Quanex Building Products Announces Third Quarter 2017 Results

Print
| Source: Quanex Building Products Corporation

EPS Improves Year-over-Year
Margin Expansion Continues in Cabinet Components Segment
Strong Free Cash Flow Generation Allows $22 Million of Debt Repayment

HOUSTON, Sept. 06, 2017 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the quarter ended July 31, 2017.

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Overall, third quarter revenues came in a little softer than expected; however, we realized significant earnings per share growth and our consolidated Adjusted EBITDA margin percentage improved.  In addition, strong cash flow generation during the quarter enabled us to repay more than $22 million in outstanding debt and we expect to generate even stronger cash flow in the fourth quarter.  Looking ahead, the recent promotion of George Wilson to the newly created position of Chief Operating Officer will allow me to spend more time concentrating on strategy while he builds on the progress we have made towards operational excellence, margin expansion and cash flow generation, all of which will contribute toward the goal of further enhancing and creating value for our shareholders.”

Third Quarter 2017 Results Summary   

The Company reported net sales of $229.4 million for the three months ended July 31, 2017, compared to $248.1 million for the three months ended July 31, 2016.  Similar to the first and second quarters of 2017, the decrease was primarily attributable to Quanex’s previously disclosed decision to exit product lines and less profitable business that does not meet the Company’s financial objectives. (See Sales Analysis table for additional information)

Net income increased to $10.2 million, or $0.29 per diluted share, during the third quarter of 2017, compared to a net loss of $4.0 million, or $0.12 per diluted share, in the third quarter of 2016.  Adjusted EBITDA decreased slightly to $32.2 million during the third quarter of 2017, compared to $33.1 million during the third quarter of 2016, but consolidated Adjusted EBITDA margin percentage increased by approximately 70 basis points.  (See Non-GAAP Terminology Definitions and Disclaimers section and Selected Segment Data table for additional information)

Cash provided by operating activities for the three months ended July 31, 2017, was $29.6 million, compared to $25.2 million during the same period of 2016.  Quanex generated Free Cash Flow of $20.0 million during the third quarter of 2017, representing an increase of approximately 20% compared to the third quarter of 2016.  As of July 31, 2017, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.5x.  As expected, Quanex’s leverage ratio decreased quarter-over-quarter largely as a result of the repayment of approximately $22 million in debt.  The Company remains focused on generating Free Cash Flow to pay down debt and continues to anticipate a further improvement in the leverage ratio by year-end 2017.  (See Free Cash Flow Reconciliation table and Non-GAAP Terminology Definitions and Disclaimers section for additional information)      

                         
  Three Months Ended July 31, 2017 Three Months Ended July 31, 2016
($ in thousands, except per share data) Results
Before

Adjustments
 Adjustments Adjusted
Results
 Results
Before

Adjustments
 Adjustments Adjusted
Results
Net sales $229,367  $-  $229,367  $248,085  $-  $248,085 
Cost of sales (1)  176,758   -   176,758   186,631   (67)  186,564 
Selling, general and administrative (2)  20,478   (35)  20,443   28,551   (109)  28,442 
Restructuring charges (3)  864   (864)  -   -   -   - 
EBITDA  31,267   899   32,166   32,903   176   33,079 
Depreciation and amortization (4)  13,915   (1,277)  12,638   12,973   -   12,973 
Operating income (loss)  17,352   2,176   19,528   19,930   176   20,106 
Interest expense (5)  (2,575)  -   (2,575)  (22,200)  16,677   (5,523)
Other, net (6)  46   (39)  7   (2,523)  2,239   (284)
Income (loss) before income taxes  14,823   2,137   16,960   (4,793)  19,092   14,299 
Income tax (expense) benefit (7)  (4,608)  (860)  (5,468)  817   (5,910)  (5,093)
Net income (loss) $10,215  $1,277  $11,492  $(3,976) $13,182  $9,206 
             
