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)

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

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.