Quanex 3Q Earnings Report Stays Flat

Quanex Building Products reported relatively positive results in the U.S. and European fenestration sectors in its 2019 third quarter earnings report, but saw a significant offset due to a drop in the company’s cabinet components segment.

The net sales for this quarter of the year were $238.5 million compared to $239.8 million in the same segment of 2018. During the report conference call, the vice president of investor relations, treasurer and interim CFO Scott Zuehlke explained why company leadership believes Quanex saw this dip in sales.

“The decrease was primarily attributable to a weaker demand environment, mainly in our North American cabinet components segment and inclement weather in the U.S.,” Zuehlke said.

However, officials reported net sales growth above that of their respective markets in the European and North American fenestration segments, which Zuehlke attributed to price increases related to raw material inflation recovery.

The company saw a positive net income on an adjusted basis at $11.8 million compared to $10.8 million in the third quarter last year, while earnings before interest, tax, depreciation and amortization (EBITDA) increased to $32.8 million from $30.5 million.

“Despite softer-than-expected volumes, we benefited from better pricing year-over-year,” chairman, president and CEO Bill Griffiths said. “Sales in our North American fenestration segment grew at 2.2% during the quarter.”

Quanex’s North American fenestration segment saw net sales of $136.3 million in the three months ending on July 31, 2019. That’s up from $133.4 million during the same period last year. Its EU fenestration market had net sales of $44.3 million in the third quarter, up from $42.7 million in the third quarter of 2018.When looking at the nine months ending on July 31, 2019, net sales for Quanex’s North American fenestration segment were $360.6 million compared to $350.2 million during the same period last year.

Griffiths said the company expects to see above-market growth in the North American fenestration segment for the fourth quarter due to the company’s increased customer outsourcing of screens and increased volumes in vinyl extrusion operation as its new incremental business enters full production.

The company announced plans to expand its screens business in North America and evaluate potential investments in new technology for its U.S. vinyl extrusion business. However, there is concern that the above-market growth in fenestration will once again be offset by a continued decline in the cabinet components segment.

“As a result we now expect consolidated full year revenues to be flat year-over-year,” Griffiths said.

The company was also able to pay off $32.5 million in bank debt and repurchase about $1 million in common stock this quarter with the free cash flow increase. Officials expressed a desire to continue paying down debt in order to enter the year with a strong balance sheet.