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Quanex Building Q4 Earnings Beat Estimates, Revenues Lag

Quanex Building Products CorporationNX reported fourth-quarter fiscal 2015 (ended Oct 31, 2015) adjusted earnings per share of 32 cents, which improved significantly from 8 cents earned in the year ago-quarter. Earnings per share also beat the Zacks Consensus Estimate of 26 cents by 23%.

Including one-time items, earnings per share in the quarter stood at 29 cents compared with 8 cents in the year-ago quarter.

Operational Update

Quanex Building reported revenues of $195.5 million, which increased 19% year over year. Revenues, however, lagged the Zacks Consensus Estimate of $199 million.

Cost of sales during the quarter went up 12.9% to $145.6 million from $129 million in the prior-year quarter. Consequently, gross profit grew 43% year over year to $49.8 million with gross margin expanding 430 basis points to 21.2%, driven primarily by labor and operating efficiencies as well as repair and maintenance improvement in the vinyl business.

Selling, general and administrative expenses increased 5.8% year over year to $22.4 million. Quanex Building reported adjusted operating profit of $18.7 million which rose over threefold from $5.7 million in the year-ago quarter.

Financial Update

At the end of fiscal 2015, Quanex Building had cash and cash equivalents of $23 million compared with $120 million a year ago. The company generated $67 million in cash from operating activities in fiscal 2015 compared with $20.1 million in the prior year. Long-term debt was $55 million as of Oct 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.

However, the company reduced the amount borrowed to fund the HL Plastics acquisition by $42 million within 4.5 months since the acquisition. Nevertheless, leverage changed immediately due to the completion of the acquisition of Woodcraft Industries in November. Quanex Building borrowed an incremental $270.5 million to fund the Woodcraft acquisition.

Fiscal 2015 Performance

Quanex Building reported adjusted earnings per share of 58 cents in fiscal 2015, up 176% from 21 cents per share recorded in the prior fiscal year. Earnings outpaced the Zacks Consensus Estimate of 50 cents per share. Including one-time items, the bottom line came in at 46 cents, up 60% from 22 cents recorded in fiscal 2014.

Revenues increased 8.4% year over year to $645.5 million from $595 million in fiscal 2014 but missed the Zacks Consensus Estimate of $649 million.

Outlook

Quanex Building expects to deliver close to $1 billion in revenues in 2016. Recovery in the housing industry will remain the key factor in driving the company's growth. Quanex Building expects window shipments in calendar 2015 to increase 5.9% based on 10.2% growth in housing starts and 3.1% growth in R&R (Repair and Remodel).

For fiscal 2016, Quanex Building currently anticipates U.S. window shipment growth of 7.5%. R&R activity is also expected to increase to 4.2%. The company is optimistic and expects 5% to 6% growth in the North American Fenestration Components business.

In the cabinet sector, growth rates are slightly higher and predicted to be in the range of 7% to 8%. However, growth rates are the highest in the stock cabinet sector, which is largely driven by new construction, particularly multifamily. Market conditions in Europe will remain health, particularly in the UK.

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 #1 (Strong Buy). Some other favorably ranked stocks in the same sector include Gibraltar Industries, Inc. ROCK , Masco Corporation MAS and Owens Corning OC . While Gibraltar Industries sports a Zacks Rank #1, Masco Corporation and Owens Corning carry 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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