Wider-Than-Expected Loss at Quanex - Analyst Blog

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Quanex Building Products Corporation ( NX ) reported a loss of 20 cents per share in the second quarter of 2013 compared with the prior-year loss of 34 cents a share. The results benefited from the elimination of strike-related costs at its Nichols Aluminum operation, partly offset by lower aluminum prices and higher corporate expenses from Enterprise Resource Planning (ERP) implementation costs. The loss per share was wider than the Zacks Consensus Estimate of a loss per share of 5 cents.

Operational Update

Revenues improved 19.5% year over year to $232.4 million. The results were ahead of the Zacks Consensus Estimate of $216 million.

Cost of sales during the quarter increased 15.7% to $198.9 million from $171.8 million in the prior-year quarter. Gross profit increased 48% to $33.5 million. Consequently, gross margin expanded 280 basis points to 14.4% in the quarter.

Selling, general and administrative expenses increased 7.5% to $31.3 million. Operating loss was $9.3 million in the second quarter compared with $16 million in the prior-year quarter.

Segment Performance

Engineered Products Group (EPG): Net sales at the segment spiked 15% to $125 million in the quarter, primarily due to the acquisition of Aluminite. Operating income for the segment also increased significantly to $5.9 million in the second quarter from $0.1 million in the year-ago quarter.

The segment recorded EBITDA of $14.0 million compared with $7.1 million a year ago, driven by the benefits from last year's insulating glass spacer facility consolidation as well as higher sales results, partly offset by pricing concessions and higher material costs.

Aluminum Sheet Products: The segment reported sales of $109.7 million, up 24% year over year. However, operating loss in the segment was $0.5 million in the second quarter compared to $7.5 million in the year-ago quarter.

Segment's EBITDA was $1.3 million compared with a loss of $5.5 million a year ago. The improved results were primarily due to the non-recurrence of strike-related costs which affected the company in 2012, partly offset by product mix.

Financial Update

Cash and cash equivalents were $9.6 million as of Apr 30, 2013 compared with $71 million as of Oct 31, 2012. Long-term debt amounted to $11.4 million as of Apr 30, 2013, compared with $1.4 million as of Oct 31, 2012. Cash flow used in operating activities was $20.8 million in the reported quarter compared with $11.7 million in the year-ago quarter.

Outlook

For the full year 2013, Quanex expects the U.S. window shipments to be approximately 42 million units. The company believes that improvement in the U.S. window shipments will come from new constructions.

The company stated that even though new housing starts are up, the residential repair and remodel window market remains challenging. Furthermore, increased global supply of aluminum products coupled with tight regional aluminum scrap supply continue to create a challenging environment for Nichols Aluminum.

The EPG segment is expected to report net sales during the second half of 2013 of about $315 million and operating income of about $35-$38 million. For the second half of 2013, Nichols Aluminum is supposed to ship about 160 million pounds at an estimated spread of $0.41 per pound and generate an operating income of about $3.5 million.

Corporate expenses during the second half of 2013 are expected to total $24 million, including $4.8 million of depreciation and amortization expense.

Quanex remains positive on the long-term growth prospects of residential and commercial markets and expects to continue to invest through both organic growth initiatives and acquisitions in the future.

Houston, Tx.-based Quanex Building Products Corporation is a leading manufacturer of engineered materials, components and systems serving domestic and international window and door OEMs through its Engineered Products and Aluminum Sheet Products Groups.

Quanex currently retains a Zacks Rank #3 (Hold).

Peer Performance

PGT, Inc. ( PGTI ) posted first-quarter 2013 adjusted earnings of 6 cents per share compared with the prior-year loss of a penny per share. The results were ahead of the Zacks Consensus Estimate of 3 cents.

Armstrong World Industries, Inc. ( AWI ) reported first-quarter 2013 adjusted earnings of 22 cents per share, declining 55% from the prior year quarter's earnings of 49 cents per share. The decline was attributable to increased foreign losses and the disbursement of previously capitalized financing costs resulting in a higher tax rate. The results also missed the Zacks Consensus Estimate of 39 cents.

James Hardie Industries plc ( JHX ) reported fourth-quarter 2013 adjusted earnings of 6.9 cents per share, a decrease of 12.6% from the prior-year quarter's earnings of 7.9 cents per share. The results missed the Zacks Consensus Estimate of 36 cents.



ARMSTRONG WORLD (AWI): Free Stock Analysis Report

JAMES HARDI-ADR (JHX): Free Stock Analysis Report

QUANEX BLDG PRD (NX): Free Stock Analysis Report

PGT INC (PGTI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AWI , JHX , NX , PGTI

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