Quanex Announces Fiscal Fourth Quarter and Fiscal 2003 Results
Record $1.03 Billion Net Sales for the Year; Best Ever Cash
Provided by Operating Activities for the Quarter and Year;
Engineered Products Posts Record Sales and Operating Income for the
Year HOUSTON, Dec. 4 /PRNewswire-FirstCall/ -- Quanex Corporation
announced its fiscal 2003 fourth quarter and annual results for the
period ending October 31, 2003. Net sales for the quarter were
$286.8 million, up 5% from $273.8 million reported in the fourth
quarter last year. Customer demand was strong during the quarter.
North American light vehicle builds remained above 16 million units
annualized, which allowed MACSTEEL to run at a high utilization
rate during the period. At Engineered Products and Nichols
Aluminum, sales were excellent due to the combination of strong
housing starts and remodeling activity. Net sales for the year were
a record $1,031.2 million compared to $994.4 million last year. Net
income and diluted earnings per share were $13.1 million and $0.80,
respectively for the fourth quarter. The Company stated that
results in the quarter included a non-cash charge to operating
income of $4.6 million to account for changes in its year-end
inventories using the Last In-First Out (LIFO) method of
accounting. For the year, net income and diluted earnings per share
were $42.9 million and $2.62, respectively. The Company reported
that its annual results included a non-cash LIFO charge of $6.1
million (pre- tax) and a tax-free executive life insurance benefit
of $2.2 million. During the quarter, Quanex announced a definitive
agreement to purchase the North Star Steel - Monroe facility from
Cargill, Inc. Monroe produces special-bar-quality steel bars and
primarily serves the vehicular products market. The acquisition is
expected to close around the end of calendar year 2003. The Company
also announced a definitive agreement to purchase TruSeal
Technologies from Kirtland Capital Partners. TruSeal produces
flexible, insulating glass spacer systems and sealants for wood,
vinyl and aluminum windows. The acquisition is expected to close on
or about January 2, 2004. Net income for the fourth quarter 2002
was $15.1 million and $55.5 million for the year. Diluted earnings
per share were $.97 for the quarter and $3.52 for the year. The
Company said the $3.52 figure included a tax-free executive life
insurance benefit of $9.0 million. Highlights Regarding the
Company's results, Raymond A. Jean, chairman and chief executive
officer, stated "We experienced robust demand for our products
throughout the quarter and, with strong operational performance,
allowed us to report solid fourth quarter results. Automotive
builds stayed above 16 million annualized units, and while the pace
was not record setting, it increased MACSTEEL's operating rates
above the third quarter. Home building activity, combined with
remodeling expenditures, remained brisk, and allowed both
Engineered Products and Nichols Aluminum to post excellent results.
"During the quarter, all of our businesses did a great job of
reducing working capital, and taken together, showed an 8%
improvement over last year. Cash provided by operating activities
and free cash flow provided by operating activities for the quarter
were $60.9 million and $54.8 million, respectively, compared to
$15.6 million and $9.3 million, respectively, for the fourth
quarter a year ago. For the full year, cash provided by operating
activities and free cash flow provided by operating activities were
$102.8 million and $73.9 million, respectively, compared to $81.1
million and $48.5 million, respectively, a year ago. As a result,
balance sheet fundamentals remained outstanding, and we finished
the year with a total debt to capitalization ratio of 4.25%," said
Jean. "Quanex uses the LIFO method of accounting which requires us
to revalue our inventories at the end of each year. As we have
reported for much of the year, both steel and aluminum scrap costs
have been rising. When this situation occurs, the LIFO calculation
produces a non-cash charge to earnings," Jean said. Quarterly
Financials ($ in millions, except per share data) 4th qtr 4th qtr
inc/dcr FY 2003 FY 2002 inc/dcr 2003 2002 Net Sales $286.8 $273.8
5% $1,031.2 $994.4 4% Operating Income 20.7 28.4 -27% 63.8 83.3
-23% Net Income 13.1 15.1 -13% 42.9 55.5 -23% EPS: Basic $ .82 $
.92 -11% $2.65 $3.74 -29% EPS: Diluted .80 .97 -18% 2.62 3.52 -26%
Segment Commentary VEHICULAR PRODUCTS ($ in millions) 4th qtr 2003
4th qtr 2002 FY 2003 FY 2002 Net Sales $130.4 $122.0 $468.5 $459.5
Operating Income 14.5 15.8 48.2 57.6 The Vehicular Products segment
includes MACSTEEL, Piper Impact and Temroc Metals. The segment's
main drivers are North American light vehicle builds, and to a
