Quanex Building Products (NX) 7 Jun 242024 Q2 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Q2 2024 Quanex Building Products Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker, Scott Zuehlke, Senior Vice President and CFO and Treasurer.

Your line is open.

begin. may You

the joining morning. Thanks call for this

the Chairman, President with today me our Wilson, George is and On call CEO.

This conference non-GAAP of and some call will contain measures. forward-looking statements discussion

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

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

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

our Despite performance the our in quarter. good has and volume to operational and demand achieve second and lower proven during model to environment Quanex's to profitable to we offer as Scott, America, best-in-class the soft to North highly peak the index growth. and some to morning both Quanex team with service compared resilient call. perform continue customers. continues period environments in be joining well a pricing fiscal year Thanks, pleased our everyone prior I pressures am

base investing to in we Additionally, also are portfolio. expand and our opportunities customer product

Our more commitment our value acquisition world. previously even announced of to to the bringing Tyman underscores customers around

we discuss quarterly return across factors impacting as products. to macroeconomic pattern and anticipate we a our has moment our the and observing more to ramp-up a each Now Volume to I'd typical a this quarter of continue. to like Globally, are seasonal expected, all take increased demand businesses. build

a demand when improvements anticipate year our increase a of new We confidence sense North than XXXX. and in XXXX and Federal action interest latter calendar does both more that In in take that Reserve replacement rates, funds lower as expenditures. construction half the models. consumers and the will anticipate housing will to there of shift optimism pronounced gain with for impact repair is more to allocate regarding We the this occur America, products

full our would Quanex. represent on not hinge Federal any since for However, does Reserve year short-term movements, guidance changes upside significant

Conversely, Europe, have softness. ongoing on that We various behind Europe to Continental will energy significant U.K. pressure a and market market greater in dynamics North markets America challenge. experienced and improvements the sustained anticipate European geopolitical Both in propose costs governmental elections. lag conflict, due

X can to these operating Despite challenges performance years in Quanex adapt market over past that swiftly Europe, outcomes. favorable model the our the demonstrates drive

with our profile customers, guidance, enabled coupled our in a we another sourcing we customers. Considering to us deliver to along robust have and factors, year our ability expect and world-class quality feel performance. to maintain our and continue have Our scale received initiatives full feedback that proven products operational from these the we to results margin reaffirming flexibility, confident variables, of year and strong with consistently controllable manage Quanex our and from service

Before on Tyman. Scott, provide pending the our over I I'd to call acquisition of like update a turn to brief

transaction, which value-accretive week create to publish expect industry. document shortly. provider mailing and the products scheme U.S. We this in will our building completion this continue commenced the statement comprehensive the toward of work proxy a to U.K. of solutions We

regulatory agencies the In necessary addition, have all filings. received

half on of to calendar So track our year to XXXX. close the and we're in in remain confident close path second

for scheduled shareholder meetings are July result, XX. a As

that remain offers. planning, progress we As our potential the excited we combination transformative integration about this

bigger and journey We customer diverse a to supplier the will of geographic Tyman products and becoming accelerate offering footprint, confident our combination and building of more are with base. creating leading Quanex a product

our to more over will who Scott, financial call in discuss the results detail. turn now I'll

compared European to which in market mostly and Thanks, $XXX.X attributable sales million our of quarter XXXX, of during the softer second was segments. during million of represents of George. net demand $XXX.X second X.X% reported to Fenestration the decrease we On American a XXXX. North a consolidated quarter basis, Components The decrease Cabinet

Net EBITDA the months or last for same or million XXXX, to $X.XX year. share period million $XX.X for or to XX, an ended onetime the of diluted $XX.X $X.XX adjusted April the $XX.X quarter per for income share per increased modestly diluted last compared X $XX.X to income increased to for or compared April XXXX. to million After share during ended per same period $XX X diluted basis, diluted $X.XX million of decreased compared net for per $X.XX share the items, year. On XX, million quarter $XX.X adjusting the the for months million to slightly

points However, in raw material we costs, increase basis on were The a X a earnings months for April realize was to XX XX, in approximately expansion consolidated largely interest income XXXX, decline lower expense. basis. margin adjusted expense ended of due and able tax the to lower

Fenestration due compared in to XX.X% for this the relatively $XX.X this in increased net X% improved American the North for second XXXX. sales of $XX.X with million of EBITDA $XXX.X increase volume. generated million period to pricing. in compared flat We by which to We an segment. million in operating $XXX to quarter primarily approximately of by XXXX, year-over-year quarter by same results of segment of segment estimate for increased segment represents Adjusted XXXX, that X.X% second the Now our volumes million

European the down positive X%. of EBITDA in at the $XX came decreased adjusting foreign quarter after compared Fenestration volumes in and pricing of generated to in this Our and of revenue second Adjusted XXXX impact. quarter which compared the of exchange quarter million the in second for to by $XX.X second the impact approximately represents million that We XX.X% for about of decrease segment a X% about year-over-year foreign translation XX% with million estimate quarter, declined $XX.X XXXX. exchange segment

