Quanex Building Products Announces First Quarter 2018 Results and Reaffirms Full Year 2018 Guidance

Date : 03/05/2018 @ 4:15PM
Source : GlobeNewswire Inc.
Stock : Quanex Building Products Corp. (NX)
Quote : 17.55  -0.05 (-0.28%) @ 4:02PM

Quanex Building Products Announces First Quarter 2018 Results and Reaffirms Full Year 2018 Guidance

Quanex (NYSE:NX)
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3 Months : From Feb 2018 to May 2018

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Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2018.

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “First quarter results tracked the typical seasonality of our businesses; however, raw material price and labor inflation pressured margins across the board.  We expect to recover some of the increase in raw materials prices in the coming months via contractual pass through or targeted price increases and we will work hard to cover the balance with operational efficiency improvements.  Excluding eliminated products, our legacy fenestration business in the U.S. grew at 4.4% during the quarter, which compares favorably to Ducker’s latest window shipment estimate of 4.2% growth for the three months ended December 31, 2017.  Similarly, underlying growth in our European Engineered Components segment was 5.4%.  We generated positive free cash flow during the first quarter of 2018, which allowed us to pay down bank debt during the quarter of the year where we have historically had to borrow.  Despite the recent gyrations in the stock market, the fundamentals for our business remain positive, and as such we are comfortable reaffirming our full year 2018 guidance and expect a strong second half of the year.”    

First Quarter 2018 Results Summary  

The Company reported the following selected financial results: 

    
  Three Months Ended January 31, 
   2018   2017  
Net Sales $191.7  $195.1  
Net Income (Loss) $4.9  $(3.7) 
Diluted EPS $0.14  $(0.11) 
      
Adjusted Net Loss $(1.5) $(1.4) 
Adjusted Diluted EPS $(0.04) $(0.04) 
Adjusted EBITDA $13.2  $13.0  
      

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table and Selected Segment Data table for additional information)

The slight decrease in net sales during the first quarter of 2018 was largely the result of portfolio rationalization and divestitures that occurred throughout 2017.  The loss of revenues in the first quarter of 2018 associated with the aforementioned actions that took place in 2017 was somewhat offset by solid underlying growth in the North American and European Engineered Components segments. (See Sales Analysis table for additional information)

The increase in earnings was predominantly attributable to lower stock-based compensation expense and a $6.5 million, or $0.19 per diluted share, net tax benefit as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  The Tax Cuts and Jobs Act reduces the federal corporate tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime.  The lower tax rate will be phased in over time since Quanex has an October 31 fiscal year-end.  Including the net tax benefit realized in the first quarter of 2018, the Company estimates that its effective tax rate for fiscal 2018 will be approximately 9%, or approximately 24% excluding the net tax benefit.  Quanex will continue to evaluate the impact of the tax reform through the remainder of fiscal 2018.

As of January 31, 2018, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was unchanged at 2.3x.  Quanex remains focused on generating Free Cash Flow to pay down debt and expects to end fiscal 2018 with a leverage ratio below 2.0x.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Recent Events

The stockholders approved each of the following proposals voted on at the Company’s annual meeting held on March 1, 2018.

  • Election of Directors – Robert R. Buck, Susan F. Davis, Joseph D. Rupp and Curtis M. Stevens were elected to serve as directors on the Quanex Board of Directors until the Company’s Annual Meeting of Stockholders in 2019
  • Advisory Vote Approving Named Executive Officer Compensation - the stockholders supported Quanex’s executive officer compensation structure 
  • Ratification of Appointment of Grant Thornton LLP as Independent Public Accountants – the stockholders ratified the Company’s appointment of Grant Thornton LLP as its independent registered public accounting firm for the fiscal year ending October 31, 2018

Additionally, Quanex’s Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock, payable March 29, 2018, to shareholders of record on March 15, 2018.

Conference Call and Webcast Information

The Company has scheduled a conference call for Tuesday, March 6, 2018, 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 1039546, 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, 2018.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 1039546. 

