Quanex Announces Fiscal First Quarter 2004 Results Engineered
Products Reports Record First Quarter Operating Income; Integration
of MACSTEEL Monroe and TruSeal Technologies Proceeding Well
HOUSTON, Feb. 26 /PRNewswire-FirstCall/ -- Quanex Corporation
announced fiscal first quarter results for the period ending
January 31, 2004. Net sales for the quarter were $281.2 million,
23% higher than a year ago. Net sales included one month's results
from the Company's acquisitions of MACSTEEL Monroe and TruSeal
Technologies of $27.4 million. The Company commented that first
quarter demand at its Vehicular Products and Building Products
segments was very strong and that backlogs for the second quarter
remained at high levels. Net income for Quanex was $6.4 million,
down 6% compared to last year's record first quarter. Diluted
earnings per share were $.39, the Company's second best first
quarter. Monroe and TruSeal contributed about $.05 (after interest
expense) to the diluted earnings per share figure in January and
the first quarter. Net sales for the first quarter 2003 were $229.5
million. Net income and diluted earnings per share for the first
quarter 2003 were $6.8 million and $.41, respectively. Highlights
Regarding the Company's results, Raymond A. Jean, chairman and
chief executive officer stated, "We delivered near record first
quarter results, driven by very strong customer demand across most
product lines. During the quarter, we continued to be challenged by
runaway steel scrap costs and the severe impact those costs had on
the otherwise solid operating results at MACSTEEL. North American
light vehicle builds were about flat compared to a year ago. Heavy
duty truck builds continue to post gains, with builds up some 25%
duringthe quarter versus a year ago. Housing activity remained
brisk through calendar year-end, which allowed Engineered Products,
excluding TruSeal, to post record first quarter operating income,"
Jean said. "We have made excellent progress to date integrating
Monroe and TruSeal into Quanex. We are very impressed by the
quality of the management teams and are excited by the long term
earnings potential of both businesses. We are comfortable with our
previous guidance that the two acquisitions will contribute $.40 to
$.50 to our fiscal 2004 diluted earnings per share." Quarterly
Financials ($ in millions, except per share data) 1st qtr 2004 1st
qtr 2003 inc/dcr Net Sales $281.2 $229.5 23% Operating Income 10.7
10.1 6% Net Income 6.4 6.8 -6% EPS: Basic $ .39 $ .41 -5% EPS:
Diluted .39 .41 -5% Segment Commentary VEHICULAR PRODUCTS ($ in
millions) 1st qtr 2004 1st qtr 2003 Net Sales $141.0 $108.9
Operating Income 8.7 9.9 The Vehicular Products segment includes
MACSTEEL, along with the newly acquired North Star Steel Monroe
facility, Piper Impact and Temroc Metals. The segment's main
drivers are North American light vehicle builds and heavy duty
truck builds. "North American light vehicle builds remained at
healthy levels during the quarter, and MACSTEEL benefited from
improving heavy duty truck production. Excluding Monroe, MACSTEEL
shipments were up about 10% for the quarter, while operating income
was down some 20%. Skyrocketing steel scrap costs were an issue
during the quarter as MACSTEEL's scrap costs were up some $65 per
ton over a year ago. Offsetting part of this cost increase was
MACSTEEL's higher scrap surcharge effective January 1, 2004,
productivity gains from lean initiatives and higher value added
product sales. Further bolstering demand has been a strengthening
of the secondary markets from the oil patch to defense. We see real
strength in MACSTEEL's business going forward with our backlog some
50% higher than a year ago," Jean said. "Piper Impact continues to
struggle with the reduction of their base business. They narrowed
the loss during the quarter versus the year ago period, and we are
getting closer to finalizing a review of our strategic options,"
said Jean. BUILDING PRODUCTS ($ in millions) 1st qtr 2004 1st qtr
2003 Net Sales $140.2 $120.6 Operating Income 5.5 4.2 The Building
Products segment includes Engineered Products, including the recent
acquisition of TruSeal Technologies, and Nichols Aluminum. The main
