Quanex Building Products Corp (NX) SEC Filing 10-Q Quarterly report for the period ending Thursday, January 31, 2019

Quanex Building Products Corp

CIK: 1423221 Ticker: NX


Quanex Building Products Announces First Quarter 2019 Results and Reaffirms Full Year 2019 Guidance

Above Market Growth of >6% in NA Fenestration Segment
Healthy Underlying Growth of >10% in EU Fenestration Segment
Significant Margin Expansion in EU Fenestration Segment
Targeting Year-End Fiscal 2019 Leverage Ratio of 1.5x - 2.0x

HOUSTON, March 05, 2019 (GLOBE NEWSWIRE) --

Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2019.

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Overall, we are encouraged by the solid revenue growth we achieved during the first quarter in our North American and European Fenestration segments, especially given the seasonality of our business and public commentary related to the residential housing industry in the U.S. and Brexit in Europe.  As a reminder, our consolidated revenue stream is weighted approximately 70% to the repair and remodel segment of the market, which we believe should grow at a higher rate than new construction for the foreseeable future. 

“We were able to realize margin expansion of almost 300 basis points in our European Fenestration segment during the quarter, mainly due to pricing finally catching up to inflationary pressures that impacted results for much of 2018.  Results were softer than expected in our North American Cabinet Components segment, which was largely the result of extended customer downtime around the holidays and unplanned downtime related to severe weather in January.  For the full year, we continue to expect margin expansion on a consolidated basis as volume ramps, operating efficiency gains improve and price increases continue to take hold as the year progresses.  As is typical for our business, we were a net borrower in the first quarter, predominantly due to incentive payouts and share repurchases.  Inventories increased as expected in preparation for the spring selling season as well as some Brexit related stockpiling in Europe.  As a result, our leverage ratio increased, but we are confident in our ability to generate strong free cash flow in the second half and expect to continue deleveraging the balance sheet and buying back stock.  Despite depressed equity valuations in the residential housing industry, the fundamentals for our business remain positive, and as such we are comfortable reaffirming our full year 2019 guidance of 4% to 6% revenue growth and Adjusted EBITDA of $97 million to $107 million.”  (See Forward Looking Statements and Non-GAAP Terminology Definitions and Disclaimers sections for additional information)

First Quarter 2019 Results Summary  

The Company reported the following selected financial results:

  Three Months Ended January 31,
  2019 2018
Net Sales $196.8 $191.7
Net (Loss) Income ($3.6) $4.9
Diluted EPS ($0.11) $0.14
Adjusted Net Loss ($2.3) ($1.5)
Adjusted Diluted EPS ($0.07) ($0.04)
Adjusted EBITDA $12.1 $13.1
(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table and Selected Segment Data table for additional information)

The increase in net sales during the first quarter of 2019 was mainly the result of above market growth in the North American Fenestration segment combined with price increases related to raw material inflation recovery. (See Sales Analysis table for additional information)

The decrease in reported earnings was largely due to a $6.5 million, or $0.19 per diluted share, net tax benefit for the three months ended January 31, 2018, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  The decrease in adjusted earnings was primarily attributable to an increase in selling, general and administrative expense driven by elevated medical costs. 

Quanex remains focused on generating Free Cash Flow and expects to continue paying down debt and opportunistically repurchase stock.  As of January 31, 2019, the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.4x.  Quanex expects 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 January 31, 2019, Quanex repurchased 144,030 shares of common stock for approximately $2 million at an average price of $13.98 per share.  As of January 31, 2019, approximately $26 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 March 29, 2019, to shareholders of record on March 18, 2019.

Conference Call and Webcast Information

The Company has scheduled a conference call for Wednesday, March 6, 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 8465673, 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 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 March 13, 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 8465673. 

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

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.