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.  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.   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, 2017, 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 (LOSS)
(In thousands, except per share data) 
(Unaudited) 
       
  Three Months Ended January 31,  
   2018   2017   
       
Net sales $  191,666  $  195,096   
Cost of sales    154,440     154,947   
Selling, general and administrative    24,076     27,445   
Restructuring charges    366     1,139   
Depreciation and amortization    13,273     15,406   
Operating loss    (489)    (3,841)  
Interest expense    (2,441)    (2,160)  
Other, net    317     661   
Loss before income taxes    (2,613)    (5,340)  
Income tax benefit    7,560     1,614   
Net income (loss) $  4,947  $  (3,726)  
       
Income (loss) per common share, basic $  0.14  $  (0.11)  
Income (loss) per common share, diluted $  0.14  $  (0.11)  
       
Weighted average common shares outstanding:      
Basic    34,662     34,055   
Diluted    35,286     34,055   
       
Cash dividends per share $  0.04  $  0.04   
       

 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(In thousands) 
(Unaudited) 
     
  January 31, 2018 October 31, 2017
ASSETS    
Current assets:    
Cash and cash equivalents $  13,757  $  17,455 
Accounts receivable, net    62,119     79,411 
Inventories, net     95,843     87,529 
Prepaid and other current assets    7,451     7,406 
Total current assets    179,170     191,801 
Property, plant and equipment, net    213,014     211,131 
Goodwill     226,927     222,194 
Intangible assets, net    138,743     139,778 
Other assets    9,180     8,975 
Total assets $  767,034  $  773,879 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $  39,868  $  44,150 
Accrued liabilities    29,559     38,871 
Income taxes payable    2,664     2,192 
Current maturities of long-term debt    20,773     21,242 
Total current liabilities    92,864     106,455 
Long-term debt    215,362     218,184 
Deferred pension and postretirement benefits    5,293     4,433 
Deferred income taxes    14,771     21,960 
Other liabilities    15,787     16,000 
Total liabilities    344,077     367,032 
Stockholders’ equity:    
Common stock    375     375 
Additional paid-in-capital    253,638     255,719 
Retained earnings    228,293     225,704 
Accumulated other comprehensive loss    (14,623)    (25,076)
Treasury stock at cost    (44,726)    (49,875)
Total stockholders’ equity    422,957     406,847 
Total liabilities and stockholders' equity $  767,034  $  773,879 
     

 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW 
(In thousands) 
(Unaudited) 
    
 Three Months Ended January 31,
  2018  2017 (1)
Operating activities:   
Net income (loss)$  4,947  $  (3,726)
Adjustments to reconcile net income (loss) to cash provided by operating activities:  
Depreciation and amortization   13,273     15,406 
Stock-based compensation   580     2,226 
Deferred income tax   (8,483)    (3,684)
Other, net   130     1,241 
Changes in assets and liabilities:   
Decrease in accounts receivable   18,378     21,143 
Increase in inventory   (6,926)    (7,622)
Decrease (increase) in other current assets   73     (438)
Decrease in accounts payable   (4,523)    (7,232)
Decrease in accrued liabilities   (10,629)    (17,971)
Increase in income taxes   344     2,761 
Increase in deferred pension and postretirement benefits   860     837 
Increase in other long-term liabilities   181     366 
Other, net   (13)    (226)
Cash provided by operating activities   8,192     3,081 
Investing activities:   
Acquisitions, net of cash acquired   -     (8,497)
Capital expenditures   (7,811)    (8,141)
Proceeds from disposition of capital assets   65     390 
Cash used for investing activities   (7,746)    (16,248)
Financing activities:   
Borrowings under credit facilities   9,500     24,000 
Repayments of credit facility borrowings   (13,750)    (20,875)
Repayments of other long-term debt   (255)    (429)
Common stock dividends paid   (1,397)    (1,372)
Issuance of common stock   2,231     1,383 
Payroll tax paid to settle shares forfeited upon vesting of stock   (706)    (957)
Cash (used for) provided by financing activities   (4,377)    1,750 
Effect of exchange rate changes on cash and cash equivalents   233     (35)
Decrease in cash and cash equivalents   (3,698)    (11,452)
Cash and cash equivalents at beginning of period   17,455     25,526 
Cash and cash equivalents at end of period$  13,757  $  14,074 
    
(1) Updated to reflect adoption of ASU 2016-09.   
    

