Quanex Announces Fiscal Second Quarter 2004 Results Reports Record
Second Quarter Net Sales and Earnings; Acquisitions Enhance the
Company's Earnings Outlook; Closed Its $125 Million 2.5%
Convertible Debenture Offering on May 5, 2004 HOUSTON, June 3
/PRNewswire-FirstCall/ -- Quanex Corporation (NYSE:NX) announced
fiscal second quarter results for the period ending April 30, 2004,
which included three months results from the Company's acquisitions
of MACSTEEL Monroe and TruSeal Technologies. Net sales were a
record $406.0 million in the quarter, up 60% over a year ago, with
net sales from the two acquisitions totaling $100.6 million. Demand
at the Company's Vehicular Products and Building Products segments
was very strong and backlogs for the third quarter remain at high
levels. Record net income of $11.5 million was up 22% compared to
last year's second quarter. Diluted earnings per share were $.69,
the Company's best-ever second quarter figure. MACSTEEL Monroe and
TruSeal contributed about $.21 (after interest expense) to diluted
earnings per share in the second quarter. Net sales for the second
quarter 2003 were $254.6 million. Net income and diluted earnings
per share for the second quarter 2003 were $9.4 million and $.58,
respectively. Highlights Raymond A. Jean, chairman and chief
executive officer stated, "We delivered to our investors record
second quarter earnings resulting from: (1) very strong customer
demand, (2) accretive acquisitions, (3) overhead reductions and (4)
ongoing company-wide lean initiatives. Runaway steel scrap costs
finally abated in April, when we experienced a $45 per ton drop in
MACSTEEL's overall raw material costs compared to March. Margins,
however, were significantly compressed during February and March.
North American light vehicle builds in the Company's second quarter
were up about 5% over the year ago period. Heavy duty truck builds
continued to gain momentum during our quarter, with builds up some
50% over a year ago. Both housing starts and remodeling activity
remained remarkably strong through the period, which allowed the
Building Products segment to post excellent results," Jean said.
"During the quarter, we made excellent progress with the
integration of MACSTEEL Monroe and TruSeal Technologies. Both
businesses are exceeding expectations and their long term earnings
potential remains excellent. A key metric we use in our acquisition
screen is the ability of the acquired company to exceed our
weighted average cost of capital by the end of its third year. On
an annualized basis, TruSeal already crossed that threshold, and we
expect MACSTEEL Monroe to hit that target by year-end. Our previous
2004 earnings guidance for the two acquisitions, based on 10 months
expected results, was $.40 to $.50 per diluted share. However, with
the ongoing strength we see in our two target markets, we believe a
range of $.60 to $.70 per diluted share for the two acquisitions is
now more appropriate for 2004," continued Jean. "We continue to
make excellent progress in managing our working capital. A metric
we use to track our progress is the conversion cycle, which is the
sum of inventory days, plus receivable days, less days payable, all
based on average daily sales. For the second quarter, the
conversion cycle improved to 45 days from 55 days in the year ago
quarter, an 18% improvement," 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 our first two
quarters this year, our scrap costs, particularly steel scrap, have
risen dramatically, impacting our inventory valuation based on the
LIFO method. Accordingly, for the second quarter, we booked a $2.0
million charge to operating income on the assumption that year-end
2004 inventories will have a higher valuation compared to year-end
2003," said Jean. Quarterly Financials ($ in millions, except per
share data) 2nd qtr 2004 2nd qtr 2003 Inc/dcr Net Sales $406.0
254.6 60% Operating Income 19.8 14.9 33% Net Income 11.5 9.4 22%
EPS: Basic $ .70 $ .58 21% EPS: Diluted .69 .58 19% Segment
Commentary VEHICULAR PRODUCTS ($ in millions) 2nd qtr 2004 2nd qtr
2003 Net Sales $225.3 $118.0 Operating Income 13.5 14.3 The
Vehicular Products segment is comprised of MACSTEEL, including the
recently acquired MACSTEEL Monroe operation, 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 very robust levels during the quarter
and MACSTEEL's operations ran close to their rated capacity.
Backlogs in the third quarter remain healthy, although light
vehicle inventories at the retail level are a concern. Our
Vehicular Products segment also benefited from excellent heavy duty
truck production during the second quarter, which continues to
outpace year ago figures by nearly 50%. Excluding Monroe's results,
MACSTEEL's shipments were up about 14% for the quarter over the
year ago quarter, while operating income was down some 34% because
of lower operating margins. Rapidly increasing steel scrap costs
were a major issue during the second quarter as average raw
material costs were up about 25% for the January to March period
compared to December. However, several favorable developments
occurred late in our second quarter. MACSTEEL experienced a
significant drop in raw material costs in April, down some $45 per
ton from March levels. MACSTEEL also adjusted the quarterly
formula-based steel scrap surcharge, effective April 1, to more
accurately reflect the higher costs we experienced in the January
through March period. These two actions, along with productivity
gains and high value added product sales, enabled us to recover
some margin during April," Jean said. "While Piper Impact continued
to struggle with the reduction of base business during the quarter,
we did benefit from both lower manufacturing costs and new business
opportunities, which allowed us to report positive operating
earnings for the quarter. Although air bag component sales fell
again in the quarter, Piper continued to experience improvement in
other markets. Earlier this quarter, we announced both a
restructuring plan for Piper, which is now being executed, as well
as our intention to sell the business," said Jean. BUILDING
PRODUCTS ($ in millions) 2nd qtr 2004 2nd qtr 2003 Net Sales $180.7
$136.6 Operating Income 12.1 4.2 The Building Products segment is
comprised of 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
results, reported very strong sales for the quarter, in part due to
the relatively mild winter season experienced by our customers,
which in turn allowed for an early start to the Spring building
season," said Jean. "Housing starts and remodeling activity
remained higher than expected throughout the quarter and customer
demand is expected to again be strong in our third quarter."
