Quanex Building Products Announces Third Quarter 2017 Results

The following excerpt is from the company's SEC filing.

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)

Before

Adjustments

Net sales

229,367

248,085

Cost of sales

176,758

186,631

186,564

Selling, general and administrative

20,478

20,443

28,551

28,442

Restructuring charges

31,267

32,166

32,903

33,079

Depreciation and amortization

13,915

(1,277

12,638

12,973

Operating income (loss)

17,352

19,528

19,930

20,106

Interest expense

(2,575

(22,200

16,677

(5,523

Other, net

(2,523

Income (loss) before income taxes

14,823

16,960

(4,793

19,092

14,299

Income tax (expense) benefit

(4,608

(5,468

(5,910

(5,093

Net income (loss)

10,215

11,492

(3,976

13,182

Diluted earnings (loss) per share

(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.

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)

Nine Months Ended July 31,

634,406

679,013

494,647

522,476

74,839

88,430

43,701

39,759

18,136

28,348

(7,126

(34,324

(4,036

11,582

(10,012

(3,631

(7,290

Income (loss) per common share, basic

Income (loss) per common share, diluted

Weighted average common shares outstanding:

34,224

33,916

34,141

33,850

34,924

34,771

Cash dividends per share

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

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

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

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

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

Deferred income taxes

18,509

18,322

Other liabilities

15,460

12,888

Total liabilities

392,388

412,522

Stockholders’ equity:

Common stock

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

Operating activities:

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Stock-based compensation

(1,847

(6,370

Excess tax benefit from share-based compensation

Charge for deferred loan costs and debt discount

15,883

Changes in assets and liabilities, net of effects from acquisitions:

Decrease in accounts receivable

Increase in inventory

(8,576

(1,530

Increase in other current assets

(1,239

Decrease in accounts payable

(3,145

(2,092

Decrease in accrued liabilities

(12,303

(2,139

Increase in income taxes payable

Increase in deferred pension and postretirement benefits

Increase in other long-term liabilities

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

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

Cash (used for) provided by financing activities

(20,384

229,581

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

(9,735

Cash and cash equivalents at beginning of period

23,125

Cash and cash equivalents at end of period

32,183

FREE CASH FLOW RECONCILIATION

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.

29,556

25,249

(9,548

(8,519

20,008

16,730

SEGMENT RECONCILIATION

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

EU Engineered

NA Cabinet

Unallocated

Corp & Other

Three months ended July 31, 2016

As previously reported

150,462

40,217

58,826

(1,420

109,513

27,533

50,376

15,408

18,478

Reclassification

(5,422

(4,364

Current presentation

145,040

64,920

105,149

55,412

(1,463

15,178

17,783

Nine months ended July 31, 2016

406,029

110,250

166,906

(4,172

304,434

76,698

143,716

(2,372

46,386

17,370

12,366

12,308

21,424

10,709

33,785

(14,543

(15,772

18,143

(2,371

(12,440

14,811

(2,297

390,257

185,049

(6,543

291,994

158,527

(4,743

45,726

13,026

21,049

11,084

31,488

SELECTED SEGMENT DATA

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.

Three months ended July 31, 2017

126,446

40,359

63,839

94,169

29,002

54,538

11,829

11,822

19,721

Transaction related costs

20,448

Adjusted EBITDA Margin %

Three months ended July 31, 2016

24,713

(3,841

PPA-Inventory Step-up

(3,732

Nine months ended July 31, 2017

343,694

106,133

188,359

(3,780

260,479

75,304

161,704

(2,840

38,770

15,132

12,739

26,377

10,160

15,861

(9,549

42,238

15,697

13,040

(9,138

61,837

Mexico restructuring, loss on sale of fixed assets

One-time employee benefit adjustment

44,445

15,801

14,294

(8,811

65,729

Nine months ended July 31, 2016

52,537

16,182

13,496

(14,108

68,107

16,533

15,783

(9,121

75,732

(1) Updated to reflect transfer of operating facilities from NA Engineered Components to NA Cabinet Components.  See Reconciliation for additional details.

SALES ANALYSIS

United States - fenestration

107,193

121,717

289,231

328,957

International - fenestration

24,945

23,317

United States - non-fenestration

19,590

24,237

International - non-fenestration

13,746

EU Engineered Components

35,087

35,547

94,528

98,744

11,301

11,221

12,316

10,651

United States - non-fenestration

59,237

61,268

174,404

172,273

Unallocated Corporate & Other:

Eliminations

Net Sales

(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.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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