Quanex Building Products Announces Third Quarter 2018 Results

Board Approves 100% Dividend Increase and Authorizes $60 Million Share Repurchase Program 
Strong Free Cash Flow Generation Facilitates Deleveraging and Return of Capital to Shareholders 
Significant Margin Expansion in NA Cabinet Components Segment 
Healthy Underlying Growth Continues in NA and EU Engineered Components Segments

HOUSTON, Sept. 06, 2018 (GLOBE NEWSWIRE) --  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended July 31, 2018.  The Company also announced today a significant increase in the return of capital to shareholders through a 100% increase in the quarterly cash dividend and a $60 million share repurchase authorization.

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “We delivered solid third quarter results, driven by improved operational efficiency and margin expansion of 200 basis points in our North American Cabinet Components segment, despite ongoing inflationary pressures.  Underlying growth remains healthy in our North American and European Engineered Components segments.

“We are also pleased that our strong free cash flow generation in the third quarter facilitated a further reduction of our leverage ratio to 2.0x Net Debt to LTM Adjusted EBITDA as of July 31, 2018.  In addition, our Board of Directors has approved a robust capital return program, including both a 100% increase to our quarterly cash dividend and a $60 million share repurchase program, which reflects our strong balance sheet, commitment to returning capital to shareholders and confidence in our prospects for growth and value creation.

“As part of a strategic review process, our Board of Directors and management team, with the support of outside advisors, recently undertook a thorough review of Quanex’s strategy and business, and evaluated a broad range of strategic alternatives to maximize shareholder value.  Our Board of Directors unanimously concluded that the best path forward for the Company and its shareholders at this time is the continued execution of our strategic plan and the accelerated return of capital.  We remain open to and will continue to consider all opportunities to create additional shareholder value.”

Third Quarter 2018 Results Summary  

The Company reported the following selected financial results:

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table, Selected Segment Data table and Free Cash Flow Reconciliation table for additional information)

Similar to the first half of 2018, the increase in net sales during the third quarter was largely driven by market growth combined with price increases mostly related to raw material inflation recovery and a favorable foreign exchange impact.  (See Sales Analysis table for additional information)

The increase in net income for the third quarter of 2018 was primarily driven by lower depreciation and amortization coupled with a lower effective tax rate.

Adjusted EBITDA decreased slightly during the third quarter of 2018 mainly due to the negative impact of inflationary pressures combined with an increase in selling, general and administrative expense as results for the third quarter of 2017 included a benefit of $2.0 million related to a legal expense reimbursement from one of Quanex’s insurance carriers.          

As of July 31, 2018, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA decreased to 2.0x.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Strategy Update and Recent Events

Quanex is committed to driving operational improvement and creating shareholder value.  As part of a strategic review process, the Company’s Board of Directors (the “Board”) and management team, with Citi as financial advisor, recently completed a comprehensive review of Quanex’s overall strategy, capital structure and capital allocation priorities.  As part of that review process, the Board evaluated a broad range of strategic alternatives, including a potential sale of the Company, and carefully considered feedback from shareholders.

The Board unanimously concluded that, at this time, Quanex is best positioned to drive value for shareholders through the continued successful execution of its strategy and continued focus on driving improved performance and returning capital to shareholders.

As such, the Board declared a quarterly cash dividend of $0.08 per share on the Company’s common stock, representing a 100% increase compared to the prior dividend, payable September 28, 2018, to shareholders of record on September 14, 2018.

In addition, Quanex’s Board of Directors authorized a $60 million share repurchase program representing approximately 10% of common shares outstanding based on the Company’s stock price and share count as of July 31, 2018.  Repurchases under the new 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 purchased.

The Board will continue to consider all opportunities to further enhance shareholder value now and in the future.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, September 7, 2018, 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 3847158, 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, 2018.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 3847158. 

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.  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.   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, 2017, 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.