Quanex Building Products (NX) 15 Dec 232023 Q4 Earnings call transcript

Good day, and thank you for standing by. And welcome to the Q4 fiscal 2023 Quanex Building Products Corporation Earning Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Zuehlke, SVP, CFO and Treasurer. ahead. go Please

the joining morning. Thanks call for this

the President and with statements some measures. today will me our Wilson, and non-GAAP of George is discussion CEO. forward-looking On contain call This call conference

or discussed statements based any obligation differ to undertakes are expectations. events. materially on Forward-looking such current new statement guidance this and to and earnings on events in or results revise no statements update forward-looking call reflect Actual from or release our may information Quanex and guidance,

detailed directly more forward-looking our disclaimer measures, a and our For description measures statement yesterday see and of non-GAAP posted of to please website. to earnings issued a comparable reconciliation release the our most GAAP

to the now over for call I'll George prepared remarks. his turn

what in be year cash year announce of industries pleased Thanks, adjusted team Scott, flow. and that macro good a we record morning very performance both to resulted in headwinds out And serve, of another turned for and operating everyone to earnings a the for with call. in XXXX environment strong on am the our fiscal Quanex I to the the

Our control. to of our team we what has stayed controlling true can mantra

and with caring hard past year are this their work while we remain long-term a endeavors entire strategy well take the this and communities make their growth have to team addition, Quanex purpose a our company committed create to to positioned would performance thank located. in with the value where to difference like to In spectacular and continue for for we I our shareholders. continuing moment the to charitable

war that consumer line. created year to a was top of months. Europe, in costs winter headwinds devastating added the confidence and risks in Ukraine our for impact unknown to continued for XXXX challenges macro negatively The mentioned, I energy As full

war and now has we Gaza, the freight addition, markets, costs channels. global have energy the to potential which disrupt again in In

existed seasonality more saw return In to pre-COVID. XXXX that the United pattern the normal a States,

softened as slowed backlogs interest and a pricing as that repair and market elevated a housing a the saw and more drivers rates that higher COVID result also returned. We throughout market year of market replacement normal dissipated and

was key many our such pricing in materials, index Finally, steel, as exist our oil. for of North wood resin, impacted raw line material raw America mechanisms and by the top that aluminum,

prices customer team dropped sourcing dropped raw remained the Notwithstanding As for materials decisions such during what rapidly control, pricing, improvement year, these delivery controlling and it on challenges, service revenue performance, initiatives. non-raw the and could material our focused as revenue these accordingly. continuous

quo cost generation. combined, another was challenge When our areas cost fixed operating status perspective, to programs with contributed to employees cash adjusted focus our these structure, continuously develop earnings we of the record and programs expenses. worked From reduce medical a and preventative for what year on

acquisition to highlight I successful assets. our that Another the want an accomplishment year integration LMI from and of the is Mixing Custom

we first reminder, the a as November our assets LMI in XXXX bought growth strategy. move As under refreshed of the

that risk. a was acquisition, relatively was integration represented operation this and low a familiar While it execution small

that it say Looking all would. that had it to later, we achieved is hoped now, at months the think XX it of I it fair objectives

First, it material science fits squarely and expertise. process within engineering our

margin And a EPS and Second, everything products acquisition the adjusted and our LMI to an profile. that acquisition our has with that and accretive short, portfolio out finally, it do. immediately serve end category new accomplished In both product attractive set growing expanded different was we markets. improved to into consolidated the

resounding as and Custom would integration efforts the Mixing Ohio like the North in in Fenestration well team entire acquisition making I Quanex to success. Nixon American thank their And team a as Cambridge, Jim for this

to cash and management materials our pricing repay enabled improvement reduced contributed of significantly in $XX of our ability free us million cash in for year-over-year QX to alone. to And on As working flow, capital capitalize debt it flow.