Diluted earnings (loss) per share (8) $0.29    $0.33  $(0.12)   $0.27 
             
(1) Cost of sales adjustment relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition.
(2) SG&A adjustments are for acquisition related transaction costs.
(3) Restructuring charges relate to the closure of several manufacturing plant facilities.
(4) D&A adjustments relate to accelerated depreciation and amortization for restructured PP&E and intangible assets.
(5) Interest expense adjustments relate to write off of deferred loan costs, unamortized original issuance discount, and prepayment call premium related to debt refinance.
(6) Other, net adjustments relate to foreign currency transaction (gains) losses.
(7) Effective tax rate reflects impacts of adjustments on a with and without basis.
(8) Adjusted EPS for 2016 is calculated using diluted shares outstanding of 34.5 million, respectively.
 

Recent Events

Quanex’s Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock, payable September 29, 2017, to shareholders of record on September 18, 2017.

During the third quarter of 2017, Quanex transferred operating responsibility of two wood-based accessory plants from the North American Engineered Components segment to the North American Cabinet Components segment.  These moves have been contemplated since the Company acquired Woodcraft and better align manufacturing capability and capacity.  (See Segment Reconciliation table for additional information)

Conference Call and Webcast Information

The Company has scheduled a conference call for Thursday, September 7, 2017, 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 66331845, 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 September 14, 2017.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 66331845. 

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 of Investor Relations & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

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 related to the plant closure in Mexico, one-time employee benefit adjustment and restructuring charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making.  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 Quanex believes is useful to investors and financial analysts in evaluating the Company’s leverage.  In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in Quanex’s credit agreement.  Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures.   Adjusted Net Income (Loss) is a non-GAAP financial measure that excludes certain charges and credits because the Company believes that such items are not indicative of its core operating results and trends, and do not provide meaningful comparisons with other reporting periods.  Quanex believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding the Company’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.  Quanex 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, 2016, 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.

 
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
         
  Three Months Ended July 31, Nine Months Ended July 31,
  2017 2016 2017 2016
         
Net sales $229,367  $248,085  $634,406  $679,013 
Cost of sales  176,758   186,631   494,647   522,476 
Selling, general and administrative  20,478   28,551   74,839   88,430 
Restructuring charges  864   -   3,083   - 
Depreciation and amortization  13,915   12,973   43,701   39,759 
Operating income  17,352   19,930   18,136   28,348 
Interest expense  (2,575)  (22,200)  (7,126)  (34,324)
Other, net  46   (2,523)  572   (4,036)
Income (loss) before income taxes  14,823   (4,793)  11,582   (10,012)
Income tax (expense) benefit  (4,608)  817   (3,631)  2,722 
Net income (loss) $10,215  $(3,976) $7,951  $(7,290)
         
Income (loss) per common share, basic $0.30  $(0.12) $0.23  $(0.22)
Income (loss) per common share, diluted $0.29  $(0.12) $0.23  $(0.22)
         
Weighted average common shares outstanding:        
Basic  34,224   33,916   34,141   33,850 
Diluted  34,924   33,916   34,771   33,850 
         
Cash dividends per share $0.04  $0.04  $0.12  $0.12 
         


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
     
  July 31, 2017 October 31, 2016
ASSETS    
Current assets:    
Cash and cash equivalents $15,791  $25,526 
Accounts receivable, net  78,046   83,625 
Inventories, net  94,373   84,335 
Prepaid and other current assets  8,119   10,488 
Total current assets  196,329   203,974 
Property, plant and equipment, net  214,829   198,497 
Goodwill  222,153   217,035 
Intangible assets, net  143,702   154,180 
Other assets  8,046   6,667 
Total assets $785,059  $780,353 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $45,709  $47,781 
Accrued liabilities  35,476   55,101 
Income taxes payable  2,133   732 
Current maturities of long-term debt  26,364   10,520 
Total current liabilities  109,682   114,134 
Long-term debt  238,033   259,011 
Deferred pension and postretirement benefits  10,704   8,167 
Deferred income taxes  18,509   18,322 
Other liabilities  15,460   12,888 
Total liabilities  392,388   412,522 
Stockholders’ equity:    
Common stock  375   376 
Additional paid-in-capital  256,170   254,540 
Retained earnings  216,553   214,047 
Accumulated other comprehensive loss  (27,491)  (38,765)
Treasury stock at cost  (52,936)  (62,367)
Total stockholders’ equity  392,671   367,831 
Total liabilities and stockholders' equity $785,059  $780,353 
     


