Quanex Building Products Announces Second Quarter 2019 Results

Margin Expansion in All Operating Segments
Strong Growth Continues in EU Fenestration Segment
Solid Free Cash Flow Generation
Continue to Target Fiscal Year-End 2019 Leverage Ratio of 1.5x - 2.0x

HOUSTON, June 04, 2019 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended April 30, 2019.

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “We performed well during the second quarter from an operational standpoint and realized margin expansion in all segments, including an almost 400 basis point increase in our European Fenestration segment.  On a consolidated basis, we realized margin expansion of approximately 70 basis points.  On the revenue side, solid growth of more than 15%, excluding foreign exchange impact, in our European Fenestration segment was somewhat offset by softer sales in the U.S., mainly due to inclement weather and customer inventory destocking.  Despite this softness in the U.S., sales in our North American Fenestration segment grew at 1.0% during the quarter, which compares favorably to Ducker’s latest window shipment estimate of negative 4.0% growth for the three months ended March 31, 2019.  We also more than doubled the amount of free cash flow generated during the quarter, which allowed us to pay down $5 million in bank debt and buyback approximately $2.7 million in stock.  

“We continue to expect margin expansion on a consolidated basis for the full year as operational efficiency gains continue, volume ramps into the selling season and we benefit from pricing actions that were implemented early this year.  Going forward, our intention is to continue deleveraging the balance sheet while opportunistically repurchasing stock.  Our growth expectations for the full year haven’t materially changed with respect to our North American and European Fenestration segments; however, top line results in our North American Cabinet Components segment have been weaker than expected, but consistent with the latest industry data.  As such, we now expect full year 2019 consolidated revenue growth of 2% to 3%, but we are converting well and are maintaining our Adjusted EBITDA guidance of $97 million to $107 million.”  (See Forward Looking Statements and Non-GAAP Terminology Definitions and Disclaimers sections for additional information)             

Second Quarter 2019 Results Summary  

The Company reported the following selected financial results:

The increase in net sales during the second quarter of 2019 was largely due to above market growth in the European Fenestration segment coupled with price increases related to raw material inflation recovery. (See Sales Analysis table for additional information)

The decrease in reported earnings was primarily the result of a $30.0 million, or $0.91 per diluted share, non-cash goodwill impairment in the North American Cabinet Components segment, mostly due to softer than expected sales.  The increase in adjusted earnings was mainly attributable to operational efficiency gains and the successful implementation of pricing initiatives. 

As of April 30, 2019, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA decreased to 2.3x.  Quanex continues to expect 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 April 30, 2019, Quanex repurchased 171,016 shares of common stock for approximately $2.7 million at an average price of $15.71 per share.  As of April 30, 2019, approximately $23.3 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 June 28, 2019, to shareholders of record on June 14, 2019.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, June 5, 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 4390268, 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 June 12, 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 4390268. 

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.