This decrease of approximately decrease related estimate and largely pricing during with was by revenue year. hardwoods. our in prior American the driven this due North volumes to versus segment in costs. index tied year-over-year, We index of for quarter, the pricing Components declined by lower decline decline net price, sales volumes X.X% lower generated to was X% We $XX.X than Cabinet QX which million in hardwood lower remainder in to XXXX the of the that a segment

$X the of for XXXX. by EBITDA quarter to the execution the XX% second in the and of for Adjusted $X margin operational million this to quarter were Positive compared increased basis million XXX cost in control second expansion segment. points drivers

$XX.X the flow mainly quarter Cash and flow of to cash quarter, XXXX. the due the for quarter the activities $XX.X to operating quarter to the slightly CapEx on million for compared second higher last to sheet. provided by compared was balance of million second XXXX cash decreased spend of Free second for Moving year.

improving, or and way, leverage balance are continues XX be net debt XX, said ratio months our we debt-free. liquidity strong, Our April to net to EBITDA was adjusted another of our last XXXX, keeps of Xx sheet as

We debt $XX million were able draws to during repay our we revolver. and QX, of outstanding have on no

results, As and $XXX we earnings with million latest based and demand on billion for trends recent guidance of to customers, net approximately EBITDA year-to-date referenced the our $XXX $X.X XXXX. conversations in of sales adjusted data, are guidance release, the million reaffirming fiscal macro

Cabinet of basis. of the third to expect for quarter perspective, to a year, X% this revenue American segment this X% to this we segment, quarter year in American X% be second North year, be versus of in From By a revenue quarter X% for third European X% X% our year we the our quarter North the the second up down Fenestration expect compared to consolidated cadence our up up segment, this to of Components Fenestration to on X% X% to in and segment.

a again, second down basis of basis, compared to to the quarter margin On quarter this flat points year. be XXXX, EBITDA XX the is in third of consolidated adjusted expected to

now are we to Operator, questions. take ready

Thompson [Operator Instructions] Steven first our Ramsey Group. the of coming be question from Research And will

sales, non-fenestration showed start to Maybe with growth. solid U.S.

XH sales as XH So maybe questions seasonality, was But appears. FY be it in for to better it FY the expect in again on X 'XX would than you case that 'XX? were that,

have U.S. for line And higher is long the that term? a secondly, then the continue sight in of to what And strength sales? do over level, non-fenestration you driving

We've for been an that Yes. our of time. the very, non-fenestration initiative been and on period in we've pleased long with growth very a working it's been

really pieces got to really that. have or X contributed that X You've main

products The fencing we grow. got continues continue solar for fencing -- develop us vinyl that to sealant You've and that which the to market our has [indiscernible] our vinyl extrusion business, nice work and segue on assets. utilize a been

and [indiscernible] We into our lot flashing tapes. some flashing markets of segments do finally, QCM of housewraps the goes then And fenestration. of of outside that are business, businesses of mixing lamination and the a tapes

stated a happy our the a spent growth and We're lot So is on basis. our investing that, time we obviously optimistic that resources the of with a we've feel continued resources, growth in very we're and lot of of big piece and about and progress. a go-forward strategy,

wanted then [indiscernible] strategically And strong. what the you Can and margin, for talk Excellent. to plant XX you very months? financially do the should closure, that about coming in cabinet

business. a the plant with was That closing of quick, real extrusion more a rightsizing segment. nothing closure, plant in of our terms was vinyl Cabinet just has In our do it capacity. our of to that That are we

closings. So we announced any haven't

done, continuous why finding teams we improvement the it extremely away. as that tirelessly Again, segment lot in Now continue and have work opportunities of the reason and proud done. relates sourcing a work expected, operational the we're business, any has cabinet and pleased teams margins to they've our of that have. Listen, with really hard of efforts and as push work operational working on our within mechanisms to our ahead pricing see to this been will for stay our very we the no teams pleased. go [indiscernible] index with what We're it's that Cabinet of to

last quick me. for then And one Excellent.

and some have that on conversations, Can telling Your recent contributor you are outlook. said you, seems you for your it always, sentiment. broader rate pressuring a housing half down-shifted share may they outlook a outlook second customer months what to the is were as in unchanged, expectations bit color

with your what sentiment? not that and you curious are customers that So broad or how does telling aligns align maybe

it's regional think comes mixed there's that I play into obviously effect. and

think still I a very optimistic are see nationals very outlook the aligned. you larger of the lot and are on

consolidation some the seen you'll base, that continue last customer think and our you've see in of to I few quarters. over

on will the more aligned term to the and indicators the just positive people point, to repair talked fully little end we've of suggest everyone are opinions bit see are replacement report at the I that Again, today, that be towards think housing is But fact going next a that consumer move. expand, cautiously And a things we year. wouldn't make start hasn't Fed the is and that. market market pretty that -- customers some the year macro the use and wavered. need consumer the still will have on And that I that that due into optimistic. this our different to most there Obviously, jobs to of improve optimistic confidence.