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
    
 Nine Months Ended July 31,
 2017 2016
Operating activities:   
Net income (loss)$7,951  $(7,290)
Adjustments to reconcile net income (loss) to cash provided by operating activities:     
Depreciation and amortization 43,701   39,759 
Stock-based compensation 4,305   4,587 
Deferred income tax (1,847)  (6,370)
Excess tax benefit from share-based compensation (229)  (134)
Charge for deferred loan costs and debt discount -   15,883 
Other, net 1,136   543 
Changes in assets and liabilities, net of effects from acquisitions:   
Decrease in accounts receivable 6,923   2,035 
Increase in inventory (8,576)  (1,530)
Increase in other current assets (379)  (1,239)
Decrease in accounts payable (3,145)  (2,092)
Decrease in accrued liabilities (12,303)  (2,139)
Increase in income taxes payable 4,349   2,990 
Increase in deferred pension and postretirement benefits 2,537   2,485 
Increase in other long-term liabilities 1,226   894 
Other, net (389)  676 
Cash provided by operating activities 45,260   49,058 
Investing activities:   
Acquisitions, net of cash acquired (8,497)  (245,904)
Capital expenditures (27,098)  (25,938)
Proceeds from disposition of capital assets 1,232   984 
Cash used for investing activities (34,363)  (270,858)
Financing activities:   
Borrowings under credit facilities 53,500   632,800 
Repayments of credit facility borrowings (74,125)  (389,000)
Debt issuance costs -   (11,795)
Repayments of other long-term debt (2,240)  (1,825)
Common stock dividends paid (4,127)  (4,101)
Issuance of common stock 6,379   3,368 
Excess tax benefit from share-based compensation 229   134 
Cash (used for) provided by financing activities (20,384)  229,581 
Effect of exchange rate changes on cash and cash equivalents (248)  1,277 
(Decrease) increase in cash and cash equivalents (9,735)  9,058 
Cash and cash equivalents at beginning of period 25,526   23,125 
Cash and cash equivalents at end of period$15,791  $32,183 
    


QUANEX BUILDING PRODUCTS CORPORATION
 
FREE CASH FLOW RECONCILIATION 
(In thousands) 
(Unaudited) 
      
The following table reconciles the Company's calculation of Free Cash Flow, a non-GAAP measure, to its most directly comparable GAAP measure.  The Company defines Free Cash Flow as cash provided by operating activities less capital expenditures.
 
      
  Three Months Ended July 31, 
   2017   2016  
Cash provided by operating activities $29,556  $25,249  
Capital expenditures  (9,548)  (8,519) 
Free Cash Flow $20,008  $16,730  

 

 


QUANEX BUILDING PRODUCTS CORPORATION
SEGMENT RECONCILIATION
(In thousands)
(Unaudited)
           
The following tables reconcile the Company's segment presentation to account for the transfer of operating facilities from the North American Engineered Components segment to the Cabinet Components segment, as previously reported in our earnings release for the three-months and nine-months ended July 31, 2016, to the current presentation:
           
  NA Engineered
Components
 EU Engineered
Components
 NA Cabinet
Components
 Unallocated
Corp & Other
 Total
Three months ended July 31, 2016          
As previously reported          
Net sales $150,462  $40,217 $58,826 $(1,420) $248,085
Cost of sales  109,513   27,533  50,376  (791)  186,631
Selling, general and administrative  15,408   5,896  4,035  3,212   28,551
Depreciation and amortization  7,063   2,340  3,435  135   12,973
Operating income (loss) $18,478  $4,448 $980 $(3,976) $19,930
           
