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Quanex Building (NX) Q4 Earnings Top Estimates, Margins Rise

Zacks Equity Research

Quanex Building Products Corporation NX reported better-than-expected earnings in fourth-quarter fiscal 2019 (ended Oct 31, 2019). Its earnings not only surpassed the Zacks Consensus Estimate but also grew significantly on a year-over-year basis, benefiting from improved pricing.

During the reported quarter, adjusted earnings came in at 42 cents per share, surpassing the consensus estimate of 40 cents by 5%. Also, the bottom line improved an impressive 90.9% from the year-ago figure of 22 cents on the back of benefits from the implementation of pricing initiatives and gains from operational efficiency.

Quanex Building reported net sales of $240.4 million, marginally missing the consensus mark of $241.4 million by 0.4% and declining 1.5% from the year-ago period. The decline was mainly due to continued softness in the North American Cabinet Components segment.

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

Operational Update

Gross margin during the quarter was 23.8%, which improved 70 basis points (bps) from the prior-year period. Adjusted EBITDA totaled $34.4 million in the quarter, up from $25 million recorded in the prior-year period. Adjusted EBITDA margin came in at 14.3%, reflecting a 410-bps improvement from the year-ago figure of 10.2%.

Segmental Information

NA Engineered Components: During the reported quarter, net sales in the segment increased 6% from the prior-year period to $143.2 million. Also, adjusted EBITDA margin was up 250 bps from a year ago to 15.8%.

EU Engineered Components: The segment’s sales fell 1.6% year over year to $43.8 million. However, adjusted EBITDA margin improved 340 bps year over year to 18.9%.

NA Cabinet Components: Net sales in the segment were $54.3 million, down 17.9% from $133.4 million reported a year ago. In addition, adjusted EBITDA margin of 5.6% contracted 270 bps in the quarter.

Sales in Unallocated Corp & Other were nearly $0.5 million.

Financial Update

As of Oct 31, 2019, Quanex Building had cash and cash equivalents of $30.9 million compared with $29 million at fiscal 2018-end. Long-term debt was $156.4 million at the end of fiscal fourth quarter compared with $209.3 million at fiscal 2018-end.

Cash provided by operations was $96.4 million in fiscal 2019 compared with $104.6 million recorded in the comparable prior-year period. Free cash flow was $71.5 million during fiscal 2019, down from $78.1 million a year ago.

In the fiscal fourth quarter, the company repurchased 175,000 shares of common stock for nearly $3.2 million, at an average price of $18.37 per share. As of Oct 31, 2019, nearly $18.4 million shares were remaining under the existing repurchase authorization.

Fiscal 2019 Highlights

Quanex Building’s adjusted earnings of 95 cents per share increased 46.2% year over year and surpassed analysts’ expectation by 3.3%. Also, revenues of $893.8 million in fiscal 2019 were up 0.4% year over year.

Adjusted EBITDA margin also improved 140 bps from a year ago.

Fiscal 2020 Guidance
 
Based on current market trends and recent housing data, Quanex Building provided its fiscal 2020 guidance for earnings. The company expects low single-digit sales growth in the North American and European Fenestration segments. Total net sales are anticipated between $865 million and $885 million, indicating a decline from $893.8 million reported in fiscal 2019.

The company projects adjusted EBITDA within $102-$110 million. The metric was $102.7 million a year ago.

Zacks Rank & Key Picks
 
Quanex Building currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Foundation Building Materials, Inc. FBM, Installed Building Products, Inc. IBP and Gibraltar Industries, Inc. ROCK, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Foundation Building’s long-term earnings growth rate is projected at 54.1%.

Installed Building and Gibraltar’s earnings for the current year are expected to grow 19.2% and 21% year over year, respectively.

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