drivers of the segment are residential housing starts and
remodeling expenditures. "Engineered Products, excluding TruSeal's
excellent first month results, reported record income in our first
quarter even though January's inclement winter did begin to slow
the business," continued Jean. "Housing starts and remodeling
activity ended the calendar year at very high levels and the
momentum has clearly carried over into 2004. This level of activity
is an excellent indicator of the underlying strength in this
business segment." "Nichols Aluminum had a good sales quarter and
operating income was slightly improved from a year ago. Shipments
remained strong to our traditional building and construction
markets and our higher margin coated sheet was sold out in the
quarter. The Golden facility, which supplies food packaging and
container products, also reported good customer activity. As with
Engineered Products, Nichols' first quarter is seasonally their
slowest sales period. Currently, we have a good backlog of business
and customer activity in the secondary markets is improving," said
Jean. Outlook Demand in the Company's two target markets, vehicular
products and building products, continues to be bolstered by a
rebounding economy and favorable interest rates. Business
conditions and the economy are expected to continue to gain
strength throughout 2004. In Quanex's Vehicular Products segment,
business activity looks very promising going forward; however, the
unprecedented sharp spikes in scrap prices remain an ongoing
concern at MACSTEEL. The January and February cost increases have
been particularly painful because of their sheer magnitude, and are
well in excess of our current scrap surcharge. This situation will
result in a temporary, yet significant reduction in margins at
MACSTEEL in the second quarter. In the Building Productssegment,
order activity remains strong, and while weather sensitive, the
Company expects better second quarter results, excluding TruSeal,
compared to a year ago. At Nichols Aluminum, both rising London
Metal Exchange (LME) ingot prices and scrap prices remain an issue,
however, sales prices have also increased, mitigating part of an
expected second quarter margin squeeze. Housing starts for 2004 are
expected to moderate only slightly from last year's record 1.85
million units. Building Products' other driver, remodeling
expenditures, is also expected to remain at healthy levels. Taken
together, the sales outlook remains positive. However,
uncertainties surrounding the cost of steel and aluminum scrap in
the second quarter and their eventual recovery complicates the
Company's ability to accurately forecast its earnings for both the
second quarter and the year. At this time, Quanex expects its
fiscal second quarter 2004 diluted earnings per share to be down
significantly from the year ago period. The Company will publish
second quarter diluted earnings per share guidance when it releases
its second quarter update in April. Guidance for the year will be
provided once the Company has a better sense of its annualized cost
of steel scrap. 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 SEC financial statements.
Expensing stock options would have reduced net income by about
$563,000 and $357,000 for the first quarter of 2004 and 2003
respectively, and would have reduced diluted earnings per share by
$.03 and $.02, respectively. Dividend Declared The Board of
Directors declared the Company's quarterly cash dividend of $.17
per share on the Company's common stock, payable March 31, 2004 to
shareholders of record on March 15, 2004. Corporate Profile Quanex
is a $1.3 billion industry-leading manufacturer of value-added
engineered materials and components serving the Vehicular Products
and Building Products markets. Financial Statistics as of 1/31/04
Book value per common share: $27.74; Total debt to capitalization:
33.51%; Return on invested capital: 8.32%; Return on common equity:
9.78%; Actual number of common shares outstanding: 16,421,724
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. Statements that use the words
"expect," "should," "will," "might," or similar words reflecting
future expectations or beliefs are forward-looking statements.
