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Quanex Building Products Announces Fourth Quarter and Fiscal Year 2016 Results

Margin Expansion Drives Improved Fiscal 2016 Results

Company Achieves Leverage Profile Target with ~$52 Million in Debt Repayments

HOUSTON, Dec. 15, 2016 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the quarter and fiscal year ended October 31, 2016.

Fourth Quarter 2016 Highlights

  • Net sales increased 27% to $249.2 million compared to $195.5 million in Q4 2015
  • Income from continuing operations of $5.4 million, primarily impacted by $12.6 million non-cash goodwill impairment related to U.S. vinyl profiles business, compared to income from continuing operations of $9.9 million in Q4 2015
  • Adjusted EBITDA increased 14% to $34.6 million versus $30.4 million in Q4 2015
  • Bank debt reduced by approximately $32 million in the quarter

Fiscal Year 2016 Highlights

  • Net sales increased 44% to $928.2 million compared to $645.5 million in 2015
  • Loss from continuing operations of $1.9 million, largely impacted by $16.7 million interest expense related to the debt refinancing and $12.6 million non-cash goodwill impairment related to U.S. vinyl profiles business, compared to income from continuing operations of $15.6 million in 2015
  • Adjusted EBITDA increased 58% to $110.3 million versus $69.7 million in 2015
  • Cash provided by operating activities increased 29% to $86.4 million compared to $67.1 million during 2015
  • Bank debt reduced by approximately $52 million since closing acquisition of Woodcraft Industries on November 2, 2015
  • Debt refinanced, significantly reducing future annual interest expense

Bill Griffiths, Chairman, President and Chief Executive Officer, commented, “Our stated goals for fiscal 2016 were to expand margins, improve the leverage profile and refinance our debt. The dedication of our hard working employees allowed us to accomplish all of these goals, and we look forward to another successful year in 2017.”

Fourth Quarter 2016 Results Summary
(Unaudited – See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Three Months Ended October 31, 2016 Three Months Ended October 31, 2015
Results
Before

Adjustments
Adjustments Adjusted
Results
Results
Before

Adjustments
Adjustments Adjusted
Results
Net sales $249,171 $- $249,171 $195,459 $- $195,459
Cost of sales (1) 188,168 (32) 188,136 145,628 (1,229) 144,399
Selling, general and administrative (2) 26,480 (1) 26,479 22,379 (1,698) 20,681
Restructuring charges (3) 529 (529) - - - -
Asset impairment charges (4) 12,602 (12,602) - - - -
EBITDA 21,392 13,164 34,556 27,452 2,927 30,379
Depreciation and amortization(5) 13,387 (1,295) 12,092 10,679 - 10,679
Operating income 8,005 14,459 22,464 16,773 2,927 19,700
Interest expense (2,174) - (2,174) (367) - (367)
Other, net (6) (1,443) 1,501 58 (831) 962 131
Income before income taxes 4,388 15,960 20,348 15,575 3,889 19,464
Income tax benefit (expense) (7) 1,043 (5,764) (4,721) (5,632) (468) (6,100)
Income from continuing operations $5,431 $10,196 $15,627 $9,943 $3,421 $13,364
Diluted earnings per share from continuing operations $0.16 $0.45 $0.29 $0.39
(1) Cost of sales adjustment relates solely to purchase price accounting inventory step-up impact from HL Plastics acquisition.
(2) Selling, general and administrative adjustments are for acquisition related transaction costs.
(3) Restructuring charges relate to the closure of several manufacturing plant facilities.
(4) Asset impairment charges relate to goodwill impairment.
(5) Depreciation and amortization adjustments relate to accelerated amortization for restructured PP&E and intangible assets.
(6) Other, net adjustments relate to foreign currency transaction gains (losses).
(7) Effective tax rate reflects impacts of adjustments on a with and without basis.

