Quanex Building Products Announces First Quarter 2023 Results and Provides Full Year 2023 Guidance

Rhea-AI Summary

Quanex Building Products Corporation (NYSE:NX) reported Q1 2023 results showing a 1.9% decline in net sales to $261.9 million compared to Q1 2022. The gross margin decreased to 19.8% with a net income drop to $1.9 million. The North American Fenestration segment grew 4.3% thanks to LMI acquisition, but excluding it, sales would have dropped 7%. The company maintains a strong balance sheet with liquidity of $263 million and low leverage at 0.8x. Expected net sales for FY 2023 are projected between $1.12 billion and $1.16 billion, with Adjusted EBITDA of $130 million to $142 million.

Positive

• North American Fenestration segment achieved 4.3% net sales growth due to LMI acquisition.
• Strong liquidity of $263 million as of January 31, 2023.
• Low leverage ratio of 0.8x indicates a strong balance sheet.

Negative

• Overall net sales declined 1.9% year-over-year, largely due to market demand softness.
• Gross margin decreased from 20.7% to 19.8%.
• Net income fell significantly from $11.2 million to $1.9 million.

Balance Sheet and Liquidity Remain Strong 
Significant Improvement in Cash Provided by Operating Activities 
Revenue Growth in NA and EU Fenestration Segments, Excluding FX Impact 
Integration of LMI Custom Mixing Assets on Track 
Cautiously Optimistic on Second Half of 2023 
Positive Long-Term View on Residential Housing Market Remains Intact

HOUSTON, March 09, 2023 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2023.  

The Company reported the following selected financial results:

			Three Months Ended January 31,
($ in millions, except per share data)			2023		2022
Net Sales			$261.9		$267.0
Gross Margin			$51.8		$55.2
Gross Margin %			19.8%		20.7%
Net Income			$1.9		$11.2
Diluted EPS			$0.06		$0.34
Adjusted Net Income			$6.1		$11.3
Adjusted Diluted EPS			$0.18		$0.34
Adjusted EBITDA			$20.5		$24.4
Adjusted EBITDA Margin %			7.8%		9.1%
Cash Provided by (Used For) Operating Activities			$3.1		($21.7
Free Cash Flow			($4.4)		($29.0)

(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, stated, “Our results for the first quarter of 2023 were generally as expected with the only caveat being an elevated level of customer inventory re-balancing initiatives in our fenestration segments. We believe we are seeing a return to what is normal seasonality in our business.   In addition to lower market demand year-over-year, results for the quarter were impacted by higher stock-based compensation expense from the increase in our stock price, one-time transaction and advisory fees, increased interest expense related to rising rates on the debt we incurred to fund the acquisition of LMI Custom Mixing, LLC (“LMI”), and foreign exchange translation. While results in our legacy North American Fenestration segment were impacted by market volume declines and customer inventory rebalancing initiatives, the LMI business performed well and controllable operational performance in the legacy business continues to be strong. Results in our North American Cabinet Components segment were impacted by index related price decreases and soft market demand; however, margins were consistent compared to the same period of last year. Our European Fenestration business performed well despite additional macroeconomic headwinds, including the war in Ukraine and increased energy costs. In fact, after adjusting for the foreign exchange translation impact, we generated revenue growth in Europe and margins held up nicely. As we look ahead, it is important to note that while pricing for raw materials and related surcharges are declining, inflationary pressures still exist in many areas. We are focused on making sure our product pricing takes all factors into account.

“Notwithstanding some near-term macroeconomic challenges, our balance sheet remains strong even after accounting for the debt we borrowed to fund the acquisition of LMI. The integration of LMI is going well, and we have already started realizing synergies. Despite the overall softness compared to the same period of 2022, we were still able to pay down some debt towards the end of the first quarter and our leverage remains low.”

First Quarter 2023 Results Summary   

The Company reported net sales of $261.9 million during the three months ended January 31, 2023, which represents a decrease of 1.9% compared to $267.0 million for the same period of 2022. The decrease was mostly attributable to softer demand, customer inventory rebalancing initiatives and foreign exchange translation impact. Quanex realized net sales growth of 4.3% for the first quarter of 2023 in its North American Fenestration segment, which was driven by the contribution from LMI. Excluding LMI, net sales in the North American Fenestration segment would have declined by approximately 7% year-over-year. The Company reported a decline in net sales of 12.3% in its North American Cabinet Components segment and an increase of 3.9% 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 January 31, 2023 was largely due to lower volumes, one-time transaction and advisory fees, foreign exchange translation, higher interest expense and increased stock-based compensation expense, mostly due to stock price appreciation.

