Quanex Building Products Announces Fourth Quarter and Fiscal Year 2019 Results

Significant Margin Expansion
Above Market Growth in NA & EU Fenestration Segments
Repaid $35 Million of Bank Debt in 4Q19 & $52.5 Million in FY19

HOUSTON, Dec. 11, 2019 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months and twelve months ended October 31, 2019.

The Company reported the following selected financial results:

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Overall we are pleased with our fourth quarter and full year 2019 results.  Despite what has been a softer demand environment compared to our original forecast for 2019, we converted well operationally and benefitted from improved pricing.  On a consolidated basis, we were able to realize Adjusted EBITDA margin expansion of approximately 410 basis points in the fourth quarter and approximately 140 basis points for the full year.  Furthermore, in our North American Fenestration segment, those margins expanded by approximately 250 basis points in the fourth quarter and approximately 110 basis points for the full year.  In Europe, the margins improved by approximately 340 basis points in the fourth quarter and approximately 300 basis points for the full year.  It is important to note that even with softer-than-expected volumes, sales in our North American Fenestration segment grew at 6.0% during the fourth quarter and 3.8% for the full year, which compares favorably to Ducker’s latest window shipment estimate of negative 0.4% for the three months ended September 30, 2019 and negative 1.6% for the twelve months ended September 30, 2019.  Excluding foreign exchange impact, we realized above market sales growth of 3.3% during the fourth quarter and 9.1% for the full year in our European Fenestration segment.  Volumes in our North American Cabinet Components segment continue to be negatively impacted by the ongoing shift in the market from semi-custom to stock cabinets and strategy changes amongst certain customers. 

“Our ongoing effort to improve working capital helped us achieve another year of solid Free Cash Flow generation, which allowed us to pay down $52.5 million in bank debt, $35 million in the fourth quarter alone, and buyback approximately $9.6 million in stock.  The goal was to generate $50 million to $55 million of Free Cash Flow in fiscal 2019 and exit the year with a leverage ratio of Net Debt to LTM Adjusted EBITDA of 1.5x.  Needless to say we comfortably exceeded those targets in fiscal 2019 by generating $71.5 million in Free Cash Flow and exiting the year with a leverage ratio of Net Debt to LTM Adjusted EBITDA of 1.2x.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Fourth Quarter and Fiscal Year 2019 Results Summary  

The decrease in net sales during the three months ended October 31, 2019 was primarily attributable to continued softness in the North American Cabinet Components segment.  However, the Company realized net sales growth for the twelve months ended October 31, 2019 as the North American and European Fenestration segments generated revenue growth above that of their respective markets, mostly due to price increases related to raw material inflation recovery.  (See Sales Analysis table for additional information)

The decreases in reported earnings were primarily the result of a $44.6 million non-cash goodwill impairment in the fourth quarter and a $30.0 million non-cash goodwill impairment in the second quarter, both in the North American Cabinet Components segment, mainly due to lower volume expectations related to the ongoing shift in the market from semi-custom to stock cabinets and customer specific strategy changes.  The increases in adjusted earnings were largely driven by lower incentive accruals, operational efficiency gains and the successful implementation of pricing initiatives in late 2018. 

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.  Quanex repurchased 175,000 shares of common stock for approximately $3.2 million at an average price of $18.37 per share during the three months ended October 31, 2019, and 583,398 shares of common stock for approximately $9.6 million at an average price of $16.37 per share during the twelve months ended October 31, 2019.  As of October 31, 2019, approximately $18.4 million remained under the existing share repurchase authorization.  

Outlook

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “Based on current trends and the latest macro data, we are taking a measured approach to our 2020 revenue forecast.  As such, we expect low single-digit sales growth in our North American and European Fenestration segments, offset by a continued decline in revenues in our North American Cabinet Components segment.  Overall, on a consolidated basis, this should equate to sales of approximately $865 million to $885 million in fiscal 2020.  However, we expect to continue on our journey of operational excellence by converting well and managing costs.  Therefore, we expect to generate between $102 million and $110 million in Adjusted EBITDA* in fiscal 2020, which would yield margin expansion of approximately 60 basis points to the midpoint of guidance.  We plan to stay focused on generating cash and maintaining a strong balance sheet while also continuing to opportunistically repurchase stock.” 

*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.  Certain items required for such a reconciliation are outside of the Company’s control and/or cannot be reasonably predicted or estimated, such as the provision for income taxes.

Conference Call and Webcast Information

The Company has scheduled a conference call for Thursday, December 12, 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 9067783, 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 December 26, 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 9067783. 

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, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges, asset impairment 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, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges and asset impairment 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 forward-looking 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.