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CST: 21/03/2019 00:36:25   

Quanex Building Products Announces First Quarter 2019 Results and Reaffirms Full Year 2019 Guidance

15 Days ago

Above Market Growth of >6% in NA Fenestration Segment
Healthy Underlying Growth of >10% in EU Fenestration Segment
Significant Margin Expansion in EU Fenestration Segment
Targeting Year-End Fiscal 2019 Leverage Ratio of 1.5x - 2.0x

HOUSTON, March 05, 2019 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation(NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2019.

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Overall, we are encouraged by the solid revenue growth we achieved during the first quarter in our North American and European Fenestration segments, especially given the seasonality of our business and public commentary related to the residential housing industry in the U.S. and Brexit in Europe.  As a reminder, our consolidated revenue stream is weighted approximately 70% to the repair and remodel segment of the market, which we believe should grow at a higher rate than new construction for the foreseeable future. 

“We were able to realize margin expansion of almost 300 basis points in our European Fenestration segment during the quarter, mainly due to pricing finally catching up to inflationary pressures that impacted results for much of 2018.  Results were softer than expected in our North American Cabinet Components segment, which was largely the result of extended customer downtime around the holidays and unplanned downtime related to severe weather in January.  For the full year, we continue to expect margin expansion on a consolidated basis as volume ramps, operating efficiency gains improve and price increases continue to take hold as the year progresses.  As is typical for our business, we were a net borrower in the first quarter, predominantly due to incentive payouts and share repurchases.  Inventories increased as expected in preparation for the spring selling season as well as some Brexit related stockpiling in Europe.  As a result, our leverage ratio increased, but we are confident in our ability to generate strong free cash flow in the second half and expect to continue deleveraging the balance sheet and buying back stock.  Despite depressed equity valuations in the residential housing industry, the fundamentals for our business remain positive, and as such we are comfortable reaffirming our full year 2019 guidance of 4% to 6% revenue growth and Adjusted EBITDA of $97 million to $107 million.”  (See Forward Looking Statements and Non-GAAP Terminology Definitions and Disclaimers sections for additional information)

First Quarter 2019 Results Summary  

The Company reported the following selected financial results:

    Three Months Ended January 31,
    2019   2018
Net Sales   $196.8   $191.7
Net (Loss) Income   ($3.6)   $4.9
Diluted EPS   ($0.11)   $0.14
         
Adjusted Net Loss   ($2.3)   ($1.5)
Adjusted Diluted EPS   ($0.07)   ($0.04)
Adjusted EBITDA   $12.1   $13.1
(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table and Selected Segment Data table for additional information)

The increase in net sales during the first quarter of 2019 was mainly the result of above market growth in the North American Fenestration segment combined with price increases related to raw material inflation recovery. (See Sales Analysis table for additional information)

The decrease in reported earnings was largely due to a $6.5 million, or $0.19 per diluted share, net tax benefit for the three months ended January 31, 2018, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  The decrease in adjusted earnings was primarily attributable to an increase in selling, general and administrative expense driven by elevated medical costs. 

Quanex remains focused on generating Free Cash Flow and expects to continue paying down debt and opportunistically repurchase stock.  As of January 31, 2019, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.4x.  Quanex expects 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 January 31, 2019, Quanex repurchased 144,030 shares of common stock for approximately $2 million at an average price of $13.98 per share.  As of January 31, 2019, approximately $26 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 March 29, 2019, to shareholders of record on March 18, 2019.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, March 6, 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 8465673, 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 13, 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 8465673. 

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 INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)

    Three Months Ended January 31,
      2019     2018 (1)
         
Net sales   $ 196,808     $ 191,666  
Cost of sales     158,557       154,521  
Selling, general and administrative     28,026       24,102  
Restructuring charges     103       366  
Depreciation and amortization     12,572       13,273  
Operating loss     (2,450 )     (596 )
Interest expense     (2,442 )     (2,441 )
Other, net     256       424  
Loss before income taxes     (4,636 )     (2,613 )
Income tax benefit     987       7,560  
Net (loss) income   $ (3,649 )   $ 4,947  
         
(Loss) income per common share, basic   $ (0.11 )   $ 0.14  
(Loss) income per common share, diluted   $ (0.11 )   $ 0.14  
         
Weighted average common shares outstanding:        
Basic     33,098       34,662  
Diluted     33,098       35,286  
         
Cash dividends per share   $ 0.08     $ 0.04  
         
(1) Updated to reflect adoption of ASU 2017-07.        
         