Reclassification          
Net sales $(5,422) $- $6,094 $(672) $-
Cost of sales  (4,364)  -  5,036  (672)  -
Selling, general and administrative  (230)  -  230  -   -
Depreciation and amortization  (133)  -  133  -   -
Operating income (loss) $(695) $- $695 $-  $-
           
Current presentation          
Net sales $145,040  $40,217 $64,920 $(2,092) $248,085
Cost of sales  105,149   27,533  55,412  (1,463)  186,631
Selling, general and administrative  15,178   5,896  4,265  3,212   28,551
Depreciation and amortization  6,930   2,340  3,568  135   12,973
Operating income (loss) $17,783  $4,448 $1,675 $(3,976) $19,930
           
Nine months ended July 31, 2016          
As previously reported          
Net sales $406,029  $110,250 $166,906 $(4,172) $679,013
Cost of sales  304,434   76,698  143,716  (2,372)  522,476
Selling, general and administrative  46,386   17,370  12,366  12,308   88,430
Depreciation and amortization  21,424   7,191  10,709  435   39,759
Operating income (loss) $33,785  $8,991 $115 $(14,543) $28,348
           
Reclassification          
Net sales $(15,772) $- $18,143 $(2,371) $-
Cost of sales  (12,440)  -  14,811  (2,371)  -
Selling, general and administrative  (660)  -  660  -   -
Depreciation and amortization  (375)  -  375  -   -
Operating income (loss) $(2,297) $- $2,297 $-  $-
           
Current presentation          
Net sales $390,257  $110,250 $185,049 $(6,543) $679,013
Cost of sales  291,994   76,698  158,527  (4,743)  522,476
Selling, general and administrative  45,726   17,370  13,026  12,308   88,430
Depreciation and amortization  21,049   7,191  11,084  435   39,759
Operating income (loss) $31,488  $8,991 $2,412 $(14,543) $28,348
           


QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)
           
This table provides operating income (loss), EBITDA, and Adjusted EBITDA by reportable segment.  Non-operating expense and income tax expense are not allocated to the reportable segments.
           
  NA Engineered
Components
 EU Engineered
Components
 NA Cabinet
Components
 Unallocated
Corp & Other
 Total
Three months ended July 31, 2017          
Net sales $126,446  $40,359  $63,839  $(1,277) $229,367 
Cost of sales  94,169   29,002   54,538   (951)  176,758 
Selling, general and administrative  11,829   5,162   3,968   (481)  20,478 
Restructuring charges  727   -   137   -   864 
Depreciation and amortization  7,899   2,391   3,491   134   13,915 
Operating income (loss)  11,822   3,804   1,705   21   17,352 
Depreciation and amortization  7,899   2,391   3,491   134   13,915 
EBITDA  19,721   6,195   5,196   155   31,267 
Transaction related costs  -   -   -   35   35 
Restructuring charges  727   -   137   -   864 
Adjusted EBITDA $20,448  $6,195  $5,333  $190  $32,166 
Adjusted EBITDA Margin %  16.2%  15.3%  8.4%    14.0%
           
Three months ended July 31, 2016 (1)          
Net sales $145,040  $40,217  $64,920  $(2,092) $248,085 
Cost of sales  105,149   27,533   55,412   (1,463)  186,631 
Selling, general and administrative  15,178   5,896   4,265   3,212   28,551 
Depreciation and amortization  6,930   2,340   3,568   135   12,973 
Operating income (loss)  17,783   4,448   1,675   (3,976)  19,930 
Depreciation and amortization  6,930   2,340   3,568   135   12,973 
EBITDA  24,713   6,788   5,243   (3,841)  32,903 
Transaction related costs  -   -   -   109   109 
PPA-Inventory Step-up  -   67   -   -   67 
Adjusted EBITDA $24,713  $6,855  $5,243  $(3,732) $33,079 
Adjusted EBITDA Margin %  17.0%  17.0%  8.1%    13.3%
           