           
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 (Loss) and Adjusted EPS January 31, 2018  January 31, 2017 
  Net Income Diluted EPS  Net Income Diluted EPS 
Net income (loss) as reported $  4,947  $  0.14   $  (3,726) $  (0.11) 
Reconciling items from below    (6,485)    (0.18)     2,358     0.07  
Adjusted net loss and adjusted EPS $  (1,538) $  (0.04)  $  (1,368) $  (0.04) 
           
Reconciliation of Adjusted EBITDA Three Months Ended January 31, 2018  Three Months Ended January 31, 2017 
  Reconciliation    Reconciliation   
Net income (loss) as reported $  4,947     $  (3,726)   
Income tax benefit    (7,560)       (1,614)   
Other, net    (317)       (661)   
Interest expense    2,441        2,160    
Depreciation and amortization    13,273        15,406    
EBITDA    12,784        11,565    
Reconciling items from below    378        1,470    
Adjusted EBITDA $  13,162     $  13,035    
           
Reconciling Items Three Months Ended January 31, 2018  Three Months Ended January 31, 2017 
  Income Statement Reconciling Items  Income Statement Reconciling Items 
Net sales $  191,666  $  -    $  195,096  $  -   
Cost of sales    154,440     -       154,947     (14) (1)
Selling, general and administrative    24,076     (12) (2 )    27,445     (317) (2)
Restructuring charges    366     (366) (3 )    1,139     (1,139) (3)
EBITDA    12,784     378      11,565     1,470  
Depreciation and amortization    13,273     -       15,406     (2,533) (4)
Operating loss    (489)    378      (3,841)    4,003  
Interest expense    (2,441)    -       (2,160)    -   
Other, net    317     (299) (5 )    661     (630) (5)
Loss before income taxes    (2,613)    79      (5,340)    3,373  
Income tax benefit    7,560     (6,564) (6 )    1,614     (1,015) (6)
Net income (loss) $  4,947  $  (6,485)  $  (3,726) $  2,358  
           
Diluted earnings (loss) per share $  0.14     $  (0.11)   
           
(1) Relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition. 
(2) Acquisition related transaction costs and loss on sale of fixed assets related to the closure of a plant in 2017. 
(3) Restructuring charges relate to the closure of several manufacturing plant facilities. 
(4) Accelerated depreciation and amortization for restructured PP&E and intangible assets. 
(5) Foreign currency transaction gains. 
(6) Impact on a with and without basis.  Includes $6.5 million adjustment related to the Tax Cuts and Jobs Act in 2018. 
           

                
QUANEX BUILDING PRODUCTS CORPORATION 
SEGMENT RECONCILIATION 
(In thousands) 
(Unaudited) 
            
The following tables reconcile the Company's segment presentation to account for the transfer of operating facilities from the North American Engineered Components segment to the Cabinet Components segment, as previously reported in our earnings release for the three-months ended January 31, 2017, to the current presentation: 
                     
  NA EngineeredComponents EU EngineeredComponents NA CabinetComponents Unallocated Corp & Other Total 
Three months ended January 31, 2017           
As previously reported           
Net sales $  111,073  $  31,569 $  52,997  $  (543) $  195,096  
Cost of sales    86,393     22,538    46,237     (221)    154,947  
Selling, general and administrative    13,735     4,772    4,110     4,828     27,445  
Restructuring costs    566     -     573     -      1,139  
Depreciation and amortization    10,078     2,056    3,135     137     15,406  
Operating income (loss) $  301  $  2,203 $  (1,058) $  (5,287) $  (3,841) 
            
Reclassification           
Net sales $  (4,990) $  -  $  5,633  $  (643) $  -   
Cost of sales    (4,415)    -     5,058     (643)    -   
Selling, general and administrative    (204)    -     204     -      -   
Restructuring costs    -      -     -      -      -   
Depreciation and amortization    (140)    -     140     -      -   
Operating income (loss) $  (231) $  -  $  231  $  -   $  -   
            