Balance Sheet & Liquidity Update

As of January 31, 2023, the Company had total debt of $155.1 million ($100.0 million excluding real-estate leases that are considered “finance” leases under U.S. GAAP) and Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 0.8x (0.4x excluding these real-estate leases). As previously disclosed, the Company borrowed $92 million to acquire substantially all the assets of LMI on November 1, 2022. As of January 31, 2023, the Company’s LTM Adjusted EBITDA was $148.6 million and LTM Net Income, the most directly comparable GAAP measure, was $79.0 million.   (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)

Quanex’s liquidity was $263.0 million as of January 31, 2023, consisting of $43.0 million in cash on hand plus availability under its Amended and Restated Senior Secured Revolving Credit Facility due 2027, less letters of credit outstanding.

Outlook        

Mr. Wilson commented, “While the near-term outlook for our business remains somewhat cautious, our long-term view has not changed, and we believe the underlying fundamentals for the residential housing market remain positive. Considering these strong market fundamentals, and our belief that we have returned to a more normalized seasonality pattern, we are cautiously optimistic that demand will improve in the second half of our fiscal year. That said, we are also proactively working to adjust our cost structure to protect margins in the event that second half improvement doesn’t materialize as currently expected. Overall, on a consolidated basis, and assuming fundamentals do not worsen materially, we estimate 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.

As always, we will stay focused on the things we can control. Our capital allocation priorities are 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, March 10, 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/BIc7e66b8a6c024100847adde656098b34

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 scott.zuehlke@quanex.com.

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.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		Three Months Ended January 31,
			2023				2022
Net sales		$	261,916			$	267,040
Cost of sales			210,149				211,834
Selling, general and administrative			36,744				30,823
Depreciation and amortization			10,620				10,257
Operating income			4,403				14,126
Interest expense			(2,259	)			(523	)
Other, net			218				54
Income before income taxes			2,362				13,657
Income tax expense			(453	)			(2,418	)
Net income		$	1,909			$	11,239
Earnings per common share, basic		$	0.06			$	0.34
Earnings per common share, diluted		$	0.06			$	0.34
Weighted average common shares outstanding:
Basic			32,951				33,124
Diluted			33,137				33,298
Cash dividends per share		$	0.08			$	0.08

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

		January 31, 2023				October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents		$	43,055			$	55,093
Accounts receivable, net			84,672				96,018
Inventories, net			127,735				120,890
Prepaid and other current assets			11,146				8,664
Total current assets			266,608				280,665
Property, plant and equipment, net			242,030				180,400
Operating lease right-of-use assets			45,996				56,000
Goodwill			184,706				137,855
Intangible assets, net			83,401				65,035
Other assets			4,285				4,662
Total assets		$	827,026			$	724,617
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	63,093			$	77,907
Accrued liabilities			46,064				52,114
Income taxes payable			1,624				1,049
Current maturities of long-term debt			1,996				1,046
Current operating lease liabilities			7,213				7,727
Total current liabilities			119,990				139,843
Long-term debt			151,682				29,628
Noncurrent operating lease liabilities			39,725				49,286
Deferred pension benefits			-				3,917
Deferred income taxes			23,249				22,277
Other liabilities			16,692				14,831
Total liabilities			351,338				259,782
Stockholders’ equity:
Common stock			372				372
Additional paid-in-capital			249,730				251,947
Retained earnings			336,704				337,456
Accumulated other comprehensive loss			(38,050	)			(49,422	)
Treasury stock at cost			(73,068	)			(75,518	)
Total stockholders’ equity			475,688				464,835
Total liabilities and stockholders' equity		$	827,026			$	724,617

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)