Fiscal Year 2016 Results Summary
(Unaudited – See Non-GAAP Terminology Definitions and Disclaimers section for additional information

Twelve Months Ended October 31, 2016 Twelve Months Ended October 31, 2015
Results
Before

Adjustments
Adjustments Adjusted
Results
Results
Before

Adjustments
Adjustments Adjusted
Results
Net sales $928,184 $- $928,184 $645,528 $- $645,528
Cost of sales (1) 710,644 (2,671) 707,973 499,097 (4,159) 494,938
Selling, general and administrative (2) 114,910 (4,988) 109,922 86,536 (5,628) 80,908
Restructuring charges(3) 529 (529) - - - -
Asset impairment charges(4) 12,602 (12,602) - - - -
EBITDA 89,499 20,790 110,289 59,895 9,787 69,682
Depreciation and amortization(5) 53,146 (1,295) 51,851 35,220 - 35,220
Operating income 36,353 22,085 58,438 24,675 9,787 34,462
Interest (expense) benefit (9) (36,498) 16,677 (19,821) (991) - (991)
Other, net (6) (5,479) 5,380 (99) (531) 779 248
(Loss) income before income taxes (5,624) 44,142 38,518 23,153 10,566 33,719
Income tax benefit (expense) (7) 3,765 (14,591) (10,826) (7,539) (2,511) (10,050)
(Loss) income from continuing operations $(1,859) $29,551 $27,692 $15,614 $8,055 $23,669
Diluted (loss) earnings per share from continuing operations (8) $(0.05) $0.80 $0.46 $0.69
(1) Cost of sales adjustments relate solely to purchase price accounting inventory step-up impact from HL Plastics and Woodcraft Industries acquisitions.
(2) Selling, general and administrative adjustments are for acquisition related transaction costs.
(3) Restructuring charges relate to the closure of several manufacturing plant facilities.
(4) Asset impairment charges relate to goodwill impairment.
(5) Depreciation and amortization adjustments relate to accelerated amortization for restructured PP&E and intangible assets.
(6) Other, net adjustments relate to foreign currency transaction gains (losses).
(7) Effective tax rate reflects impacts of adjustments on a with and without basis.
(8) Adjusted EPS is calculated using diluted shares outstanding of 34.5 million shares.
(9) Interest expense adjustments relate to write off of deferred loan costs, unamortized original issuance discount, and prepayment call premium related to debt refinance.

Quanex reported net sales of $249.2 million and $928.2 million for the three months and twelve months ended October 31, 2016, an increase of 27% and 44%, respectively, compared to $195.5 million and $645.5 million for the three months and twelve months ended October 31, 2015. The increases were primarily driven by revenue generated from the acquisitions of HL Plastics and Woodcraft Industries in 2015, partially offset by foreign exchange translation impact. (See Sales Analysis table for additional information)

Adjusted EBITDA increased to $34.6 million and $110.3 million during the fourth quarter and full fiscal year 2016, respectively, compared to $30.4 million and $69.7 million during the same periods of fiscal 2015. Due to the successful implementation of ongoing operational initiatives, the Company’s consolidated Adjusted EBITDA margin improved by approximately 110 basis points during fiscal 2016. For its “legacy” U.S. windows components business, the Company realized an Adjusted EBITDA margin improvement of approximately 45 basis points during the three months ended October 31, 2016, and approximately 225 basis points during the twelve months ended October 31, 2016. (See Non-GAAP Terminology Definitions and Disclaimers section and Selected Segment Data table for additional information)

As of October 31, 2016, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 2.2x. (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Business Update

The Company has been open about its willingness to walk away from less profitable business in an effort to protect margins and free up capacity to reduce further investment. Quanex continues to evaluate profitability by customer and product line, specifically in its U.S. vinyl profiles and cabinet components businesses. As a result, the Company has initiated the process of reducing volumes manufactured for a large U.S. vinyl profiles customer and expects the process to be carried out in a phased manner throughout 2017 and into 2018. Similarly, Quanex has decided to discontinue manufacturing certain low-margin cabinet component products and continues to explore additional opportunities to improve margins in this business. In total, the Company shed approximately $15 million of business in fiscal 2016 as part of this initiative while expanding margins. It is probable that Quanex will shed a further $50 million to $70 million of business in fiscal 2017, which should have a positive impact on margin percentages.

To prepare for these reductions, the Company has taken appropriate actions to rationalize capacity by closing two of its U.S. vinyl profile operations and one of its cabinet component operations, relocating assets to improve overall operational efficiency.

Fiscal 2017 Outlook

Bill Griffiths, Chairman, President and Chief Executive Officer, stated, “Based on end market dynamics that continue to be positive, we remain steadfast in our belief that the housing recovery will follow a slow, steady path of mid to high single digit growth for the next three to five years. We do not subscribe to the rhetoric that suggests we are in the late innings of the housing recovery. In addition, we continue to believe that new housing starts need to return to at least 1.5 million per year and that there is pent up demand in the R&R market.”