lesser extent, heavy duty truck builds. "Total North American light
vehicle builds in our fourth quarter were about 4% higher than a
year ago; however, builds at the "Big 3" were down about 10%. Heavy
duty truck builds were off about 15% from last year's fourth
quarter. Truck builds were particularly strong a year ago because
heavy truck customers were buying ahead of an EPA driven change to
the emission systems of large diesel engines effective October
2003. Low inventory in the pipeline at MACSTEEL's Tier one and Tier
two customers, along with higher content, allowed us to increase
volumes about 6% from a year ago, clearly outperforming our served
market," continued Jean. "Operating income at MACSTEEL was down
about 10% from a year ago, in part due to higher energy and scrap
costs. We experienced another spike in scrap costs during the
quarter, with steel scrap costs up some $40 per ton over last
year's fourth quarter, and $20 per ton higher than just last
quarter. We do have scrap surcharges in place with customers but
the surcharge lags actual scrap costs by at least three months, and
with scrap up sharply over the last six months, margins at MACSTEEL
continue to be squeezed. However, offsetting part of this margin
compression was our ability to further reduce conversion costs,
which were down some 3% in the quarter, including the benefit of
further reductions in outside processing costs," said Jean. "At
Piper Impact sales were off about 15% compared to the fourth
quarter last year, with the largest drop in business coming from
the ongoing reduction in aluminum airbag component sales. Piper
did, however, reduce the size of its operating loss this quarter
compared to both last quarter and the year ago quarter.
Nonetheless, Piper continues to lose money on much of our
traditional product lines. We continue to review our strategic
options for this business," Jean said. BUILDING PRODUCTS ($ in
millions) 4th qtr 2003 4th qtr 2002 FY 2003 FY 2002 Net Sales
$156.4 $151.7 $562.7 $534.9 Operating Income 15.0 13.6 35.6 38.0
The Building Products segment includes Engineered Products and
Nichols Aluminum. The main drivers of this segment are residential
housing starts and remodeling expenditures. "We continue to see
strong demand for our door and window components, which allowed
Engineered Products to report another excellent quarter with record
operating results. Housing starts for the fourth quarter exceeded
1.8 million units on an annualized basis. For the month of October,
annualized starts were nearly 2 million units. With demand for new
residential homes at record levels, we look for customer activity
to remain at high levels until inclement winter weather conditions
arrive," said Jean. "Nichols Aluminum reported higher volumes for
the quarter compared to last year as our primary building and
construction customers were at high operating rates. Sales to our
other markets remained lackluster. Like MACSTEEL, Nichols
experienced rising scrap prices this year. Scrap prices were up
about $.03 per pound this quarter over a year ago, although it was
essentially flat to last quarter. Even with these higher costs,
Nichols posted improved operating income compared to last year's
quarter, in part because of the excellent operating performance at
our Golden facility. Nichols also did an outstanding job of holding
the line on conversion costs, which were flat versus a year ago,
despite the fact that energy costs were up," Jean said. Outlook
Operating results for the Vehicular Products segment are tied to
North American light vehicle builds and heavy duty truck builds.
For calendar 2004, the Company expects light vehicle builds to be
about 16 million units, essentially flat to 2003's expected build
rate of 15.8 million units. Loss of market share by the "Big 3" to
the automotive transplant companies, or NAMs, remains a concern.
While MACSTEEL sells steel bar products to the NAMs and continues
to make excellent inroads, MACSTEEL remains closely linked to the
"Big 3". Heavy duty truck builds, which have been at cyclical lows
for several years, are expected to recover in calendar 2004 and
exceed 200,000 units, up from 175,000 units estimated to be built
in 2003. Operating results for the Building Products segment are
tied to U.S. housing starts and remodeling activity. For calendar
2004, the Company expects housing starts to drop 5% from 2003's
very strong level. Remodeling expenditures are expected to remain
at robust levels in 2004. The Company's primary raw materials are
steel and aluminum scrap, which supplies MACSTEEL and Nichols
Aluminum. The price of these commodities rose steadily throughout
the year, with a significant surge in ferrous scrap prices during
the Company's fourth quarter, continuing in November and December.
