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Quanex Building Beats Q3 Earnings Estimates, Shares Up

Shares of Quanex Building Products CorporationNX gained around 13.6% after reporting upbeat third-quarter fiscal 2015 (ended Jul 31, 2015) results yesterday. Adjusted earnings improved 21.7% year over year to 28 cents per share. The bottom line outpaced the Zacks Consensus Estimate of 18 cents, a solid earnings surprise of 55.6%.

Including one-time items, earnings in the quarter stood at 19 cents per share compared with 23 cents in the year-ago quarter.

Quanex Building Products Corporation - Earnings Surprise | FindTheBest

Operational Update

Quanex Building reported revenues of $180.2 million, which increased 6% year over year. Revenues, however, lagged the Zacks Consensus Estimate of $187 million. Recent acquisitions contributed to the sales growth, partly offset by adverse impact of foreign currency translation.

Cost of sales during the quarter went up 4.7% to $136.9 million from $130.7 million in the prior-year quarter. Consequently, gross profit grew 10% year over year to $43 million with gross margin expanding 100 basis points to 24%.

Selling, general and administrative expenses increased 38% year over year to $25 million. Quanex Building reported adjusted operating profit of $14.5 million which rose 13% from $12.8 million in the year-ago quarter.

Financial Update

At the end of third-quarter fiscal 2015, Quanex Building had cash and cash equivalents of $27 million versus $120 million as of Oct 31, 2014. The company generated $27.5 million in cash from operating activities for the nine-month period ended Jul 31, 2015 compared with $9.7 million in the prior-year period. Long-term debt was $82.6 million as of Jul 31, 2015, compared with $0.59 million as of Oct 31, 2014. The abnormal increase in debt is due to the funding of recent acquisitions.

On Jun 16, Quanex Building acquired UK's fastest growing vinyl profile extruder, HL Plastics for $149 million (5% of which was deferred and will be paid through a three year earn out mechanism). The transaction was financed with cash on hand and borrowing under the company's $150 million revolving credit facility.

The acquisition is expected to drive both top and bottom-line growth as it will expand the company's presence in the favorable UK market while giving it access to new and complementary product lines. The acquisition will add $100 million to Quanex Building's revenues and will be accretive to earnings starting in 2016.

On Aug 31, the company agreed to acquire Woodcraft Industries, the largest North American supplier of cabinet doors to OEMs, for $248.5 million. The transaction is expected to close in the fourth quarter of 2015. The buyout along with the existing revolver will be refinanced by a new ABL revolving credit facility and new Term Loan B.

Outlook

For 2016, Quanex Building expects revenues of around $1 billion and EBITDA to be in the range of $110 million to $120 million, excluding any impact from transaction costs and purchase accounting adjustments associated with the Woodcraft acquisition.

Quanex Building remains optimistic about improvement in the vinyl business with key operating metrics of on-time delivery, quality, scrap rates and labor efficiency all moving in the right track. However, strengthening of the U.S. dollar and ongoing political unrest in Russia and the Ukraine remain headwinds for the company in the near term.

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

Quanex Building currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include Gibraltar Industries, Inc. ROCK , Headwaters Incorporated HW and Aspen Aerogels, Inc. ASPN . While Gibraltar Industries and Headwaters Incorporated carry a Zacks Rank #1 (Strong Buy), Aspen Aerogels holds a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


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

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