Quanex is projecting underlying sales growth of 5% to 6% for fiscal 2017 offset by the customer actions discussed above and a potential negative foreign currency translation impact, which could be approximately $20 million based on current exchange rates. The Company remains focused on driving continued margin enhancement and working capital management in an effort to further improve its free cash flow profile.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, December 16, 2016, at 11:00 a.m. ET (10:00 a.m. CT). To participate in the conference call dial (877) 388-2139 for domestic callers and (541) 797-2983 for international callers, in both cases using the conference passcode 29475717, and ask for the Quanex call a few minutes prior to the start time. A link to the live audio webcast will also be available on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events. A telephonic replay of the call will be available approximately two hours after the live broadcast ends and will be accessible through December 23, 2016. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 29475717.

About Quanex

Quanex Building Products Corporation is an industry-leading manufacturer of components sold to Original Equipment Manufacturers (OEMs) in the building products industry. Quanex designs and produces energy-efficient fenestration products in addition to kitchen and bath cabinet components.

For more information contact Scott Zuehlke, Vice President of Investor Relations & Treasurer, at (713) 877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net) and Adjusted EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net, excluding transaction costs and purchase price accounting inventory step-ups) are non-GAAP financial measures that Quanex's management uses to measure its operational performance and assist with financial decision-making. The Company believes these non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding our financial performance when comparing our results to other investment opportunities. The leverage ratio of Net Debt to LTM Adjusted EBITDA is a financial measure that Quanex’s management believes is useful to investors and financial analysts in evaluating the Company’s leverage. In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in Quanex’s credit agreements. Net Debt is calculated using the sum of current maturities of long-term debt and long-term debt, minus cash and cash equivalents. Adjusted Income (Loss) from Continuing Operations and Adjusted Diluted Earnings (Loss) from Continuing Operations are non-GAAP financial measures that exclude certain charges and credits because the Company believes that such items are not indicative of its core operating results, are not indicative of trends, and do not provide meaningful comparisons with other reporting periods. Quanex believes the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding our financial performance when comparing our results to other investment opportunities. The presented non-GAAP measures may not be the same as those used by other companies. The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with US 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, future operating results of Quanex, the future financial condition of Quanex, future uses of cash and other expenditures, expenses and tax rates, expectations relating to the Company’s industry, and Quanex’s future growth, including any guidance discussed in this press release. Guidance is a forward-looking estimate of performance and may not be indicative of actual results. The statements and guidance set forth in this release are based on current expectations. Actual results or events may differ materially from this release. Factors that could impact future results may include, without limitation, the effect of both domestic and global economic conditions, the impact of competitive products and pricing, the availability and cost of raw materials, and customer demand. For a more complete discussion of factors that may affect the Company’s future performance, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” and in Quanex’s other documents filed with the Securities and Exchange Commission from time to time. Any forward-looking statements in this press release are made as of the date hereof, and Quanex Building Products Corporation undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
Three Months Ended October 31, Twelve Months Ended October 31,
2016 2015 2016 2015
Net sales $249,171 $195,459 $928,184 $645,528
Cost of sales 188,168 145,628 710,644 499,097
Selling, general and administrative 26,480 22,379 114,910 86,536
Restructuring charges 529 - 529 -
Depreciation and amortization 13,387 10,679 53,146 35,220
Asset impairment charges 12,602 - 12,602 -
Operating income 8,005 16,773 36,353 24,675
Interest expense (2,174) (367) (36,498) (991)
Other, net (1,443) (831) (5,479) (531)
Income (loss) before income taxes 4,388 15,575 (5,624) 23,153
Income tax benefit (expense) 1,043 (5,632) 3,765 (7,539)
Income (loss) from continuing operations 5,431 9,943 (1,859) 15,614
Income from discontinued operations, net of taxes - - - 479
Net income (loss) $5,431 $9,943 $(1,859) $16,093
Income (loss) per common share:
From continuing operations $0.16 $0.30 $(0.05) $0.46
From discontinued operations - - - 0.01
Income (loss) per common share, basic $0.16 $0.30 $(0.05) $0.47
Diluted income (loss) per common share:
From continuing operations $0.16 $0.29 $(0.05) $0.46
From discontinued operations $- $- $- $0.01
Income (loss) per common share, diluted $0.16 $0.29 $(0.05) $0.47
Weighted average common shares outstanding:
Basic 33,953 33,640 33,876 33,993
Diluted 34,536 34,148 33,876 34,502
Cash dividends per share $0.04 $0.04 $0.16 $0.16