It is and of on XXXX, $XX acquire to November important debt LMI million assets million note we X, $XX XXXX repaid year. the borrowed throughout that to the fiscal

Looking seasonal that and XXXX. have demand forecast the before based normal XXXX, expect customers, a the continue conversations we pressured volumes we on will cadence year. to half expect the from a From seeing to was fiscal ahead and in perspective we our be of received first

in announced markets and We periods. have both cabinet already seen holiday shutdown customers fenestration longer-than-normal the

half our consumer the prospect However, starts as products to see confidence demand improve interest in uptick will second for of rates on begin the believe we to horizon. of an the with XXXX decreasing

we still the residential North sector both in America in underbuilt housing and are Europe. activity spur very should as This

it will at growth steadfast forward organic in profitable parameters with following purpose the our remain inorganic Looking in our strategy. set a a growth or investment way, includes both growth in This we different and of projects. growth initiatives,

perspective, to development From spacer compound technologies. development, and an in organic our growth we continue invest UPVC

into flashing sealants. tapes, panel solar Continued come systems and spacer innovation growth areas product in these refrigeration expansion through will further and new

continue growth We opportunities for through will also acquisition. inorganic to explore

that remain our through with market out review stand-alone an existing either channel a basis synergies adjacent growth and either better combination we profit in our case, diligent margin accretion either With on in an business. make acquisition takes any expect or with sure said, target fills we or market would potential potential. derived will into In and us

and to opportunities. flexibility Our discuss through greater strong back results our results over Scott, continuing we in gives will like and financial the call optionality, would deliver turn balance I now to forward to to and look detail. us who organic both sheet inorganic

the quarter reported net for the X.X% which million to during of Thanks, George. for fourth $XXX.X decrease compared billion million which we We of X.X% year, a to XXXX. reported same consolidated XXXX. $X.XX of sales represents On basis, of of for period a XXXX, $X.XX represents a compared billion full decrease sales net of $XXX.X the

to diluted demand or share X $X.XX pricing per October ended share in were months October compared $X.XX during by decreases months softer $XX.X during $XX.X North market to million million income attributable America. diluted increased lower per X the ended The XXXX. or mostly the and XX, XXXX, XX, to XX% Net

adjusted share, $XX.X or for or an $X.XX On quarter income to XXXX. decreased full million was of per the diluted For $XX.X quarter or of XXXX, the year share per $XX.X X.X% basis, per the diluted XXXX, by $X.XX million year during the million or diluted share compared during fourth diluted compared $X.XX full net fourth to $XX to net per million share $X.XX XXXX. income

being diluted settlement and to expense Adjusted advisory share primarily or or diluted impacts, $X.XX fiscal was XXXX, for for adjustments compared foreign $X.XX to EPS and $XX.X pension share $XX.X net fees. per are income transaction The translation for fiscal made currency XXXX. million per million

EBITDA quarter basis, XX.X% million during adjusted an of increased period On year. $XX.X compared to to for last same the by $XX.X million, the

XX, increase cost largely decline real in adjusted raw and to XXXX, equates for EBITDA The increased control, approximately a the expansion million, by year full decrease XXXX. price X to a effective points ended new expense. increases, costs For in margin Quanex, compared for in XXXX, earnings EBITDA income months X.X% a was $XXX.X of XXX the which months XX adjusted million attributable tax October to record This to adjusted and year-over-year. in is basis $XXX.X material

sales quarter by in the Mixing the net $XXX.X XXXX, LMI American for Now We X.X% Fenestration for XXXX, from driven quarter generated fourth in assets. compared an results fourth of segment of by million $XXX.X contribution of our of the segment. operating the million increase North to

Excluding have fourth in the approximately LMI this down contribution been XX% segment assets, the the from revenue would in year-over-year quarter.