(In thousands, except per share data)

  Three Months Ended January 31,
   2019  2018 (1)
Net sales $196,808  $191,666 
Cost of sales  158,557   154,521 
Selling, general and administrative  28,026   24,102 
Restructuring charges  103   366 
Depreciation and amortization  12,572   13,273 
Operating loss  (2,450)  (596)
Interest expense  (2,442)  (2,441)
Other, net  256   424 
Loss before income taxes  (4,636)  (2,613)
Income tax benefit  987   7,560 
Net (loss) income $(3,649) $4,947 
(Loss) income per common share, basic $(0.11) $0.14 
(Loss) income per common share, diluted $(0.11) $0.14 
Weighted average common shares outstanding:    
Basic  33,098   34,662 
Diluted  33,098   35,286 
Cash dividends per share $0.08  $0.04 
(1) Updated to reflect adoption of ASU 2017-07.    

(In thousands)

  January 31, 2019 October 31, 2018
Current assets:    
Cash and cash equivalents $17,456  $29,003 
Accounts receivable, net  71,678   84,014 
Inventories, net  81,443   69,365 
Prepaid and other current assets  7,282   7,296 
Total current assets  177,859   189,678 
Property, plant and equipment, net  198,717   201,370 
Goodwill  221,225   219,627 
Intangible assets, net  119,053   121,919 
Other assets  8,886   9,255 
Total assets $725,740  $741,849 
Current liabilities:    
Accounts payable $39,500  $52,389 
Accrued liabilities  27,789   45,968 
Income taxes payable  3,228   2,780 
Current maturities of long-term debt  1,134   1,224 
Total current liabilities  71,651   102,361 
Long-term debt  229,550   209,332 
Deferred pension and postretirement benefits  4,913   4,218 
Deferred income taxes  15,549   17,215 
Other liabilities  14,274   14,571 
Total liabilities  335,937   347,697 
Stockholders’ equity:    
Common stock  374   374 
Additional paid-in-capital  252,931   254,678 
Retained earnings  235,979   242,834 
Accumulated other comprehensive loss  (26,643)  (30,705)
Treasury stock at cost  (72,838)  (73,029)
Total stockholders’ equity  389,803   394,152 
Total liabilities and stockholders' equity $725,740  $741,849 

(In thousands)

  Three Months Ended January 31,
   2019   2018 
Operating activities:    
Net (loss) income $  (3,649) $  4,947 
Adjustments to reconcile net (loss) income to cash (used for) provided by operating activities:      
Depreciation and amortization    12,572     13,273 
Stock-based compensation    224     580 
Deferred income tax    (1,877)    (8,483)
Other, net    785     130 
Changes in assets and liabilities:    
Decrease in accounts receivable    12,679     18,378 
Increase in inventory    (11,601)    (6,926)
Decrease in other current assets    15     73 
Decrease in accounts payable    (11,738)    (4,523)
Decrease in accrued liabilities    (18,850)    (10,629)
Increase in income taxes payable    422     344 
Increase in deferred pension and postretirement benefits    684     860 
(Decrease) Increase in other long-term liabilities    (27)    181 
Other, net    118     (13)
Cash (used for) provided by operating activities    (20,243)    8,192 
Investing activities:    
Capital expenditures    (6,271)    (7,811)
Proceeds from disposition of capital assets    74     65 
Cash used for investing activities    (6,197)    (7,746)
Financing activities:    
Borrowings under credit facilities    43,000     9,500 
Repayments of credit facility borrowings    (23,000)    (13,750)
Repayments of other long-term debt    (454)    (255)
Common stock dividends paid    (2,675)    (1,397)
Issuance of common stock    27     2,231 
Payroll tax paid to settle shares forfeited upon vesting of stock    (322)    (706)
Purchase of treasury stock    (2,016)    - 
Cash provided by (used for) financing activities    14,560     (4,377)
Effect of exchange rate changes on cash and cash equivalents    333     233 
Decrease in cash and cash equivalents    (11,547)    (3,698)
Cash and cash equivalents at beginning of period    29,003     17,455 
Cash and cash equivalents at end of period $  17,456  $  13,757 

(In thousands, except per share data)