"Nichols Aluminum continues to improve with both sales and
operating income up markedly from the year ago quarter. Shipments
remained strong to our building and construction customers and
demand in our other aluminum markets continued to pick up momentum.
The Golden facility, which supplies food packaging and container
products, also reported good customer activity in key market
niches. Nichols has an excellent backlog of business and customer
demand in the capital equipment, service center, and transportation
markets continues to improve. The division successfully pushed
through higher prices to help offset increases in material costs,
while production efficiency gains continued to benefit the bottom
line significantly," said Jean. Outlook Demand in the Company's two
target markets, vehicular products and building products, remains
strong. With an improving economy and still very favorable interest
rates, Quanex expects robust business activity in its two business
segments through the remainder of the fiscal year. In the Company's
Vehicular Products segment, overall business activity from now
through year-end appears excellent. 2004 North American light
vehicle builds are expected to remain flat to last year's 16+
million builds, and a healthy increase in heavy truck builds, now
estimated to be up 35% to 40% over last year's builds, will serve
to fill any gaps in the segment's robust demand outlook. Excluding
Monroe's results, MACSTEEL expects to deliver significantly higher
third quarter earnings compared to third quarter 2003 and second
quarter 2004 results due to lower material costs and a higher April
1 steel scrap surcharge, which remains in effect until July 1. In
the Company's Building Products segment, the market drivers remain
positive and order activity remains brisk. Housing starts for 2004
are expected to moderate slightly from last year's record 1.86
million units, while remodeling expenditures, which the Company
believes account for about one half of the segment's sales, are
also expected to remain at healthy levels. Quanex expects its
Engineered Products division to deliver excellent operating results
in the third quarter. At Nichols Aluminum, London Metal Exchange
ingot prices and scrap prices are expected to remain flat to down
slightly for the third quarter, a positive for Nichols, while
selling prices continue to improve. Taken together, Quanex's sales
and earnings outlook for the remainder of the year remains very
favorable. Accordingly, for its fiscal third quarter and fiscal
year 2004, the Company expects to report diluted earnings per share
within a range of $1.00 to $1.20 and $3.25 to $3.75 respectively.
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
in the second fiscal quarter 2004 would have reduced net income by
about $543,000 and diluted earnings per share by $.03. On March 31,
2004, Quanex announced its plans for restructuring Piper Impact and
for the sale of the business. The Company stated that while Piper
Impact continued to generate positive cash flow, it became
necessary to idle one of the division's two facilities because of
an ongoing drop in its traditional business. Piper's market focus
is no longer aligned with Quanex's strategic direction of serving
the vehicular products and building products markets, and for that
reason, will be sold. On May 11, 2004, the Company announced it
sold $125 million 2.5% convertible senior debentures. Proceeds from
the sale of debentures were used to repay a portion of the amounts
outstanding under its revolving credit agreement and for general
corporate purposes. Dividend Declared The Board of Directors
declared the Company's quarterly cash dividend of $.17 per share on
the Company's common stock, payable June 30, 2004 to shareholders
of record on June 15, 2004. Corporate Profile Quanex is a $1.4
billion industry-leading manufacturer of value-added engineered
materials and components serving the Vehicular Products and
Building Products markets. Financial Statistics as of 4/30/04 Book
value per common share: $28.28; Total debt to capitalization:
32.08%; Return on invested capital: 8.31%; Return on common equity:
10.07%; Actual number of common shares outstanding: 16,438,490
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. 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 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 Six months ended
April 30, April 30, 2004 2003 2004 2003 $405,993 $254,610 Net sales
$687,149 $484,119 354,222 213,773 Cost of sales 599,308 407,898
17,578 14,340 Selling, general and 30,686 27,595 administrative
expense 14,419 12,027 Depreciation and amortization 27,149 24,041
--- (405) Gain on sale of land (454) (405) 19,774 14,875 Operating
