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Quanex Building (NX) Q3 Earnings Top Estimates, Revenues Lag

Zacks Equity Research

Quanex Building Products Corporation NX reported third-quarter fiscal 2019 (ended Jul 31, 2019) results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

The company reported adjusted earnings per share of 41 cents, surpassing the consensus estimate of 36 cents by 13.9%. Also, the bottom line improved 24.2% from the year-ago figure of 33 cents on the back of benefits from the implementation of pricing initiatives and gains from operational efficiency.

Quanex Building Products Corporation Price, Consensus and EPS Surprise

Quanex Building Products Corporation Price, Consensus and EPS Surprise

Quanex Building Products Corporation price-consensus-eps-surprise-chart | Quanex Building Products Corporation Quote

During the reported quarter, Quanex Building reported net sales of $238.5 million, missing the consensus mark of $245.95 million by 3.1% and declining 0.6% from the year-ago figure of $239.82 million. The decline was mainly due to weak demand, primarily in the North American Cabinet Components segment, and inclement weather in the United States.

Operational Update

Cost of sales, as a percentage of net sales, improved 140 basis points (bps) year over year to 76.1%. Gross margin during the quarter was 23.9%, which increased 140 bps from the prior-year period.

Selling, general and administrative expenses, as a percentage of net sales, increased 80 bps from the year-ago period to 10.8%. Adjusted EBITDA totaled $32.8 million in the quarter, up from $30.5 million recorded in the prior-year period. Adjusted EBITDA margin came in at 13.7%, reflecting a 100-bps improvement from the year-ago figure of 12.7%.

Segment Information

NA Fenestration: Net sales in the segment were $136.3 million, up 2.1% from $133.4 million reported a year ago. In addition, adjusted EBITDA margin of 16.6% grew 180 bps in the quarter.

EU Fenestration: The segment’s sales grew 3.9% year over year to $44.3 million. Adjusted EBITDA margin also improved 180 bps year over year to 17.1%.

NA Cabinet Components: During the reported quarter, net sales in the segment decreased 9.9% from the prior-year period to $58.7 million. Also, adjusted EBITDA contracted 260 bps to 8.2% from 10.8% a year ago.

Inter-segment sales were $0.8 million during the quarter.

Financial Update

As of Jul 31, 2019, Quanex Building had cash and cash equivalents of $10.7 million compared with $29 million at the end of fiscal 2018. Long-term debt was $191.1 million as of Jul 31, 2019 compared with $209.3 million at fiscal 2018-end.

Cash provided by operations was $29.9 million in third-quarter fiscal 2019 compared with $26.8 million recorded in the comparable prior-year period. Free cash flow was $25.9 million during the quarter, up from $21 million a year ago.

In the fiscal third quarter, the company repurchased 93,352 shares of common stock for nearly $1.6 million, at an average price of $17.50 per share.

Fiscal 2019 Guidance
 
Quanex Building now expects net sales to be flat year over year versus the prior expectation of 2-3% growth. The company has narrowed its adjusted EBITDA guidance to $100-$105 million from $97-$107 million, maintaining the mid-point of the guided range.

Zacks Rank & Key Picks
 
Quanex currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are frontdoor, Inc. FTDR, Aegion Corporation AEGN and Gibraltar Industries, Inc. ROCK. While frontdoor sports a Zacks Rank #1 (Strong Buy), Aegion and Gibraltar carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Frontdoor and Aegion’s long-term earnings growth rate is projected at 15.5% and 10%, respectively.

Gibraltar’s earnings for the current year are expected to grow 15.9% year over year.

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