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

    January 31, 2019   October 31, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 17,456     $ 29,003  
Accounts receivable, net     71,678       84,014  
Inventories, net     81,443       69,365  
Prepaid and other current assets     7,282       7,296  
Total current assets     177,859       189,678  
Property, plant and equipment, net     198,717       201,370  
Goodwill     221,225       219,627  
Intangible assets, net     119,053       121,919  
Other assets     8,886       9,255  
Total assets   $ 725,740     $ 741,849  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $ 39,500     $ 52,389  
Accrued liabilities     27,789       45,968  
Income taxes payable     3,228       2,780  
Current maturities of long-term debt     1,134       1,224  
Total current liabilities     71,651       102,361  
Long-term debt     229,550       209,332  
Deferred pension and postretirement benefits     4,913       4,218  
Deferred income taxes     15,549       17,215  
Other liabilities     14,274       14,571  
Total liabilities     335,937       347,697  
Stockholders’ equity:        
Common stock     374       374  
Additional paid-in-capital     252,931       254,678  
Retained earnings     235,979       242,834  
Accumulated other comprehensive loss     (26,643 )     (30,705 )
Treasury stock at cost     (72,838 )     (73,029 )
Total stockholders’ equity     389,803       394,152  
Total liabilities and stockholders' equity   $ 725,740     $ 741,849  
         
         

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)

    Three Months Ended January 31,
      2019       2018  
Operating activities:        
Net (loss) income   $   (3,649 )   $   4,947  
Adjustments to reconcile net (loss) income to cash (used for) provided by operating activities:            
Depreciation and amortization       12,572         13,273  
Stock-based compensation       224         580  
Deferred income tax       (1,877 )       (8,483 )
Other, net       785         130  
Changes in assets and liabilities:        
Decrease in accounts receivable       12,679         18,378  
Increase in inventory       (11,601 )       (6,926 )
Decrease in other current assets       15         73  
Decrease in accounts payable       (11,738 )       (4,523 )
Decrease in accrued liabilities       (18,850 )       (10,629 )
Increase in income taxes payable       422         344  
Increase in deferred pension and postretirement benefits       684         860  
(Decrease) Increase in other long-term liabilities       (27 )       181  
Other, net       118         (13 )
Cash (used for) provided by operating activities       (20,243 )       8,192  
Investing activities:        
Capital expenditures       (6,271 )       (7,811 )
Proceeds from disposition of capital assets       74         65  
Cash used for investing activities       (6,197 )       (7,746 )
Financing activities:        
Borrowings under credit facilities       43,000         9,500  
Repayments of credit facility borrowings       (23,000 )       (13,750 )
Repayments of other long-term debt       (454 )       (255 )
Common stock dividends paid       (2,675 )       (1,397 )
Issuance of common stock       27         2,231  
Payroll tax paid to settle shares forfeited upon vesting of stock       (322 )       (706 )
Purchase of treasury stock       (2,016 )       -  
Cash provided by (used for) financing activities       14,560         (4,377 )
Effect of exchange rate changes on cash and cash equivalents       333         233  
Decrease in cash and cash equivalents       (11,547 )       (3,698 )
Cash and cash equivalents at beginning of period       29,003         17,455  
Cash and cash equivalents at end of period   $   17,456     $   13,757  
         
         

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 (Loss) Income and Adjusted EPS   January 31, 2019     January 31, 2018  
    Net
Income
  Diluted
EPS
    Net
Income
  Diluted
EPS
 
Net (loss) income as reported   $ (3,649 )   $ (0.11 )     $ 4,947     $ 0.14    
Reconciling items from below     1,334       0.04         (6,485 )     (0.18 )  
Adjusted net loss and adjusted EPS   $ (2,315 )   $ (0.07 )     $ (1,538 )   $ (0.04 )  
                     
Reconciliation of Adjusted EBITDA   Three Months Ended
January 31, 2019
    Three Months Ended
January 31, 2018
 
    Reconciliation         Reconciliation      
Net income as reported   $ (3,649 )         $ 4,947        
Income tax benefit     (987 )           (7,560 )      
Other, net     (256 )           (424 )      
Interest expense     2,442             2,441        
Depreciation and amortization     12,572             13,273        
EBITDA     10,122             12,677        
Reconciling items from below     1,971             378        
Adjusted EBITDA   $ 12,093           $ 13,055        
                     