of We declined QX the due XXXX volumes by with decrease revenue of a decline the versus estimate in remainder in price. this that segment year-over-year, approximately X% to

in million full segment, Fenestration year, of a $XXX.X North the XXXX. For we net $XXX.X of compared our million X.X% sales decrease reported in to American

and mainly The was softer lower market decrease due pricing. to demand

the down year-over-year, revenue segment assets, for in declined approximately approximately XX% been have full revenue the with segment to contribution of in LMI the We decline this price. XXXX year-over-year estimate remainder would a by this XX% the the Excluding versus due from year. the decrease volumes in

expansion higher Adjusted to Adjusted $XX.X EBITDA this quarter or the approximately which the segment prior for in operational to was execution of XXX The year in X.X% expansion year, million that basis for fourth EBITDA us was $XX.X than year-over-year. equates points resulted full in million XX.X% gave benefits this of than XX margin which points segment or our initiatives and expand to equates successful margins. the ability margin sourcing year-over-year. inflation approximately higher and on outpaced XXXX, basis

The group of also done has controlling volumes. job good despite a divisional lower SG&A

million above Cabinet -- lower in custom reported quarter, Quanex Custom XX.X% our American our Mixing which addition, $XX.X of We In sales formerly North to during continues prior net was than year. the LMI, segment Components business, expectations. perform

the XX.X% sales which million, year-over-year. year, represents net we $XXX.X For reported of a of decline full

volumes index by in approximately declined for by driven price lower The the hardwoods. decreases for and both We segment the volumes pricing approximately lower for periods estimate XX% declined and this XX% quarter. were by

price XX% versus estimate full year, the For with declining approximately the approximately declined we X% XXXX. volumes by

The time approximately price both expansion largely for segment XXX to index yielded points related hurting Adjusted basis profitability XXXX. year. XXXX us helped periods quarter tied to full costs. to $X.X decline year, hardwood respectively, declines million in the in this was pricing $XX.X for of which the EBITDA index million and were and margin front our lag basis in pricing in after XXX hardwood us points for for that mechanism with on related segment the the in this full quarter The and

costs good XXXX. throughout a controlling We also did job of

quarter, the $XX.X represents segment declined XXXX. exchange Our increase estimate revenue in about to translation which volumes compared the in of $XX.X approximately about up pricing positive in We an fourth segment, X% million year-over-year million this foreign impact European generated X%. of with the and X% X.X%, quarter of Fenestration of by

net year, segment, the of $XXX.X million Fenestration X.X% in $XXX.X decrease For million our to XXXX. in compared of full sales reported a European we

of year, volumes approximately foreign year-over-year we exchange segment, and pricing this full by X% in by For X%. declined translation the that about up approximately impact with a estimate X% negative

approximately and $XX.X $XX.X yielded this for full segment was full which XXX the EBITDA quarter and basis year, Adjusted XXX margin for the million of respectively, the points quarter year. points approximately million expansion for and basis in

with initiatives expansion in all this realizing Continued metrics, segment. operational in combined to improvements pricing carryover, sourcing and margin contributed

to for increase Moving compared the same of which of provided Cash on respectively, and represents activities fourth fourth the a XXXX, an periods quarter flow year XXXX XXXX. decrease -- by was XX.X%, $XXX.X sheet. operating for of full the balance and million the to for of X.X% million $XX.X the and cash

We did inflationary full for over had to Quanex. of also value new easing million increase of job an material throughout inventory in $XXX.X capital XXXX impact pressures, positive a XX.X% flow generated very record the for due and XXXX, on a capital. cash of continued managing We to our a XXXX decrease free year raw good the which working working and

Our balance strong. remains sheet

as of improving to Our XX, last and liquidity months keeps XXXX. EBITDA of X.Xx October ratio debt net our was XX adjusted leverage

leases Excluding that under free. finance estate real are GAAP, leases essentially net debt we U.S. are considered

we As QX debt George million million mentioned, were alone. repay throughout fiscal $XX during able of $XX to XXXX,

remain Looking focused that will on forward, things control. can we we

continue to We they identify continuing to will arise, organic profitable and balance also as growth inorganic sheet. while preserve our healthy opportunities

goal As create to value. is always, the shareholder

release, customers, indicators, on the opinions based on outlook current and transparency a in earnings approach mentioned XXXX, macro varying taking with limited conversations we're guidance. As for our recent thoughtful to the

guidance earnings when quarter. to for for the revisit intend We first report we XXXX

