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Quanex Building Beats on Q4 Earnings - Analyst Blog

By: Zacks.com
Posted: 12/20/2013 12:17:00 PM
Referenced Stocks: CSTE;JHX;NX;SSD

Quanex Building Products Corporation ( NX ) reported earnings of 28 cents per share in the fourth quarter of fiscal 2013 (ended Oct 31, 2013), increased around six-fold from 5 cents earned in the year-ago quarter. Reported earnings surpassed the Zacks Consensus Estimate of 17 cents.

The results benefited from improvement in the housing market along with savings generated from last year's insulating glass facility consolidation and the addition of Aluminite earlier in 2013, but were partly offset by the termination of the Enterprise Resource Planning (ERP) implementation.

Operational Update

Revenues improved 17% year over year to $275 million, beating the Zacks Consensus Estimate of $266 million. Results were aided by higher sales across all divisions.

Cost of sales during the quarter increased 15% to $222 million from $193 million in the prior-year quarter. Gross profit improved 27% year over year to $53 million. Consequently, gross margin expanded 150 basis points to 19.3%.

Selling, general and administrative expenses decreased 14% year over year to $26 million. Operating profit was $7.1 million in the third quarter compared with $1.4 million in the prior-year quarter. Quanex Building reported an adjusted operating profit of $17 million versus $1.7 million in the prior-year quarter.

Both net sales and operating income results were in line with the second-half 2013 guidance provided by Quanex Building at the end of the fiscal second quarter.

Segment Performance

EPG: Net sales at the segment hiked 22% year over year (10% excluding Aluminite's sales) to $167 million. Operating income for the segment increased 28.5% to $18 million from $14 million in the year-ago quarter.

Aluminum Sheet Products: The segment reported sales of $111 million, up 9% year over year. However, the segment's operating profit was $4 million in the quarter against an operating loss of $1 million the year-ago quarter. The profits were driven by an increase in shipped pounds.

Financial Update

Cash and cash equivalents were $50 million as of Oct 31, 2013 compared with $71 million as of Oct 31, 2012. Long-term debt declined to $0.7 million as of Oct 31, 2013, compared with $1 million as of Oct 31, 2012. Cash from operations in fiscal 2013 was $43.5 million up 64% from $26.5 million in the prior fiscal.  

Fiscal 2013 Performance

Quanex Building posted earnings of 20 cents per share for fiscal 2013, reversing the year ago loss of 4 cents. Earnings were ahead of the Zacks Consensus Estimate of loss of 8 cents. Revenues improved 15% to $952.6 million in fiscal 2013 from $828.9 million in fiscal 2012. It also surpassed the Zacks Consensus Estimate of $943 million.

Outlook

Quanex Building forecasts window shipments in U.S to increase by 12% in 2014, with new construction rising 22% and R&R (replacement and remodeling) expanding 6%. For the full-year 2014 the company expects revenues in the EPG segment to grow 5%-6% over 2013 results. However, earnings before interest, taxes, depreciation and amortization (EBITDA) margins will be similar to 2013 levels for the segment. Pricing pressure, particularly on vinyl profiles, is expected to remain throughout 2014.

However, due to uncertainty surrounding the new warehouse rules and their potential impact on net spreads, the company did not provide any specific EBITDA guidance for the Nichols group (Aluminum Sheet Products Group). Quanex Building expects 2014 revenue growth in the mid to high single-digit range and operational improvements to contribute modestly to the Nichols group's profitability in a steady spread environment.

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

Quanex currently holds a Zacks Rank #5 (Strong Sell). Better ranked companies in the building and construction industry are CaesarStone Sdot-Yam Ltd. ( CSTE ), James Hardie Industries plc ( JHX ) and Simpson Manufacturing Co., Inc. ( SSD ). While CaesarStone and James Hardie carry a Zacks Rank #1 (Strong Buy), Simpson Manufacturing holds a Zacks Rank #2 (Buy).



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