Our coming next Julio question will of be & Sidoti Company. Romero from

question European Europe extends softness? My this prepared is then to? Can first key you the I think And in a expand you is for prolonged think remarks. couple on the the maybe on do secondly, named factor in Europe. how what you softness

challenging been it's more much market. Yes, a

I think drivers are consumer the confidence. key obviously

had You've costs. on pressures longer energy

in governmental when I we in markets economic more and see what U.S. the think than you fenestration probably incentives tied Europe, look that at to they're the

any with and been Europe I hold drove lot hold to has being U.S. don't a end result much consumer on I be or what seen companies, the most kind in a in little an the say, And just on definitely conservative incentives of consumers are a when would that lot in with their softness. passive -- of think so election regulations, this economic sort buying will spending something we've why for I than of in more know of housing year more the invest So

And that of some then inflation. you the couple with higher

their You've war obviously in a that's got backyard.

in more driving than that's pressure and the energy on see we lot a just here And uncertainty so U.S. there's some costs still,

probably it's we'll of when, think I mid-XXXX. to early will lag it terms improvement, think I In and see

tell the -- starting the seen baked of has don't optimism there's this interest you in than been the we've maybe rates, Reserve. sooner ramp Now our at a little guidance, time. first into maybe any in a optimism even least or the to there I signs been more and of some of market U.K. long some than down will England have we And but Federal of discussion Bank actually of

still So that be upside, but potentially to think could go way some I got we've here. a

And be quarter third X%, quarter. of the said That's versus sales turning it. in helpful. up expect while Got to margin maybe then of EU believe to you your very to second sequentially X% how outlook, the expect And margins XQ? you third quarter flat some the you relative quarter you I expect can I outlook about trend us down, European gave know to the the in how to consolidated you do talk you -- third to

say on Europe -- I'd that those our based actually, margins seasonality not up should nicely, business, of quarter. hold improved over if in

then color Can for -- And you the your of the the just outlook? from me kind flow the free cash previous is thanks Helpful. And for Okay. to outlook. one last unchanged maybe still year? on speak the outlook if that's for

cash transaction but obviously, this for I paying process unchanged. say the and will time some flow, fees that free I'd throughout there's with mean still and some we're advisory we're most comfortable. that part, it's impact

to XX% I XX%? am with be that? would that about Or wrong And

that was Yes, I right. think

next [indiscernible] will question from be Davis. our And coming Thompson

Scott, up had we And should ex trend? the transaction control going can those there you transaction expect How good you model also the in on SG&A, forward? to QX. pick do how fees, there those really you then fees

transaction has that continue I see to There's adjust the data Yes. that is you're what a fees information. going segment mean table out. to we'll

to -- to a million out me what earlier of the and then $XXX guided again, we'll mean Give that transaction second. So guided outside same. That's million find to year, adjust have the $XXX we to I SG&A, it. SG&A. for fees. I we this of

year, to but them adjust an hard it's what the we'll be going estimate So throughout you give out. on they're to

And then I Okay. a was curious. little George,

new signs of R&R probably and we're said would R&R. both our more You shop, bit little I for bullish on say, construction. optimism construction in a new than

outlook the a parse could there bit. you hoping little Just

No.

new it if to people go because have that will will a the where on see bathroom compare of But [indiscernible] you and R&R. of know of happen. drops, I you think see rate again the think on and get kitchen lot of become construction, majority the I as timing that just We will think I will homes the that's X, existing churn that, construction lead. all and construction the in a would new won't spaces interest the you trend, and positive will that that to with you a start lower spur new when

new on So little the dropping again, construction. rates that's predicated Fed a than probably more

more when new that Fed R&R would as on think -- So be construction, your but we the agree move be with I comment there will I would well, comparing X, when downward. the bullish especially makes a

first those margin Okay. up I interesting Steven's lastly, of R&D there is development drive Kind And wanted macro? the a product follow bit or improvement could new along that lines, on little of side to anything question. on ex

spacer business on in and business. initiative organic I our there's Obviously, you we've our little of but new takes and R&D some are time, with tell any we're some will really we actively working, pleased -- developing been conjunction that mixing a compounds side the

continue -- potentially market looking a security at [indiscernible] to we new we're to on to think I bring screen. there's a work product that here look and

to too a pretty and give but predict, early excited. we're details of So lot

a ago little we side you're And us it. few on business. of our again, our the more think the a are really acquisition for R&D fruition, we're LMI starting in see starting planted that these and to and those I to come why about part and pleased as are and to that's things And seeds of CapEx spend years of

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

to you. to like are forward of and our we shareholders deliver the thank for excited Thank and future everyone today, continuing value Quanex. about joining look very I'd for to

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

You disconnect. now may