Quanex Building Products Announces Fourth Quarter and Fiscal Year 2018 Results

Underlying Sales Growth of ~6% in Fiscal 2018
Working Capital Management Helped Boost Free Cash Flow by ~73% in Fiscal 2018
Gross Margin Expansion of >200 Basis Points in NA Cabinet Components Segment in 4Q18

HOUSTON, Dec. 10, 2018 (GLOBE NEWSWIRE) — Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the quarter and fiscal year ended October 31, 2018. 

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “The free cash flow profile of our business is strong and our disciplined management of working capital was exceptional during the fourth quarter.  As a result, and consistent with our plans to return capital to shareholders, we repurchased approximately $32 million in stock during the fourth quarter while maintaining our leverage ratio of 2.0x.  In addition, we paid down approximately $28 million of bank debt in fiscal 2018.  Looking ahead, we remain committed to maintaining a healthy balance sheet and returning capital to shareholders.

“Market growth and price increases led to underlying growth of approximately 6% in fiscal 2018; however, net sales in August and September were softer than anticipated.  Overall, fourth quarter results were impacted by elevated SG&A expense due to a rise in unforeseen medical costs coupled with higher annual incentive accruals, which are based on a modified free cash flow metric.  At the same time, as a result of operational improvements and better pricing, we achieved gross margin expansion for the second consecutive quarter and for the full fiscal year in our North American Cabinet Components segment.”  

Fourth Quarter and Fiscal Year 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)

The increases in net sales were mainly driven by market growth combined with price increases largely related to raw material inflation recovery and a favorable foreign exchange impact.  (See Sales Analysis table for additional information)

The decreases in adjusted earnings were mostly due to the negative impact of inflationary pressures and an increase in selling, general and administrative expense.  The increase in selling, general and administrative expense was driven by elevated medical costs and higher annual incentive accruals. Results for the fourth quarter and full fiscal year 2017 included a benefit of $2.0 million and $4.0 million, respectively, related to legal expense reimbursement from one of the Company’s insurance carriers.  (See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table and Selected Segment Data table for additional information)          

As previously disclosed, Quanex repurchased 1.9 million shares in a privately negotiated transaction at $16.86 per share during the fourth quarter of 2018 and has approximately $28 million remaining under its current share repurchase program. 

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

Outlook

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “It is clear that, at a macro level, expectations for growth in the new construction segment are dropping; however, we believe the repair and remodel segment will continue to strengthen, and Quanex is more weighted to this segment than new construction.  Accordingly, we expect revenue growth of 4% to 6% in fiscal 2019.

“It is also clear that inflation is here to stay, and while we are very confident that we can recover this through pricing, realizing significant margin expansion will be challenging.  Therefore, we expect to generate between $97 million and $107 million in Adjusted EBITDA in fiscal 2019.”  (See Forward Looking Statements and Non-GAAP Terminology Definitions and Disclaimers sections for additional information)

Conference Call and Webcast Information

The Company has scheduled a conference call for Tuesday, December 11, 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 6995087, 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 December 18, 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 6995087. 

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.   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, 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.  When the Company 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 Quanex’s control and/or cannot be reasonably predicted or estimated, such as the provision for income taxes.