Quanex Building Products Announces Second Quarter 2023 Results and Reaffirms Full Year 2023 Guidance
Quanex Building Products Corporation (“Quanex” or the “Company”) announced its results for the three months ended April 30, 2023.
George Wilson, President and Chief Executive Officer, commented, “We are pleased with the results we reported for the second quarter of 2023, and we are now more confident in our belief that we are seeing a return to normal seasonality in our business. Demand improved across all product lines during the second quarter of this year compared to the first quarter of this year, and we executed well from an operational standpoint. The customer inventory rebalancing initiatives that impacted results in our fenestration segments in the first quarter also impacted results in the second quarter, albeit to a lesser degree. However, based on ongoing conversations with our customers, coupled with recent order trends, we do not anticipate a meaningful impact from customer inventory rebalancing initiatives for the remainder of the year. The LMI Custom Mixing business we acquired on November 1, 2022 continues to perform well and we have already achieved our synergy target.
“When compared to the second quarter of 2022, which was a record quarter, revenue declined in the second quarter of 2023 across all operating segments as ongoing macroeconomic challenges spurred continued market volume declines and some pricing pressure, mostly due to surcharge rollbacks and index pricing mechanism triggers in North America as raw material costs decline. Despite the pressure on revenue, we converted well operationally and realized margin expansion in our North American Cabinet Components and European Fenestration segments. We controlled the things we can control, and we will continue to focus on operational efficiency and flexing our cost structure accordingly.
“Our continued focus on managing working capital is serving us well and we were able to generate enough free cash to buyback $5.6 million of our stock and pay down our bank debt by $20 million during the second quarter. Our balance sheet remains strong, and our leverage ratio improved versus the first quarter of this year.”
Second Quarter 2023 Results Summary
The Company reported net sales of $273.5 million during the three months ended April 30, 2023, which represents a decrease of 15.3% compared to $322.9 million for the same period of 2022. The decrease was mostly attributable to softer demand, caused in part by customer inventory rebalancing initiatives, lower pricing in North America, and foreign exchange translation impact. Quanex realized a decline in net sales of 11.8% for the second quarter of 2023 in its North American Fenestration segment. Excluding LMI, net sales in the North American Fenestration segment would have declined by approximately 21.8% year-over-year. The Company reported a decline in net sales of 26.6% in its North American Cabinet Components segment and a decline of 7.1% in net sales in its European Fenestration segment, excluding foreign exchange impact. (See Sales Analysis table for additional information)
The decrease in earnings for the three months ended April 30, 2023 was mostly attributable to lower volumes, decreased pricing mainly due to surcharge rollbacks and raw material index pricing mechanisms in North America, foreign exchange translation, and higher interest expense.
Balance Sheet Update
As of April 30, 2023, Quanex had total debt of $135.6 million ($82.5 million excluding real-estate leases that are considered “finance” leases under U.S. GAAP) and the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA decreased to 0.6x (0.3x excluding these real-estate leases). As of April 30, 2023, Quanex’s LTM Adjusted EBITDA was $143.3 million and LTM Net Income, the most directly comparable GAAP measure, was $74.0 million. (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)
Mr. Wilson stated, “We continue to be cautiously optimistic for the second half of our fiscal year, especially as we gain confidence from recent results and our belief that we are seeing a return to normal seasonality. In addition, the long-term underlying fundamentals for the residential housing market remain positive. Based on conversations with our customers and recent demand trends, we are reaffirming prior guidance for fiscal 2023. On a consolidated basis, we continue to estimate that we will generate net sales of $1.12 billion to $1.16 billion, which we expect will yield approximately $130 million to $142 million in Adjusted EBITDA* in fiscal 2023.
Our capital allocation priorities continue to be generating cash, paying down debt, evaluating growth opportunities and opportunistically buying back our stock.”
*When Quanex provides expectations for Adjusted EBITDA on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and corresponding GAAP measures is generally not available without unreasonable effort. Certain items required for such a reconciliation are outside of the Company’s control and/or cannot be reasonably predicted or estimated, such as the provision for income taxes.
For the full second quarter results, click here.
Quanex is a global manufacturer with core capabilities and broad applications across various end markets. The Company currently collaborates and partners with leading OEMs to provide innovative solutions in the window, door, vinyl fencing, solar, refrigeration and cabinetry markets. Looking ahead, Quanex plans to leverage its material science expertise and process engineering to expand into adjacent markets.
Scott Zuehlke – Senior Vice President, Chief Financial Officer & Treasurer – firstname.lastname@example.org – (713) 877-5327
Source: Quanex Building Products Corporation