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 31, 2016 October 31, 2015 (1)
ASSETS
Current assets:
Cash and cash equivalents $25,526 $23,125
Accounts receivable, net 83,625 64,080
Inventories, net 84,335 63,029
Prepaid and other current assets 10,488 7,992
Total current assets 203,974 158,226
Property, plant and equipment, net 198,497 140,672
Deferred income taxes - 8,783
Goodwill 217,035 129,770
Intangible assets, net 154,180 120,810
Other assets 6,667 7,255
Total assets $780,353 $565,516
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $47,781 $47,778
Accrued liabilities 55,101 37,364
Income taxes payable 732 747
Current maturities of long-term debt 10,520 2,359
Total current liabilities 114,134 88,248
Long-term debt 259,011 53,767
Deferred pension and postretirement benefits 8,167 5,701
Deferred income taxes 18,322 -
Liabilities for uncertain tax positions 579 564
Other liabilities 12,309 21,941
Total liabilities 412,522 170,221
Stockholders’ equity:
Common stock 376 376
Additional paid-in-capital 254,540 250,937
Retained earnings 214,047 222,138
Accumulated other comprehensive loss (38,765) (10,049)
Treasury stock at cost (62,367) (68,107)
Total stockholders’ equity 367,831 395,295
Total liabilities and stockholders' equity $780,353 $565,516
(1) October 31, 2015 balance sheet reflects adoption of ASU 2015-03 and ASU 2015-17.


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Twelve Months Ended October 31,
2016 2015
Operating activities:
Net (loss) income$(1,859) $16,093
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization 53,146 35,220
Loss on disposition of capital assets (20) 495
Stock-based compensation 6,089 4,266
Deferred income tax (8,469) 5,204
Excess tax benefit from share-based compensation (136) (60)
Charge for deferred loan costs and debt discount 16,022 -
Asset impairment charges 12,602 -
Gain on involuntary conversion - (1,263)
Other, net 339 (19)
Changes in assets and liabilities, net of effects from acquisitions:
Decrease in accounts receivable 796 2,668
Decrease in inventory 5,346 9,805
Decrease (increase) in other current assets 2,503 (1,304)
Decrease in accounts payable (2,273) (2,862)
Increase (decrease) in accrued liabilities 1,246 (576)
(Decrease) increase in income taxes payable (365) 369
Increase (decrease) in deferred pension and postretirement benefits 588 (372)
Increase (decrease) in other long-term liabilities 956 (283)
Other, net (93) (294)
Cash provided by operating activities 86,418 67,087
Investing activities:
Acquisitions, net of cash acquired (245,904) (131,689)
Capital expenditures (37,243) (29,982)
Proceeds from property insurance claim - 1,263
Proceeds from disposition of capital assets 1,044 264
Cash used for investing activities (282,103) (160,144)
Financing activities:
Borrowings under credit facilities 634,800 117,000
Repayments of credit facility borrowings (422,875) (67,000)
Debt issuance costs (11,435) (496)
Repayments of other long-term debt (2,185) (1,020)
Common stock dividends paid (5,470) (5,515)
Issuance of common stock 3,400 5,109
Excess tax benefit from share-based compensation 136 60
Purchase of treasury stock - (52,719)
Cash provided by financing activities 196,371 (4,581)
Effect of exchange rate changes on cash and cash equivalents 1,715 379
��
Increase (decrease) in cash and cash equivalents 2,401 (97,259)
Cash and cash equivalents at beginning of period 23,125 120,384
Cash and cash equivalents at end of period$25,526 $23,125


QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)
This table provides operating income (loss), EBITDA, and Adjusted EBITDA by reportable segment. Non-operating expense and income tax expense are not allocated to the reportable segments. For a reconciliation of income from continuing operations to operating income (loss), see Non-GAAP Financial Measure Disclosure table.
NA Engineered
Components
EU Engineered
Components
NA Cabinet
Components
Unallocated
Corp & Other
Total
Three months ended October 31, 2016
Net sales $154,000 $39,953 $56,485 $(1,267) $249,171
Cost of sales 111,491 27,754 49,844 (921) 188,168
Restructuring charges 387 - 142 - 529
Asset impairment charges 12,602 - - - 12,602
Operating income (loss) 4,098 4,234 1,706 (2,033) 8,005
Depreciation and amortization 8,874 2,148 2,239 126 13,387
EBITDA 12,972 6,382 3,945 (1,907) 21,392
Transaction related costs - - - 1 1
PPA-Inventory Step-up - 32 - - 32
Restructuring charges 387 - 142 - 529
Asset impairment charges 12,602 - - - 12,602
Adjusted EBITDA $25,961 $6,414 $4,087 $(1,906) $34,556
Adjusted EBITDA Margin % 17% 16% 7% 14%
Three months ended October 31, 2015
Net sales $154,301 $42,340 $- $(1,182) $195,459
Cost of sales 114,122 32,105 - (599) 145,628
Operating income (loss) 18,126 2,873 - (4,226) 16,773
Depreciation and amortization 7,221 3,037 - 421 10,679
EBITDA 25,347 5,910 - (3,805) 27,452
Transaction related costs - - - 1,698 1,698
PPA-Inventory Step-up - 1,229 - - 1,229
Adjusted EBITDA $25,347 $7,139 $- $(2,107) $30,379
Adjusted EBITDA Margin % 16% 17% 0% 16%
Twelve months ended October 31, 2016
Net sales $560,029 $150,203 $223,391 $(5,439) $928,184
Cost of sales 415,925 104,452 193,560 (3,293) 710,644
Restructuring charges 387 - 142 - 529
Asset impairment charges 12,602 - - - 12,602
Operating income (loss) 37,883 13,225 1,821 (16,576) 36,353
Depreciation and amortization 30,298 9,339 12,948 561 53,146
EBITDA 68,181 22,564 14,769 (16,015) 89,499
Transaction related costs - - - 4,988 4,988
PPA-Inventory Step-up - 384 2,287 - 2,671
Restructuring charges 387 - 142 - 529
Asset impairment charges 12,602 - - - 12,602
Adjusted EBITDA $81,170 $22,948 $17,198 $(11,027) $110,289
Adjusted EBITDA Margin % 14% 15% 8% 12%
Twelve months ended October 31, 2015
Net sales $556,550 $93,644 $- $(4,666) $645,528
Cost of sales 429,097 72,319 - (2,319) 499,097
Operating income (loss) 39,253 3,253 - (17,831) 24,675
Depreciation and amortization 28,911 5,020 - 1,289 35,220
EBITDA 68,164 8,273 - (16,542) 59,895
Transaction related costs - - - 5,628 5,628
PPA-Inventory Step-up - 4,159 - - 4,159
Adjusted EBITDA $68,164 $12,432 $- $(10,914) $69,682
Adjusted EBITDA Margin % 12% 13% 0% 11%


QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
Sales Bridge for Three Months Ended October 31, 2016
NA Engineered EU Engineered NA Cabinet Unallocated
Components Components Components Corporate & Other Consolidated
Net sales, three months ended October 31, 2015 $154,301 $42,340 $- $(1,182) $195,459
Market volume 2,403 527 - (85) 2,845
Eliminated products (1,946) - - - (1,946)
Price changes (426) (342) - - (768)
Foreign currency impacts - (1,029) - - (1,029)
Mergers & acquisitions - (1,543) 56,485 - 54,942
Raw material pass through adjustments (332) - - - (332)
Net Sales, three months ended October 31, 2016 $154,000 $39,953 $56,485 $(1,267) $249,171
Sales Bridge for Twelve Months Ended October 31, 2016
NA Engineered EU Engineered NA Cabinet Unallocated
Components Components Components Corporate & Other Consolidated
Net sales, twelve months ended October 31, 2015 $556,550 $93,644 $- $(4,666) $645,528
Market volume 17,161 3,244 - (773) 19,632
Eliminated products (6,634) - - - (6,634)
Price changes (1,819) (1,710) - - (3,529)
Foreign currency impacts - (2,803) - - (2,803)
Mergers & acquisitions - 57,828 223,391 - 281,219
Raw material pass through adjustments (5,229) - - - (5,229)
Net Sales, twelve months ended October 31, 2016 $560,029 $150,203 $223,391 $(5,439) $928,184

Source:Quanex Building Products Corporation