$XXX to However, of XX% $X quarter CapEx consolidated million, of XX% expect and XXXX fiscal purposes, $XX use basis. depreciation From guidance. million, million we some we of interest and million. for rate Low XXXX, amortization million to XXXX of the decline for following XXXX, on cadence $XX $X.X to versus revenue $XX pressure sales in approximately mid-single-digit of to perspective, compared of to XX% fiscal to million, and modeling expense SG&A a the $XX net consolidated margin to $XXX give for the a tax be assumptions please to basis, down of million a official million until quarter first on first a

and down segment. By expect our XXXX, segment first Fenestration Fenestration our of quarter for XX% XX% to X% of in first down compared North the segment, to North XX% American our European revenue segment X% quarter to Components in to American X% the in Cabinet to we XXXX down be

both of the segment. margin XXXX but of in for American our expansion From perspective, segments, Cabinet a minor in adjusted in quarter to the quarter Fenestration EBITDA of basis XXXX. points we XXXX, North basis, compared EBITDA be first quarter Components we to questions. currently now expect decline down your compared to the quarter of flat we margin On margin again, will consolidated the expect first take first to adjusted XXXX, XX Operator, margin first a

Thompson from our [Operator Ramsey Steven first comes from Instructions] Research And question Group.

organically much segment much rates. XX%, at the improvement than to drivers start the just previous America North the unpack being I of guess year, there? you're through I outlook down bridge to better with believe, other the Fenestration is Maybe maybe organic quarter the comps looking first for that and past? decline How that

Really, I'll quite line a on this for Steven, our that a year year year, the that remember product bleeding revenue or destocking if year is last take and inventory. customers Yes, in last bit NAF their spacer segment, major question. to talked where, between due being QX and that, we you difference down heavily about perspective down last

the product that warehouse put ability It's line has fairly the to and be manufacture into one packaged a we that easy.

being back are our to that typically and last a and just-in-time in saw our bit to of first half which normal And those we're with our activities. really So model. quite order, year of made destocking times a throughout lead the we really back -- year, effectively customers now is

we're what shipment and that area. normalized is production seeing specifically in So rates now

the Okay. the second the you for end construction, half? the restocking that then to R&R, first potentially to Helpful. outlook markets potentially? What the what of are Is And than existing second said better the -- half that, the maybe key full expected. home year growth then the past behind at outlook sales improvement the on drivers quarter bridging the being are new and half looking for what drivers first

in week potential probably to months of be view some well that looks more was our still really conversations last rates there X both especially fairly on some continue the customers. half our underbuilt in easing markets. the -- from we've we so to think second have anticipated half being over our signals of seen second I So And with this and are the that could from than is interest economists robust, ago. the year very But as hear as as the as we of

the be level strong So a well. I the reinforces on seen will of parties, believe year half second lot think we've of back our a in which shift different we confidence why half as from

year. Yes, Steven, than a seasonality is just first business, and second with half in the then normal obviously, half the comments typical our combine always the those weaker of

Okay. And Helpful. last one then for me.

is now year for steps which deal, the that. and it than successfully LMI, make lastly, does you there What do of of now that was some are down. from kind this environment like On level, the the then done LMI discussed tougher the on and guess, I you a paid success firstly, feel learnings uncertainty its ago. stand-alone debt high And ready Do you've margin next better deal to do you're to deals? it LMI? Or more with deals?

second the the let question the answer of first half. and comment I'll part on Scott

and we've to customer in it for So made us and continue as continue expand revenue out has we improvement to partners, traditionally with LMI, their they to the what through seeing margins, their grow from and it and priority that and we'll invest in initiative, are benefits in segments, that, acquisitions we investments add developing different mixing in to different investment much. new force business like and on well heavily sales business expanding we to our as to very venture normal it think relates to have I of seen deal of more joint that to their at looking And our was as continue mix. as both a compounds, markets

additional markets we've process. again, learned We and like addition happier that of with the new -- and through accomplished what be couldn't