Thestatements 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 29, 2003)
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/ . Financial Contact: Jeff Galow,
713/877-5327 Media Contact: Valerie Calvert, 713/877-5305 QUANEX
CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except
per share data) (Unaudited) Three months ended January 31, 2004
2003 Net sales $281,156 $229,509 Cost of sales245,086 194,525
Selling, general and administrative expense 13,108 12,855
Depreciation and amortization 12,730 12,014 Gain on sale of land
(454) --- Operating income 10,686 10,115 Interest expense (820)
(975) Other, net 335 1,459 Income before income taxes 10,201 10,599
Income tax expense (3,774) (3,816) Net income $6,427 $6,783
Weighted average common shares outstanding: Basic 16,318 16,406
Diluted 16,589 16,648 Earnings per common share: Basic $0.39 $0.41
Diluted $0.39 $0.41 Cash dividends per share $0.17 $0.17 QUANEX
CORPORATION INDUSTRY SEGMENT INFORMATION (In thousands) (Unaudited)
Three months ended January 31, 2004 2003 Net sales: Vehicular
Products $140,979 $108,932 Building Products 140,177 120,577 Net
sales $281,156 $229,509 Operating income: Vehicular Products $8,680
$9,887 Building Products 5,511 4,167 Corporate and Other (3,505)
(3,939) Operating income $10,686 $10,115 QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) January 31,
October 31, 2004 2003 2003 2002 Assets $10,182 $5,425 Cash and
equivalents $22,108 $18,283 Accounts and notes receivable, 165,393
103,710 net 123,185 116,122 125,436 100,797 Inventories 79,322
90,756 16,609 12,600 Other current assets 8,116 10,640 317,620
222,532 Total current assets 232,731 235,801 Property, plant and
equipment, 408,315 349,674 net 335,904 353,132 137,730 66,436
Goodwill, net 66,436 66,436 60,121 35,604 Other assets 30,792
33,771 $923,786 $674,246 Total assets $665,863 $689,140 Liabilities
and stockholders' equity $117,728 $79,219 Accounts payable $89,435
$76,588 47,647 39,512 Accrued liabilities 39,209 48,973 7,043 7,180
Income taxes payable 7,381 4,839 --- 2,746 Other current
liabilities 46 3,970 3,727 445 Current portion of long-term debt
3,877 434 176,145 129,102 Total current liabilities 139,948 134,804
225,902 70,051 Long-term debt 15,893 75,131 945 2,176 Deferred
pension credits 8,323 4,960 Deferred postretirement welfare 7,824
8,152 benefits 7,845 7,928 41,446 30,464 Deferred income taxes
34,895 29,210 15,962 14,196 Other liabilities 13,800 15,712 468,224
254,141 Total liabilities 220,704 267,745 455,562 420,105 Total
stockholders' equity 445,159 421,395 Total liabilities and $923,786
$674,246 stockholders' equity $665,863 $689,140 QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited)
Three months ended January 31, 2004 2003 Operating activities: Net
income $6,427 $6,783 Adjustments to reconcile net income to cash
provided by operating activities: Gain on sale of land (454) ---
Depreciation and amortization 12,838 12,107 Deferred income taxes
1,501 1,254 Deferred pension and postretirement benefits (7,399)
(2,560) 12,913 17,584 Changes in assets and liabilities, net of
effects from acquisitions and dispositions: Decrease (Increase) in
accounts and notes receivable (1,790) 12,412 Increase in inventory
(6,416) (10,041) Increase in accounts payable 6,370 2,631 Increase
(Decrease) in accrued liabilities 2,380 (9,461) Increase (Decrease)
in income taxes payable (487) 2,341 Other, net (2,078) (3,476) Cash
provided by operating activities 10,892 11,990 Investment
activities: Acquisitions, net of cash acquired (231,913) ---
Proceeds from sale of land 637 --- Capital expenditures, net of
retirements (4,166) (8,520) Other, net (602) (1,147) Cash used for
investment activities (236,044) (9,667) Financing activities: Bank
revolver and note repayments, net 210,000 (5,000) Purchases of
Quanex common stock --- (6,711) Common dividends paid (2,789)
(2,638) Issuance of common stock, net 6,715 810 Other, net (709)
(1,642) Cash used for financing activities 213,217 (15,181) Effect
of exchange rate changes on cash and equivalents 9 --- Decrease in
cash (11,926) (12,858) Beginning of period cash and equivalents
22,108 18,283 End of period cash and equivalents $10,182 $5,425
http://www.newscom.com/cgi-bin/prnh/20031231/QUANEXLOGO
http://www.newscom.com/cgi-bin/prnh/20010522/DATU048 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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