Over time, MACSTEEL recovers the majority of these cost increases
through its use of scrap surcharges. However, it does experience
substantial margin compression when scrap prices surge as the
surcharge is based on a three month trailing index. Nichols
Aluminum has no such surcharge, and it attempts to recover rising
scrap costs through a higher selling price. Quanex expects to post
improved results in 2004 compared to 2003. This expectation is
based on a growing economy, market share gains by MACSTEEL and
Engineered Products, improved product mix at Nichols Aluminum and
the considerable earnings benefit that will accrue from its
acquisitions of North Star Steel Monroe and TruSeal Technologies.
The first quarter (November, December and January) is historically
the Company's least profitable as there are fewer production days
due to the holidays, customers closely manage year-end inventories
and reduced building activity during the winter. Quanex expects its
first quarter diluted earnings per share to be down compared to the
same period a year ago. First quarter volumes at MACSTEEL are
expected to be flat to the year ago quarter, but operating income
is expected to be off as steel scrap costs are anticipated to be
some 35% higher than in the year ago quarter. Operating income at
Engineered Products is expected to be flat compared to excellent
year ago results. Volume at Nichols Aluminum should be up from a
year ago, however, operating income is expected to be flat as they
absorb higher raw material costs in the absence of sales price
relief. 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 financial statements. For the
fourth quarter and fiscal year, expensing stock options would have
reduced net income by $0.4 million and $1.7 million, respectively,
and would have reduced diluted earnings per share by $0.02 and
$0.10, respectively. Non-GAAP Financial Measures Free cash flow
from operating activities -- The Company utilizes this non- GAAP
financial measure to gauge its quarterly and annual performance
considering its short-term investment in working capital and its
long-term investment in Plant, Property and Equipment (PP&E).
Following is the reconciliation: Three months ended Twelve months
ended October 31, October 31, 2003 2002 2003 2002 60,903 15,576
Cash provided by operating 102,840 81,111 activities (GAAP) (6,129)
(6,316) Less: Capital expenditures (28,899) (32,639) 54,774 9,260
Free cash flow from operating 73,941 48,472 activities (Non-GAAP)
Dividend Declared The Board of Directors declared a quarterly cash
dividend of $0.17 per share on the Company's common stock, payable
December 30, 2003 to shareholders of record on December 19, 2003.
Corporate Profile Quanex is a $1 billion industry-leading
manufacturer of engineered materials and components for the
vehicular products and building products markets. Financial
Statistics as of 10/31/03 Book value per common share: $27.52;
Total debt to capitalization: 4.25%; Return on invested capital:
9.05%; Return on common equity: 10.02%; Actual number of common
shares outstanding: 16,173,961 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. Free
cash flow from operating activities -- calculated as the sum of
cash provided by operating activities less capital expenditures.
Statements that use the words "expect," "should," "will," "might,"
"gauge" 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 20, 2002) 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
http://www.quanex.com/ . QUANEX CORPORATION CONSOLIDATED STATEMENTS
OF INCOME (In thousands, except per share data) (Unaudited) Three
months ended Twelve months ended October 31, October 31, 2003 2002
2003 2002 $286,819 $273,753 Net sales $1,031,215 $994,387 242,451
221,067 Cost of sales 867,782 812,949 13,334 14,448 Selling,
general and administrative expense 53,572 54,408 10,297 9,846
Depreciation and amortization 46,066 43,730 20,737 28,392 Operating
income 63,795 83,300 (404) (5,633) Interest expense (2,517)
(14,812) --- --- Capitalized interest --- 1,879 --- --- Retired
executive life insurance benefit 2,152 9,020 182 758 Other, net
2,393 2,227 20,515 23,517 Income before income taxes 65,823 81,614
(7,399) (8,464) Income tax expense (22,936) (26,132) $13,116
$15,053 Net income $42,887 $55,482 Weighted average common shares
outstanding: 16,088 16,364 Basic 16,154 14,823 16,337 16,660