Scott able on if spot would well. As we to to expand I'll new like. let that sell I we And be as acquisitions, more think good a it relates in pretty functional we're to be something

Yes.

front have around is, with the We environment positioned have ourselves acquisition say this in do think I don't anything. I to we what optionality. would

we will comes However, past we methodical look across we if the it have may acquisitions like certain that very to shareholders checks we something take as over will our like be do. boxes. a value add going in are desk we as to hard on feel long any time, And

all. in because acquisitions that wouldn't there's uncertainty the at just market, to close So say at looking some are I we

from Reuben next comes Garner from our question And Benchmark.

word year. destocking the mentioned Steven and So the of you talked kind this impact guys about restock

really channel, a in there of what curious, we're is half but what know more heading seen of 'XX? I Just maybe But know could a -- here your aren't talking potential inventory the that about there of mean drop Is that to first the kind environment a bit your the given business, some conservative normal inventoried. inventory maybe part your into consumer and and the housing quite part maybe next about first historically better is for I your like just excitement products is early periods, housing potential half for we've sort and relative rates some just restock outlook little is of year? in the a of if recently

Yes.

in So question the levels, of we're in position very the terms think first our now. part of inventory right a I

we're our well As I a think just-in-time we you working capital very in. manage supplier. Effectively, know,

done I stocking, very forced last years alternate has that what what have did extended that X some of we've very, sources. think our customers of we finding X.X very So changed a improving done with job over to that the they supply lead and we've could, chain the years good supply is good times and chain, different job into things a our whatever challenges

of We've do. inventory customers entire give That's their us really improved to inventory that allowed drive to drive such, chain, down as levels our we which down. our the levels has robustness and confidence what

that. very markets this absolutely whether or accordingly and the are we that year into So to comfortable prepared going go to down, I up react feel react

-- think, we've last really the conservative I And a our the model of being X very over we the think more down. course are conservative again, wrap in up well X shown the traditionally, that are -- quarter? to to or it company. we years is what relates reacts cost I it forecasting over and As first

where positioned as prepared taking very very view and if really in interest our rates to result relates I I scenario the first that. as down or very, come we first think of that, of to So we're conservative a capitalize half. good very either a spikes feel demand But are in. it And we're we're on quarter

that in your answer Great. I in come ask actually my going about question, helped has of kind kind There's that you another. your of late, this face for is your business same year? uncertainty. why That dig predominantly so just Can Maybe in business just of the be some kind there been know than some geographies? I've pretty some increasing Europe, U.K. into to reasons about is business actually heard more resilient been concern talk outlook seeing up I'm might the and maybe others second the of the resilient your of of

businesses, levels our at of in those our higher think Europe, resilient U.S. codes And perform Europe known expectations the So fulfill you it's be is and the to thermal within home. product to expectations. other been a I that terms far positive markets continue of at of designed elevated lines And in our look standards it's as to products ahead products pretty for when higher are environmentally both level. because and performance

that robust even So is we product have areas. in down a relatively line

So helped. that has

of that will and the exist you've that I a impacting in Ukraine similar beyond of unknowns has cost of consumer and impact of on very, customer in on in that in cloud Europe, it confidence energy got going there terms being what overlay of But is think, the many has U.S., the a dark in I consumer. that hangover, what's and are macro still fairly Gaza these which the that, now are think confidence nature. fundamentals -- terms this everything underbuilt so unknowns very

serve type that, the different And versus -- that's I a it's we think to U.S. of in little weight demand added markets Europe a that our in

of large with region, this product primarily pretty line in is spacer business, served though, our of that's our The terms is specifically and that international is we've out facility. helped other thing spacer Germany our that us, invested which in

in some European the So high-end some continue other that in such drops areas we markets as different helped offset in spacer East Middle India, has the or sales of as markets. volume traditional the gain to new our product China of for lines,

there. So I we've think well ourselves positioned

the Year Congrats New Great. And on year. Christmas and to Happy both. Marry you

Romero And Sidoti from our next & question Company. comes from Julio

spend maybe Can remodel have repair you the talked term, your guys near about about announced holiday shutdowns. customers & talk you longer-than-normal in

maybe maybe kind I the first about the help So can outcomes understand in for of but half? us choppy if range outlook, first half of a think volumes you