  Three Months Ended  Three Months Ended 
Reconciliation of Adjusted Net (Loss) Income and Adjusted EPS January 31, 2019  January 31, 2018 
Net (loss) income as reported $(3,649) $(0.11)  $4,947  $0.14  
Reconciling items from below  1,334   0.04    (6,485)  (0.18) 
Adjusted net loss and adjusted EPS $(2,315) $(0.07)  $(1,538) $(0.04) 
Reconciliation of Adjusted EBITDA Three Months Ended
January 31, 2019
  Three Months Ended
January 31, 2018
  Reconciliation    Reconciliation   
Net income as reported $(3,649)    $4,947    
Income tax benefit  (987)     (7,560)   
Other, net  (256)     (424)   
Interest expense  2,442      2,441    
Depreciation and amortization  12,572      13,273    
EBITDA  10,122      12,677    
Reconciling items from below  1,971      378    
Adjusted EBITDA $12,093     $13,055    
Reconciling Items Three Months Ended
January 31, 2019
  Three Months Ended
January 31, 2018
Net sales $196,808  $-   $191,666  $-  
Cost of sales  158,557   -    154,521   -  
Selling, general and administrative  28,026   (1,868) (1)  24,102   (12) (1)
Restructuring charges  103   (103) (2)  366   (366) (2)
EBITDA  10,122   1,971    12,677   378  
Depreciation and amortization  12,572   -    13,273   -  
Operating loss  (2,450)  1,971    (596)  378  
Interest expense  (2,442)  -    (2,441)  -  
Other, net  256   21  (3)  424   (299) (3)
Loss before income taxes  (4,636)  1,992    (2,613)  79  
Income tax benefit  987   (658) (4)  7,560   (6,564) (4)
Net (loss) income $(3,649) $1,334   $4,947  $(6,485) 
Diluted (loss) earnings per share $(0.11)    $0.14    
(1) Transaction and advisory fees, and in 2019, $1.2 million of severance related to a reorganization.      
(2) Restructuring charges relate to the closure of several manufacturing plant facilities.        
(3) Foreign currency transaction losses (gains).          
(4) Impact on a with and without basis.  January 31, 2019 and 2018 include $0.2 million and $6.5 million, respectively, adjustment related to the Tax Cuts and Jobs Act. 

(In thousands)

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 Fenestration (1) EU Fenestration (1) NA Cabinet
Corp & Other
Three months ended January 31, 2019          
Net sales $109,049  $35,254  $53,853  $(1,348) $196,808 
Cost of sales  87,153   24,526   47,856   (978)  158,557 
Selling, general and administrative  13,077   5,711   4,925   4,313   28,026 
Restructuring charges  103   -   -   -   103 
Depreciation and amortization  6,873   2,236   3,339   124   12,572 
Operating income (loss)  1,843   2,781   (2,267)  (4,807)  (2,450)
Depreciation and amortization  6,873   2,236   3,339   124   12,572 
EBITDA  8,716   5,017   1,072   (4,683)  10,122 
Transaction and advisory fees  -   -   -   717   717 
Severance related to reorganization  -   -   -   1,151   1,151 
Restructuring charges  103   -   -   -   103 
Adjusted EBITDA $8,819  $5,017  $1,072  $(2,815) $12,093 
Adjusted EBITDA Margin %  8.1%  14.2%  2.0%    6.1%
Three months ended January 31, 2018 (2)          
Net sales $102,727  $33,996  $55,922  $(979) $191,666 
Cost of sales  80,098   24,833   50,219   (629)  154,521 
Selling, general and administrative (3)  13,508   5,327   4,635   632   24,102 
Restructuring charges  251   -   115   -   366 
Depreciation and amortization  7,012   2,449   3,686   126   13,273 
Operating income (loss)  1,858   1,387   (2,733)  (1,108)  (596)
Depreciation and amortization  7,012   2,449   3,686   126   13,273 
EBITDA  8,870   3,836   953   (982)  12,677 
Transaction and advisory fees  -   -   -   12   12 
Restructuring charges  251   -   115   -   366 
Adjusted EBITDA $9,121  $3,836  $1,068  $(970) $13,055 
Adjusted EBITDA Margin %  8.9%  11.3%  1.9%    6.8%
(1) NA Fenestration and EU Fenestration were previously named "NA Engineered Components" and "EU Engineered Components," respectively.    
(2) Updated to reflect the adoption of ASU 2017-07.          
(3) Updated to reflect a reduction in corporate allocations of $0.6 million due to a change in allocation methodology during the fourth quarter of 2018.    