Reconciling Items   Three Months Ended
January 31, 2019
    Three Months Ended
January 31, 2018
 
    Income
Statement
  Reconciling
Items
    Income
Statement
  Reconciling
Items
 
Net sales   $ 196,808     $ -       $ 191,666     $ -    
Cost of sales     158,557       -         154,521       -    
Selling, general and administrative     28,026       (1,868 )   (1 )     24,102       (12 )   (1 )
Restructuring charges     103       (103 )   (2 )     366       (366 )   (2 )
EBITDA     10,122       1,971         12,677       378    
Depreciation and amortization     12,572       -         13,273       -    
Operating loss     (2,450 )     1,971         (596 )     378    
Interest expense     (2,442 )     -         (2,441 )     -    
Other, net     256       21     (3 )     424       (299 )   (3 )
Loss before income taxes     (4,636 )     1,992         (2,613 )     79    
Income tax benefit     987       (658 )   (4 )     7,560       (6,564 )   (4 )
Net (loss) income   $ (3,649 )   $ 1,334       $ 4,947     $ (6,485 )  
                     
Diluted (loss) earnings per share   $ (0.11 )         $ 0.14        
                     
(1) Transaction and advisory fees, and in 2019, $1.2 million of severance related to a reorganization.            
(2) Restructuring charges relate to the closure of several manufacturing plant facilities.                
(3) Foreign currency transaction losses (gains).                    
(4) Impact on a with and without basis.  January 31, 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 income (loss), 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 January 31, 2019                    
Net sales   $ 109,049     $ 35,254     $ 53,853     $ (1,348 )   $ 196,808  
Cost of sales     87,153       24,526       47,856       (978 )     158,557  
Selling, general and administrative     13,077       5,711       4,925       4,313       28,026  
Restructuring charges     103       -       -       -       103  
Depreciation and amortization     6,873       2,236       3,339       124       12,572  
Operating income (loss)     1,843       2,781       (2,267 )     (4,807 )     (2,450 )
Depreciation and amortization     6,873       2,236       3,339       124       12,572  
EBITDA     8,716       5,017       1,072       (4,683 )     10,122  
Transaction and advisory fees     -       -       -       717       717  
Severance related to reorganization     -       -       -       1,151       1,151  
Restructuring charges     103       -       -       -       103  
Adjusted EBITDA   $ 8,819     $ 5,017     $ 1,072     $ (2,815 )   $ 12,093  
Adjusted EBITDA Margin %     8.1 %     14.2 %     2.0 %         6.1 %
                     
Three months ended January 31, 2018 (2)                    
Net sales   $ 102,727     $ 33,996     $ 55,922     $ (979 )   $ 191,666  
Cost of sales     80,098       24,833       50,219       (629 )     154,521  
Selling, general and administrative (3)     13,508       5,327       4,635       632       24,102  
Restructuring charges     251       -       115       -       366  
Depreciation and amortization     7,012       2,449       3,686       126       13,273  
Operating income (loss)     1,858       1,387       (2,733 )     (1,108 )     (596 )
Depreciation and amortization     7,012       2,449       3,686       126       13,273  
EBITDA     8,870       3,836       953       (982 )     12,677  
Transaction and advisory fees     -       -       -       12       12  
Restructuring charges     251       -       115       -       366  
Adjusted EBITDA   $ 9,121     $ 3,836     $ 1,068     $ (970 )   $ 13,055  
Adjusted EBITDA Margin %     8.9 %     11.3 %     1.9 %         6.8 %
                     
(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 $0.6 million 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
    January 31, 2019   January 31, 2018
         
NA Fenestration:      
  United States - fenestration $ 93,884     $ 88,216  
  International - fenestration   8,207       7,008  
  United States - non-fenestration   3,505       4,147  
  International - non-fenestration   3,453       3,356  
    $ 109,049     $ 102,727  
EU Fenestration (1) :      
  International - fenestration $ 30,724     $ 29,869  
  International - non-fenestration   4,530       4,127  
    $ 35,254     $ 33,996  
NA Cabinet Components :      
  United States - fenestration $ 3,352     $ 3,445  
  United States - non-fenestration   49,962       52,006  
  International - non-fenestration   539       471  
    $ 53,853     $ 55,922  
Unallocated Corporate & Other:      
  Eliminations $ (1,348 )   $ (979 )
    $ (1,348 )   $ (979 )
         
Net Sales $ 196,808     $ 191,666  
         
(1) Reflects a $2.1 million reduction in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2019.
         

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