other, net 54 41(3) 192 78(3)
Income before income taxes 13,657 41  11,276 1,556 
Income tax expense (2,418) (8)(4) (3,424) (399)(4)
Net income $ 11,239 $ 33  $ 7,852 $ 1,157 
           
Diluted earnings per share $ 0.34    $ 0.24   
           
(1) Transaction and advisory fees, $1.4 million related to the loss on a sale of a plant.
(2) Restructuring charges related to the closure of manufacturing plant facilities.
(3) Foreign currency transaction losses.          
(4) Impact on a with and without basis. 
           


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, 2022          
Net sales $146,631  $58,914  $62,353  $(858) $267,040 
Cost of sales  115,964   41,227   55,073   (430)  211,834 
Gross Margin  30,667   17,687   7,280   (428)  55,206 
Gross Margin %  20.9%  30.0%  11.7%    20.7%
Selling, general and administrative  14,377   7,303   5,270   3,873   30,823 
Depreciation and amortization  4,139   2,569   3,463   86   10,257 
Operating income (loss)  12,151   7,815   (1,453)  (4,387)  14,126 
Depreciation and amortization  4,139   2,569   3,463   86   10,257 
EBITDA  16,290   10,384   2,010   (4,301)  24,383 
Adjusted EBITDA $16,290  $10,384  $2,010  $(4,301) $24,383 
Adjusted EBITDA Margin %  11.1%  17.6%  3.2%    9.1%
           
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%
           


QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
     
  Three Months Ended January 31,
   2022   2021 
     
NA Fenestration:   
 United States - fenestration$128,367  $112,300 
 International - fenestration 9,136   7,778 
 United States - non-fenestration 6,716   5,398 
 International - non-fenestration 2,412   2,640 
  $146,631  $128,116 
EU Fenestration (1):   
 International - fenestration$44,621  $41,354 
 International - non-fenestration 14,293   7,737 
  $58,914  $49,091 
NA Cabinet Components:   
 United States - fenestration$3,765  $2,974 
 United States - non-fenestration 57,767   50,502 
 International - non-fenestration 821   518 
  $62,353  $53,994 
Unallocated Corporate & Other:   
 Eliminations$(858) $(1,054)
  $(858) $(1,054)
     
Net Sales$267,040  $230,147 
     
(1) Reflects reduction of $0.6 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2022.