Current presentation           
Net sales $  106,083  $  31,569 $  58,630  $  (1,186) $  195,096  
Cost of sales    81,978     22,538    51,295     (864)    154,947  
Selling, general and administrative    13,531     4,772    4,314     4,828     27,445  
Restructuring costs    566     -     573     -      1,139  
Depreciation and amortization    9,938     2,056    3,275     137     15,406  
Operating income (loss) $  70  $  2,203 $  (827) $  (5,287) $  (3,841) 
            

                
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 EngineeredComponents EU EngineeredComponents NA CabinetComponents Unallocated Corp & Other Total 
Three months ended January 31, 2018           
Net sales $  102,727  $  33,996  $  55,922  $  (979) $  191,666  
Cost of sales    80,026     24,833     50,210     (629)    154,440  
Selling, general and administrative    13,827     5,450     4,788     11     24,076  
Restructuring charges    251     -      115     -      366  
Depreciation and amortization    7,012     2,449     3,686     126     13,273  
Operating income (loss)    1,611     1,264     (2,877)    (487)    (489) 
Depreciation and amortization    7,012     2,449     3,686     126     13,273  
EBITDA    8,623     3,713     809     (361)    12,784  
Transaction related costs    -      -      -      12     12  
Restructuring charges    251     -      115     -      366  
Adjusted EBITDA  $  8,874  $  3,713  $  924  $  (349) $  13,162  
Adjusted EBITDA Margin %  8.6%  10.9%  1.7%    6.9% 
            
Three months ended January 31, 2017           
Net sales $  106,083  $  31,569  $  58,630  $  (1,186) $  195,096  
Cost of sales    81,978     22,538     51,295     (864)    154,947  
Selling, general and administrative    13,531     4,772     4,314     4,828     27,445  
Restructuring charges    566     -      573     -      1,139  
Depreciation and amortization    9,938     2,056     3,275     137     15,406  
Operating income (loss)    70     2,203     (827)    (5,287)    (3,841) 
Depreciation and amortization    9,938     2,056     3,275     137     15,406  
EBITDA    10,008     4,259     2,448     (5,150)    11,565  
Transaction related costs    -      -      -      60     60  
Mexico restructuring, loss on sale of fixed assets    -      -      257     -      257  
Restructuring charges    566     -      573     -      1,139  
PPA-Inventory Step-up    -      14     -      -      14  
Adjusted EBITDA  $  10,574  $  4,273  $  3,278  $  (5,090) $  13,035  
Adjusted EBITDA Margin %  10.0%  13.5%  5.6%    6.7% 
            
            

 
QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
     
   Three Months Ended 
  January 31, 2018 January 31, 2017 (1)
NA Engineered Components:   
 United States - fenestration (2)$  88,216  $  89,711 
 International - fenestration   7,008     6,341 
 United States - non-fenestration   4,147     5,831 
 International - non-fenestration   3,356     4,200 
  $  102,727  $  106,083 
EU Engineered Components  (3):                                  
 United States - fenestration$  -  $  35 
 International - fenestration (4)   29,869     28,905 
 International - non-fenestration   4,127     2,629 
  $  33,996  $  31,569 
NA Cabinet Components:   
 United States - fenestration$  3,445  $  3,332 
 United States - non-fenestration (5)                                                                                        52,006     54,691 
 International - non-fenestration   471     607 
  $  55,922  $  58,630 
Unallocated Corporate & Other:   
 Eliminations$  (979) $  (1,186)
  $  (979) $  (1,186)
     
Net Sales$  191,666  $  195,096 
     
(1) Updated to reflect transfer of operating facilities from NA Engineered Components to NA Cabinet Components.  See Reconciliation for additional details.
(2) Reflects the loss of revenue associated with eliminated products of $5.2 million for the three-months ended January 31, 2018.
(3) Reflects a gain of $3.1 million in revenue associated with foreign currency exchange rate impacts.
(4) Reflects loss of revenue associated with eliminated products of $2.4 million for the three-months ended January 31, 2018.
(5) Reflects the loss of revenue associated with eliminated products of $2.4 million for the three-months ended January 31, 2018.
     

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