Diluted 16,384 16,237 Earnings per common share: $0.82 $0.92 Basic
$2.65 $3.74 $0.80 $0.97 Diluted $2.62 $3.52 $0.17 $0.16 Cash
dividends per share $0.68 $0.64 QUANEX CORPORATION INDUSTRY SEGMENT
INFORMATION (In thousands) (Unaudited) Three months ended Twelve
months ended October 31, October 31, 2003 2002 2003 2002 Net sales:
$130,403 $122,042 Vehicular Products $468,506 $459,531 156,416
151,711 Building Products 562,709 534,856 $286,819 $273,753 Net
sales $1,031,215 $994,387 Operating income: $14,526 $15,799
Vehicular Products $48,208 $57,606 14,965 13,638 Building Products
35,648 37,985 (8,754) (A) (1,045) Corporate and Other (20,061) (A)
(12,291) $20,737 $28,392 Operating Income $63,795 $83,300 (A) -
Increase is primarily due to LIFO charges. QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) October 31,
2003 2002 ASSETS Cash and equivalents $22,108 $18,283 Accounts and
notes receivable, net 123,185 116,122 Inventories 79,322 90,756
Other current assets 8,116 10,640 Total current assets 232,731
235,801 Property, plant and equipment, net 335,904 353,132
Goodwill, net 66,436 66,436 Other assets 30,792 33,771 Total assets
$665,863 $689,140 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts
payable $89,435 $76,588 Accrued liabilities 39,209 48,973 Income
taxes payable 7,381 4,839 Other current liabilities 46 3,970
Current portion of long-term debt 3,877 434 Total current
liabilities 139,948 134,804 Long-term debt 15,893 75,131 Deferred
pension credits 8,323 4,960 Deferred postretirement welfare
benefits 7,845 7,928 Deferred income taxes 34,895 29,210 Other
liabilities 13,800 15,712 Total liabilities 220,704 267,745 Total
stockholders' equity 445,159 421,395 Total liabilities and
stockholders' equity $665,863 $689,140 QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited)
Three months ended Twelve months ended October 31, October 31, 2003
2002 2003 2002 Operating activities: $13,116 $15,053 Net income
$42,887 $55,482 Adjustments to reconcile net income to cash
provided by operating activities: --- --- Gain on sale of Piper
Utah property (405) --- --- --- Loss on early extinguishment of
debt --- 922 --- --- Retired executive life insurance benefit
(2,152) (9,020) 10,383 9,880 Depreciation and amortization 46,415
43,987 1,229 (107) Deferred income taxes 8,992 2,330 868 (3,124)
Deferred pension and postretirement benefits 2,034 (4,734) 25,596
21,702 97,771 88,967 Changes in assets and liabilities, net of
effects from acquisitions and dispositions: (6,114) (5,437)
Increase in accounts and notes receivable (7,063) (5,144) 21,022
2,473 Decrease (Increase) in inventory 11,434 (5,249) 13,363
(4,535) Increase (Decrease) in accounts payable 12,847 (857) 1,323
(2,958) Increase (Decrease) in accrued liabilities (9,764) (3,655)
5,779 1,295 Increase in income taxes payable 2,542 3,752 (66) 3,036
Other, net (4,927) 3,297 60,903 15,576 Cash provided by operating
activities 102,840 81,111 Investment activities: --- ---
Acquisition of Colonial Craft, net of cash acquired --- (17,283)
--- --- Proceeds from sale of Piper Utah property 2,832 --- (5,941)
(6,171) Capital expenditures, net of retirements (28,693) (34,271)
6,442 26,111 Retired executive life insurance proceeds 6,442 26,111
302 (3,222) Other, net (3,081) (4,365) 803 16,718 Cash used for
investment activities (22,500) (29,808) Financing activities:
(50,000) (16,000) Bank revolver and note repayments, net (55,000)
(82,029) --- --- Redemption and purchase of subordinated debentures
--- (1,314) --- --- Purchases of Quanex common stock (13,515) ---
(2,745) (2,625) Common dividends paid (10,865) (9,637) 2,354 3,232
Issuance of common stock, net 5,163 33,948 (38) 42 Other, net
(2,298) (3,561) (50,429) (15,351) Cash used for financing
activities (76,515) (62,593) 11,277 16,943 Increase (decrease) in
cash 3,825 (11,290) 10,831 1,340 Beginning of period cash and
equivalents 18,283 29,573 $22,108 $18,283 End of period cash and
equivalents $22,108 $18,283 Financial Contact: Jeff Galow,
713/877-5327 Media Contact: Valerie Calvert, 713/877-5305
http://www.newscom.com/cgi-bin/prnh/19990517/NXLOGO
http://www.newscom.com/cgi-bin/prnh/20010522/DATU048
http://photoarchive.ap.org/ DATASOURCE: Quanex Corporation CONTACT:
financial, Jeff Galow, +1-713-877-5327, or media, Valerie Calvert,
+1-713-877-5305, both of Quanex Corporation Web site:
http://www.quanex.com/
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