	Three Months Ended January 31,
		2023				2022
Operating activities:
Net income	$	1,909			$	11,239
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		10,620				10,257
Stock-based compensation		679				552
Deferred income tax		179				854
Other, net		1,509				1,218
Changes in assets and liabilities:
Decrease in accounts receivable		20,502				8,340
Decrease (increase) in inventory		645				(25,318	)
Increase in other current assets		(1,431	)			(3,534	)
Decrease in accounts payable		(21,379	)			(8,391	)
Decrease in accrued liabilities		(12,686	)			(18,248	)
Increase in income taxes payable		536				1,391
Increase (decrease) in deferred pension benefits		7				(80	)
Increase in other long-term liabilities		1,461				404
Other, net		584				(335	)
Cash provided by (used for) operating activities		3,135				(21,651	)
Investing activities:
Business acquisition		(92,000	)			-
Capital expenditures		(7,582	)			(7,370	)
Proceeds from disposition of capital assets		98				10
Cash used for investing activities		(99,484	)			(7,360	)
Financing activities:
Borrowings under credit facilities		102,000				28,000
Repayments of credit facility borrowings		(15,000	)			(3,000	)
Repayments of other long-term debt		(579	)			(228	)
Common stock dividends paid		(2,661	)			(2,587	)
Issuance of common stock		99				55
Payroll tax paid to settle shares forfeited upon vesting of stock		(545	)			(1,383	)
Cash used for financing activities		83,314				20,857
Cash provided by financing activities		997				(188	)
Decrease in cash and cash equivalents		(12,038	)			(8,342	)
Cash and cash equivalents at beginning of period		55,093				40,061
Cash and cash equivalents at end of period	$	43,055			$	31,719

QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW AND NET DEBT RECONCILIATION
(In thousands)
(Unaudited)

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.
			Three Months Ended January 31,
				2023				2022
Cash provided by (used for) operating activities			$3,135					(21,651)
Capital expenditures				(7,582)				(7,370)
Free Cash Flow			($4,447)				($29,021)
The following table reconciles the Company's Net Debt which is defined as total debt principal of the Company plus finance lease obligations minus cash.
			As of January 31,
				2023				2022
Revolving credit facility			$100,000				$63,000
Finance lease obligations (1)				55,122				15,048
Total debt (2)				155,122				78,048
Less: Cash and cash equivalents				43,055				31,719
Net Debt			$112,067				$46,329
(1) Includes $53.2 million and $13.8 million in real estate lease liabilities considered finance leases under U.S. GAAP for the three months ended January 31, 2023 and January 31, 2022, respectively..
(2) Excludes outstanding letters of credit.

QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
LAST TWELVE MONTHS ADJUSTED EBITDA RECONCILIATION
(In thousands, except per share data)
(Unaudited)

Reconciliation of Last Twelve Months Adjusted EBITDA		Three Months Ended January 31, 2023				Three Months Ended October 31, 2022				Three Months Ended July 31, 2022				Three Months Ended April 30, 2022				Total
		Reconciliation				Reconciliation				Reconciliation				Reconciliation				Reconciliation
Net income as reported		$	1,909			$	24,667			$	25,908			$	26,522			$	79,006
Income tax expense			453				3,329				7,801				7,879				19,462
Other, net			(218	)			(136	)			(398	)			(453	)			(1,205	)
Interest expense			2,259				710				724				602				4,295
Depreciation and amortization			10,620				9,555				9,734				10,563				40,472
EBITDA			15,023				38,125				43,769				45,113				142,030
Selling, general and administrative(1)			5,448				564				419				131				6,562
Adjusted EBITDA		$	20,471			$	38,689			$	44,188			$	45,244			$	148,592
(1) Transaction and advisory fees.

QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands, except per share data)
(Unaudited)

		Three Months Ended									Three Months Ended
Reconciliation of Adjusted Net Income and Adjusted EPS		January 31, 2023									January 31, 2022
		Net Income				Diluted EPS					Net Income				Diluted EPS
Net income as reported		$	1,909			$	0.06				$	11,239			$	0.34
Net income reconciling items from below			4,154			$	0.12					33			$	-
Adjusted net income and adjusted EPS		$	6,063			$	0.18				$	11,272			$	0.34
Reconciliation of Adjusted EBITDA		Three Months Ended January 31, 2023									Three Months Ended January 31, 2022
		Reconciliation									Reconciliation
Net income as reported		$	1,909								$	11,239
Income tax expense			453									2,418
Other, net			(218	)								(54	)
Interest expense			2,259									523
Depreciation and amortization			10,620									10,257
EBITDA			15,023									24,383
EBITDA reconciling items from below			5,448									-
Adjusted EBITDA		$	20,471								$	24,383
Reconciling Items		Three Months Ended January 31, 2023									Three Months Ended January 31, 2022
		Income Statement				Reconciling Items					Income Statement				Reconciling Items
Net sales		$	261,916			$	-				$	267,040			$	-
Cost of sales			210,149				-					211,834				-
Selling, general and administrative			36,744				(5,448	)	(1)			30,823				-
EBITDA			15,023				5,448					24,383				-
Depreciation and amortization			10,620				-					10,257				-
Operating income			4,403				5,448					14,126				-
Interest expense			(2,259	)			-					(523	)			-
Other, net			218				(42	)	(2)			54				41		(2)
Income before income taxes			2,362				5,406					13,657				41
Income tax expense			(453	)			(1,252	)	(3)			(2,418	)			(8	)	(3)
Net income		$	1,909			$	4,154				$	11,239			$	33
Diluted earnings per share		$	0.06								$	0.34
(1) Transaction and advisory fees.
(2) Foreign currency transaction (gains) losses.
(3) Impact on a with and without basis.

QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)

This table provides gross margin, operating (loss) income, EBITDA, and Adjusted EBITDA by reportable segment. Non-operating expense and income tax expense are not allocated to the reportable segments.
		NA Fenestration				EU Fenestration				NA Cabinet Components				Unallocated Corp & Other				Total
Three months ended January 31, 2023
Net sales		$	152,980			$	54,952			$	54,674			$	(690	)		$	261,916
Cost of sales			124,717				37,703				48,056				(327	)			210,149
Gross Margin			28,263				17,249				6,618				(363	)			51,767
Gross Margin %			18.5	%			31.4	%			12.1	%							19.8	%
Selling, general and administrative			13,295				7,505				4,873				11,071				36,744
Depreciation and amortization			5,245				2,348				2,934				93				10,620
Operating income (loss)			9,723				7,396				(1,189	)			(11,527	)			4,403
Depreciation and amortization			5,245				2,348				2,934				93				10,620
EBITDA			14,968				9,744				1,745				(11,434	)			15,023
Transaction and advisory fees			-				-				-				5,448				5,448
Adjusted EBITDA		$	14,968			$	9,744			$	1,745			$	(5,986	)		$	20,471
Adjusted EBITDA Margin %			9.8	%			17.7	%			3.2	%							7.8	%
Three months ended January 31, 2022
Net sales		$	146,631			$	58,914			$	62,353			$	(858	)		$	267,040
Cost of sales			115,964				41,227				55,073				(430	)			211,834
Gross Margin			30,667				17,687				7,280				(428	)			55,206
Gross Margin %			20.9	%			30.0	%			11.7	%							20.7	%
Selling, general and administrative			14,377				7,303				5,270				3,873				30,823
Depreciation and amortization			4,139				2,569				3,463				86				10,257
Operating income (loss)			12,151				7,815				(1,453	)			(4,387	)			14,126
Depreciation and amortization			4,139				2,569				3,463				86				10,257
EBITDA			16,290				10,384				2,010				(4,301	)			24,383
Adjusted EBITDA		$	16,290			$	10,384			$	2,010			$	(4,301	)		$	24,383
Adjusted EBITDA Margin %			11.1	%			17.6	%			3.2	%							9.1	%

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)

		Three Months Ended January 31,
			2023				2022
NA Fenestration:
	United States - fenestration	$	120,767			$	128,367
	International - fenestration		5,127				9,136
	United States - non-fenestration		23,066				6,716
	International - non-fenestration		4,020				2,412
		$	152,980			$	146,631
EU Fenestration:(1)
	International - fenestration	$	42,354			$	44,621
	International - non-fenestration		12,598				14,293
		$	54,952			$	58,914
NA Cabinet Components:
	United States - fenestration	$	3,908			$	3,765
	United States - non-fenestration		50,049				57,767
	International - non-fenestration		717				821
		$	54,674			$	62,353
Unallocated Corporate & Other:
	Eliminations	$	(690	)		$	(858	)
		$	(690	)		$	(858	)
Net Sales		$	261,916			$	267,040
(1) Reflects a reduction of $6.0 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2023.

FAQ

What were Quanex's Q1 2023 sales figures for NX?

Quanex reported net sales of $261.9 million for Q1 2023.

How did the gross margin change for NX in Q1 2023?

The gross margin for Quanex decreased to 19.8% in Q1 2023.

What is the expected revenue range for Quanex in FY 2023?

Quanex expects net sales to range from $1.12 billion to $1.16 billion in FY 2023.

What was the net income for Quanex in Q1 2023?

Quanex reported a net income of $1.9 million for the first quarter of 2023.

How much liquidity does Quanex have as of January 31, 2023?

Quanex has a liquidity of $263 million as of January 31, 2023.