income 30,460 24,990 (1,831) (674) Interest expense (2,756) (1,724)
382 431 Other, net 822 1,965 18,325 14,632 Income before income
taxes 28,526 25,231 (6,781) (5,267) Income tax expense (10,555)
(9,083) $ 11,544 $ 9,365 Net income $ 17,971 $ 16,148 Weighted
average common shares outstanding: 16,423 16,064 Basic 16,370
16,238 16,690 16,286 Diluted 16,639 16,470 Earnings per common
share: $ 0.70 $ 0.58 Basic $ 1.10 $ 0.99 $ 0.69 $ 0.58 Diluted $
1.08 $ 0.98 $ 0.17 $ 0.17 Cash dividends per share $ 0.34 $ 0.34
QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION (In thousands)
(Unaudited) Three months ended Six months ended April 30, April 30,
2004 2003 2004 2003 Net sales: $225,254 $118,018 Vehicular Products
$366,233 $226,950 180,739 136,592 Building Products 320,916 257,169
$405,993 $254,610 Net sales $687,149 $484,119 Operating income: $
13,506 $ 14,336 Vehicular Products $ 22,186 $ 24,223 12,071 4,218
Building Products 17,582 8,385 (5,803) (3,679) Corporate and Other
(9,308) (7,618) $ 19,774 $ 14,875 Operating Income $ 30,460 $
24,990 QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (In
thousands) (Unaudited) April 30, October 31, 2004 2003 2003 2002
Assets $ 5,290 $ 806 Cash and equivalents $ 22,108 $ 18,283 195,813
125,917 Accounts and notes 123,185 116,122 receivable, net 139,683
105,991 Inventories 79,322 90,756 13,791 12,398 Other current
assets 8,116 10,640 354,577 245,112 Total current assets 232,731
235,801 398,573 343,980 Property, plant and 335,904 353,132
equipment, net 137,756 66,436 Goodwill, net 66,436 66,436 28,718
2,813 Intangibles, net 2,755 2,870 30,990 32,113 Other assets
28,037 30,901 $950,614 $690,454 Total assets $665,863 $689,140
Liabilities and stockholders' equity $143,226 $ 83,763 Accounts
payable $ 89,435 $ 76,588 46,460 38,800 Accrued liabilities 39,209
48,973 6,400 1,311 Income taxes payable 7,381 4,839 16 1,375 Other
current liabilities 46 3,970 3,751 424 Current portion of long-term
3,877 434 debt 199,853 125,673 Total current liabilities 139,948
134,804 215,817 81,694 Long-term debt 15,893 75,131 2,299 7,048
Deferred pension credits 8,323 4,960 7,782 8,182 Deferred
postretirement welfare benefits 7,845 7,928 44,005 33,064 Deferred
income taxes 34,895 29,210 15,938 13,997 Other liabilities 13,800
15,712 485,694 269,658 Total liabilities 220,704 267,745 464,920
420,796 Total stockholders' equity 445,159 421,395 $950,614
$690,454 Total liabilities and $665,863 $689,140 stockholders'
equity QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In
thousands) (Unaudited) Three months ended Six months ended April
30, April 30, 2004 2003 2004 2003 Operating activities: $ 11,544 $
9,365 Net income $ 17,971 $ 16,148 Adjustments to reconcile net
income to cash provided by operating activities: --- (405) Gain on
sale of land (454) (405) 14,564 12,114 Depreciation and 27,402
24,221 amortization 3,059 2,601 Deferred income taxes 4,560 3,855
1,312 4,902 Deferred pension and postretirement benefits (6,087)
2,342 30,479 28,577 43,392 46,161 Changes in assets and
liabilities, net of effects from acquisitions and dispositions:
(47,802) (22,207) Increase in accounts and (49,592) (9,795) notes
receivable (14,263) (5,194) Increase in inventory (20,679) (15,235)
25,500 4,544 Increase in accounts 31,870 7,175 payable (1,180)
(712) Increase (Decrease) in 1,200 (10,173) accrued liabilities
(640) (5,869) Decrease in income (1,127) (3,528) taxes payable
2,309 (1,315) Other, net 231 (4,791) (5,597) (2,176) Cash provided
by (used for) operating activities 5,295 9,814 Investment
activities: 17,340 --- Acquisitions , net of (214,573) --- cash
acquired --- 2,832 Proceeds from sale 637 2,832 of land (4,099)
(6,292) Capital expenditures, (8,265) (14,812) net of retirements
44 (1,857) Other, net (558) (3,004) 13,285 (5,317) Cash provided by
(used for) (222,759) (14,984) investment activities Financing
activities: (10,000) 11,700 Bank revolver and 200,000 6,700 note
repayments, net --- (6,804) Purchases of Quanex --- (13,515) common
stock (2,802) (2,741) Common dividends paid (5,591) (5,379) 508 764
Issuance of common 7,223 1,574 stock, net (302) (45) Other, net
(1,011) (1,687) (12,596) 2,874 Cash provided by (used for) 200,621
(12,307) financing activities 16 Effect of exchange rate 25 changes
on cash and equivalents (4,892) (4,619) Decrease in cash (16,818)
(17,477) 10,182 5,425 Beginning of period cash 22,108 18,283 and
equivalents $ 5,290 $ 806 End of period cash $ 5,290 $ 806 and
equivalents http://www.newscom.com/cgi-bin/prnh/20010522/DATU048
http://www.newscom.com/cgi-bin/prnh/20031231/QUANEXLOGO
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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