Cabinet Obviously, you We've seasonality of there, of more can combination impact pull what backlogs see some being our bigger a others. seen down the forward, a volumes COVID That's than we're segment. in dropping. so projecting the

out R&R the that that all and the serve Fed see first confidence comes possibility. little demand improvement so consumer markets there. mean I macro more that if still is Those the and see. you rates, there start I than is lot I of else think and opportunity impact suspect of to there. -- be lot harder there build, of A product we the pent-up that of that think an anything a in hit will that's a and a that interest than lines it half I lowers some things. The forecasting, in some mainly we it's is we're dependent upon for what

Reuben, traditionally I we conservative do As mentioned take view. a to little

the is not. So upside than I for greater think opportunity

as the we I again, back go pattern, But remember, think to that's a if building said, a be first season lot with dealt, because, tends Fed the significantly to Scott and half dependent seasonal and as slower of to you building season. has the more do our that weather upon

builders and winter, fulfill mild that their probably think can doing So things the help is we hopefully, that we upside to keep have a there.

driving LMI back the give LMI LMI color appreciate Got Can know did some the Maybe you you highlight deal. top just about sells the think, sales? a or it. I you bit. us maybe flavor when for going little into? had there. currently what different to the are end for markets that end currently But end markets us primary I X X markets talked that X maybe are about, I

variety. It's diverse So sell market pretty into a set. they wide

We goes have business of a piece automotive. into that

have piece the goes products. of and windows of some other a building into We types doors, that business

we the We have have really go go and that products expand that a pet market into some of some actually And into toys, like of that grow. products to electronics goods. anything. wide consumer No dominates and continues range so markets one

for about Okay. Got maybe strong a And neutral? fiscal working it. the especially do use fiscal 'XX. kind does 'XX? out, How cash shaping guys benefit, capital you preliminary really thinking after assumptions or had think about a of cash free just become And you of a

was actually big working XXXX. a a in benefit clearly, So XXXX. It took in capital hit

So little may little how a transpires. forecasted capital flat. be be this not There this there working year benefit. mean, depending on But as year, roughly year. I huge a we're the swings we may hit in expecting

record $XXX we obviously, flow, mean, million. at year cash a had I Now free

plus numbers expect probably hit year, when is concrete give there think we side. And more on somewhere I to that guidance. the spend a we we'll going get official around CapEx that more to than lower this little

Got $XX million. you. step Kind $XX last nice which the that million my is range to one, of dovetails up CapEx into That of see there. to very

that that targeted CapEx organic maybe growth talk are with step-up? Just the key initiatives about

Yes.

products. new So my script, the R&D we development as little of in the have bit section just mentioned of and up a

a spacer the to from of -- we think both continue specifically new and there, as facility priorities. starting our and market you'll in and us. has to traditionally things from do compounds U.K. sealants UPVC perspective compounds, our be business the heavily that investment investment a But see product product really new facilities, invest development continued and So been continued the more line seen those I adhesives within in mixing in will and development

to showing over would for remarks. Wilson no questions. now call further like back I'm turn George the to I closing And

and look quarter everyone thank very, wish joining for holiday to Thank and we on update this I'd opportunity take a joyous us forward in safe very like to our early like season, earnings providing first everyone you. I'd our today, Yes. March. and next to to call, call an

call. participating. today's conference concludes This you for Thank

disconnect. may now You