Quanex Building Products Announces Second Quarter 2023 Results and Reaffirms Full Year 2023 Guidance

Margin Expansion in NA Cabinet Components and EU Fenestration Segments 
Repaid $20 Million in Bank Debt 
Balance Sheet and Liquidity Remain Strong 
Significant Improvement in Cash Provided by Operating Activities 
Synergy Target Achieved for LMI Custom Mixing Acquisition 
Return to Normal Seasonality Trending as Expected 
Remain Cautiously Optimistic on Second Half of 2023

HOUSTON, June 01, 2023 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended April 30, 2023.  

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 reconciliation tables for additional information)

George Wilson, President and Chief Executive Officer, commented, “We are pleased with the results we reported for the second quarter of 2023, and we are now more confident in our belief that we are seeing a return to normal seasonality in our business. Demand improved across all product lines during the second quarter of this year compared to the first quarter of this year, and we executed well from an operational standpoint. The customer inventory rebalancing initiatives that impacted results in our fenestration segments in the first quarter also impacted results in the second quarter, albeit to a lesser degree. However, based on ongoing conversations with our customers, coupled with recent order trends, we do not anticipate a meaningful impact from customer inventory rebalancing initiatives for the remainder of the year. The LMI Custom Mixing business we acquired on November 1, 2022 continues to perform well and we have already achieved our synergy target.     

“When compared to the second quarter of 2022, which was a record quarter, revenue declined in the second quarter of 2023 across all operating segments as ongoing macroeconomic challenges spurred continued market volume declines and some pricing pressure, mostly due to surcharge rollbacks and index pricing mechanism triggers in North America as raw material costs decline. Despite the pressure on revenue, we converted well operationally and realized margin expansion in our North American Cabinet Components and European Fenestration segments. We controlled the things we can control, and we will continue to focus on operational efficiency and flexing our cost structure accordingly.

“Our continued focus on managing working capital is serving us well and we were able to generate enough free cash to buyback $5.6 million of our stock and pay down our bank debt by $20 million during the second quarter. Our balance sheet remains strong, and our leverage ratio improved versus the first quarter of this year.”

Second Quarter 2023 Results Summary   

The Company reported net sales of $273.5 million during the three months ended April 30, 2023, which represents a decrease of 15.3% compared to $322.9 million for the same period of 2022. The decrease was mostly attributable to softer demand, caused in part by customer inventory rebalancing initiatives, lower pricing in North America, and foreign exchange translation impact. Quanex realized a decline in net sales of 11.8% for the second quarter of 2023 in its North American Fenestration segment. Excluding LMI, net sales in the North American Fenestration segment would have declined by approximately 21.8% year-over-year. The Company reported a decline in net sales of 26.6% in its North American Cabinet Components segment and a decline of 7.1% in net sales in its European Fenestration segment, excluding foreign exchange impact. (See Sales Analysis table for additional information)

The decrease in earnings for the three months ended April 30, 2023 was mostly attributable to lower volumes, decreased pricing mainly due to surcharge rollbacks and raw material index pricing mechanisms in North America, foreign exchange translation, and higher interest expense.

Balance Sheet Update

As of April 30, 2023, Quanex had total debt of $135.6 million ($82.5 million excluding real-estate leases that are considered “finance” leases under U.S. GAAP) and the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA decreased to 0.6x (0.3x excluding these real-estate leases). As of April 30, 2023, Quanex’s LTM Adjusted EBITDA was $143.3 million and LTM Net Income, the most directly comparable GAAP measure, was $74.0 million.   (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)

Outlook        

Mr. Wilson stated, “We continue to be cautiously optimistic for the second half of our fiscal year, especially as we gain confidence from recent results and our belief that we are seeing a return to normal seasonality. In addition, the long-term underlying fundamentals for the residential housing market remain positive. Based on conversations with our customers and recent demand trends, we are reaffirming prior guidance for fiscal 2023. On a consolidated basis, we continue to estimate that we will generate net sales of $1.12 billion to $1.16 billion, which we expect will yield approximately $130 million to $142 million in Adjusted EBITDA* in fiscal 2023.

Our capital allocation priorities continue to be generating cash, paying down debt, evaluating growth opportunities and opportunistically buying back our 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 also scheduled a conference call for Friday, June 2, 2023 at 11:00 a.m. ET (10:00 a.m. CT) to discuss the release. A link to the live audio webcast will be available on Quanex’s website at http://www.quanex.com in the Investors section under Presentations & Events.

Participants can pre-register for the conference call using the following link: https://register.vevent.com/register/BI63b3d21eb76d4b8ba3f1693da2ce90ac

Registered participants will receive an email containing conference call details for dial-in options. To avoid delays, it is recommended that participants dial into the conference call ten minutes ahead of the scheduled start time. A replay will be available for a limited time on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events.

About Quanex

Quanex is a global manufacturer with core capabilities and broad applications across various end markets. The Company currently collaborates and partners with leading OEMs to provide innovative solutions in the window, door, vinyl fencing, solar, refrigeration and cabinetry markets.  Looking ahead, Quanex plans to leverage its material science expertise and process engineering to expand into adjacent markets.

For more information contact Scott Zuehlke, Senior Vice President, Chief Financial Officer & Treasurer, at 713-877-5327 or [email protected].

Non-GAAP Terminology Definitions and Disclaimers

Adjusted Net Income (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.  Net Debt is defined as total debt (outstanding balance on the revolving credit facility plus financial lease obligations) less 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 uses the Free Cash Flow metric to measure operational and cash management performance and assist with financial decision-making. Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of the Company’s residual cash flow available for discretionary expenditures. Quanex believes Free Cash Flow is useful to investors in understanding and evaluating the Company’s financial and cash management performance. 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 following: impacts from public health issues (including pandemics, such as the recent COVID-19 pandemic) on the economy and the demand for Quanex’s products, 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, 2022, and the Company’s Quarterly Reports on Form 10-Q 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.