(In thousands)

  Three Months Ended
  January 31, 2019 January 31, 2018
NA Fenestration:   
 United States - fenestration$93,884  $88,216 
 International - fenestration 8,207   7,008 
 United States - non-fenestration 3,505   4,147 
 International - non-fenestration 3,453   3,356 
  $109,049  $102,727 
EU Fenestration (1):   
 International - fenestration$30,724  $29,869 
 International - non-fenestration 4,530   4,127 
  $35,254  $33,996 
NA Cabinet Components:   
 United States - fenestration$3,352  $3,445 
 United States - non-fenestration 49,962   52,006 
 International - non-fenestration 539   471 
  $53,853  $55,922 
Unallocated Corporate & Other:   
 Eliminations$(1,348) $(979)
  $(1,348) $(979)
Net Sales$196,808  $191,666 
(1) Reflects a $2.1 million reduction in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2019.

The following information was filed by Quanex Building Products Corp (NX) on Tuesday, March 5, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Inside this 10-Q Quarterly Report

Document And Entity Information
Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical)
Condensed Consolidated Statement Of Stockholders' Equity
Condensed Consolidated Statement Of Stockholders' Equity (Parenthetical)
Condensed Consolidated Statements Of Cash Flow (Unaudited)
Condensed Consolidated Statements Of Comprehensive Income (Loss) (Unaudited)
Condensed Consolidated Statements Of Income (Loss) (Unaudited)
Contingencies (Details)
Debt And Capital Lease Obligations
Debt And Capital Lease Obligations (Detail)
Debt And Capital Lease Obligations (Tables)
Derivative Instruments
Derivative Instruments (Detail)
Derivative Instruments (Tables)
Earnings Per Share
Earnings Per Share (Detail)
Earnings Per Share Earnings Per Share (Tables)
Fair Value Measurement Of Assets And Liabilities
Fair Value Measurement Of Assets And Liabilities (Details)
Goodwill And Intangible Assets
Goodwill And Intangible Assets (Tables)
Goodwill And Intangible Assets - Goodwill (Details)
Goodwill And Intangible Assets - Identifiable Intangible Assets (Detail)
Income Taxes
Income Taxes (Detail)
Income Taxes Income Tax (Tables)
Inventories (Detail)
Inventories (Tables)
Nature Of Operations And Basis Of Presentation
Nature Of Operations And Basis Of Presentation (Details)
Nature Of Operations And Basis Of Presentation (Tables)
Nature Of Operations And Basis Of Presentation Summary Of Product Sales (Details)
New Accounting Guidance Adopted
New Accounting Guidance Adopted (Details)
Other Income (Expense)
Other Income (Expense) (Detail)
Other Income (Expense) (Tables)
Retirement Plans
Retirement Plans (Detail)
Retirement Plans (Tables)
Segment Information (Details)
Segment Information (Notes)
Segment Information (Tables)
Segment Information Goodwill By Segment (Details)
Segment Information Reconcilliation Of Operating Loss To Net Income (Details)
Segment Information Segment Reporting Information (Details)
Stock Based Compensation (Detail)
Stock-Based Compensation
Stock-Based Compensation (Tables)
Stock-Based Compensation - Performance Restricted Stock Units (Details)
Stock-Based Compensation - Performance Share Awards (Details)
Stock-Based Compensation - Restricted Stock Awards (Details)
Stock-Based Compensation - Restricted Stock Units (Details)
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Stock-Based Compensation - Treasury Shares (Details)
Warranty Obligations
Warranty Obligations (Detail)
Warranty Obligations (Tables)

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Quanex Building Products Corp provided additional information to their SEC Filing as exhibits

Ticker: NX
CIK: 1423221
Form Type: 10-Q Quarterly Report
Accession Number: 0001423221-19-000004
Submitted to the SEC: Wed Mar 06 2019 11:13:45 AM EST
Accepted by the SEC: Wed Mar 06 2019
Period: Thursday, January 31, 2019
Industry: Rolling Drawing And Extruding Of Nonferrous Metals

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