Nine months ended July 31, 2017          
Net sales $343,694  $106,133  $188,359  $(3,780) $634,406 
Cost of sales  260,479   75,304   161,704   (2,840)  494,647 
Selling, general and administrative  38,770   15,132   12,739   8,198   74,839 
Restructuring charges  2,207   -   876   -   3,083 
Depreciation and amortization  26,377   6,753   10,160   411   43,701 
Operating income (loss)  15,861   8,944   2,880   (9,549)  18,136 
Depreciation and amortization  26,377   6,753   10,160   411   43,701 
EBITDA  42,238   15,697   13,040   (9,138)  61,837 
Transaction related costs  -   -   -   327   327 
Mexico restructuring, loss on sale of fixed assets  -   -   190   -   190 
One-time employee benefit adjustment  -   -   188   -   188 
PPA-Inventory Step-up  -   104   -   -   104 
Restructuring charges  2,207   -   876   -   3,083 
Adjusted EBITDA $44,445  $15,801  $14,294  $(8,811) $65,729 
Adjusted EBITDA Margin %  12.9%  14.9%  7.6%    10.4%
           
Nine months ended July 31, 2016 (1)          
Net sales $390,257  $110,250  $185,049  $(6,543) $679,013 
Cost of sales  291,994   76,698   158,527   (4,743)  522,476 
Selling, general and administrative  45,726   17,370   13,026   12,308   88,430 
Depreciation and amortization  21,049   7,191   11,084   435   39,759 
Operating income (loss)  31,488   8,991   2,412   (14,543)  28,348 
Depreciation and amortization  21,049   7,191   11,084   435   39,759 
EBITDA  52,537   16,182   13,496   (14,108)  68,107 
Transaction related costs  -   -   -   4,987   4,987 
PPA-Inventory Step-up  -   351   2,287   -   2,638 
Adjusted EBITDA $52,537  $16,533  $15,783  $(9,121) $75,732 
Adjusted EBITDA Margin %  13.5%  15.0%  8.5%    11.2%
           
(1) Updated to reflect transfer of operating facilities from NA Engineered Components to NA Cabinet Components.  See Reconciliation for additional details.
           

 

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
         
  Three Months Ended Nine Months Ended
  July 31, 2017 July 31, 2016 (1) July 31, 2017 July 31, 2016 (1)
         
NA Engineered Components:       
 United States - fenestration (2)$107,193  $121,717  $289,231  $328,957 
 International - fenestration 9,959   9,530   24,945   23,317 
 United States - non-fenestration 7,060   8,677   19,590   24,237 
 International - non-fenestration 2,234   5,116   9,928   13,746 
  $126,446  $145,040  $343,694  $390,257 
EU Engineered Components (3):       
 United States - fenestration$190  $159  $304  $285 
 International - fenestration 35,087   35,547   94,528   98,744 
 International - non-fenestration 5,082   4,511   11,301   11,221 
  $40,359  $40,217  $106,133  $110,250 
NA Cabinet Components:       
 United States - fenestration$4,322  $3,008  $12,316  $10,651 
 United States - non-fenestration (4) 59,237   61,268   174,404   172,273 
 International - non-fenestration 280   644   1,639   2,125 
  $63,839  $64,920  $188,359  $185,049 
Unallocated Corporate & Other:       
 Eliminations$(1,277) $(2,092) $(3,780) $(6,543)
  $(1,277) $(2,092) $(3,780) $(6,543)
         
Net Sales$229,367  $248,085  $634,406  $679,013 
         
(1) Updated to reflect transfer of operating facilities from NA Engineered Components to NA Cabinet Components.  See Reconciliation for additional details.
(2) Reflects the loss of revenue associated with eliminated products of $20.1 million and $53.4 million for the three-months and nine-months ended July 31, 2017, respectively.
(3) Reflects the loss of revenue associated with foreign currency impacts of $2.6 million and $11.7 million for the three-months and nine-months ended July 31, 2017, respectively.
(4) Reflects the loss of revenue associated with eliminated products of $2.9 million and $8.3 million for the three-months and nine-months ended July 31, 2017, respectively.