NX - Earnings call transcript Q3 2018 | Quanex Building Products Corporation

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Operator

Good day, ladies and gentlemen and welcome to the Q3 2018 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to introduce you to your host for today's conference call, Mr. Investor Treasurer. President, Vice Zuehlke, Relations and Scott

You sir. may begin,

Scott Zuehlke

the this for Thanks call morning. joining

call is and our On Chairman, me will Chief with the today conference This of Chief and Wilson, call Officer; non-GAAP Operating Officer; Officer. President, forward-looking Bill Executive Brent discussion Financial Korb, statements Chief contain George our some and our Griffiths, measures.

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

directly release I will forward-looking posted a disclaimer to measures reconciliation website. and comparable detailed issued to his please our the a turn most Bill non-GAAP remarks. GAAP our see yesterday for of For prepared measures, more and earnings our over call statement of now the description to

William Griffiths

Thanks, us Scott. Good morning call today. joining the on and thanks for

We report yet in quarter that expectations. delivered solid are pleased we were much our with line to in results very which another

from announced address another the cash return and let through them make flow the But quarter. new begin to balance in dividend call. the the highlights program. an news capital and first to me We also shareholders yesterday of a both repurchase share that sheet a those increased important developments I'll related accelerated and strong few possible later with

in Pricing Engineered quarter, include in during North Europe. North healthy our X.X% in America in basis segment a pass-throughs in eliminated in actions points XX in of Excluding and impact exchange American segment. Inflationary Europe. and additional the pressures in for both price, continued points an revenue material resulted Engineered contraction was basis margin growth and products, foreign XXX of X.X% segments which America Components which Components accounted European X% growth and our North underlying a X.X%

again increased in ongoing segment, price cabinets price, overall actually Cabinet by our lower This the and point escalate which to driven Moving majority This of materials. the drove pass-throughs together third expansion actually shrank marketplace as was continued on year-over-year. material American by price, excluding X.X% these shift points to revenues prices of and the eliminated the due the lower Despite in hardwood margin with by to offset throughout gains than productivity revenues year-over-year. dynamics, Components North and price with products consistent segment pressures inflationary is X.X% to XXX basis quarter. more accelerating

expectation Engineered Engineered European the million the million strong adjusted $XXX for our million Cash deleveraging expansion flattish allowed higher continue which range into fourth our of towards segment, to was American is the Components margin and revenue should in quarter, mid-to-upper during North the Looking paydown end to guidance us This flat guidance segment. EBITDA of million sheet. us North low in for Components in segment, the flow our ahead $XXX $XXX put continued quarter, bank in margins balance and slightly the debt the third $XXX Components American Cabinet and the margins to again year. our to

was Xx which July ratio XXXX of than originally leverage actually better anticipated. as Our XX, was

capital us flow return high balance in covers strategy the degree to after during $X.XX to on of cash Brent the together cash strong strong generate the and with dividend the program. future a results per ability million quarterly of to sheet free fourth in a more share quarter Brent? third repurchase share accelerate detail. the doubling $XX More shareholders, to Our with of confidence enables our quarter

Brent Korb

XX, million selling, XXXX rate the one quarter adjusted segment, compared inflationary primarily mainly impact administrative $X.XX year-over-year recovery, third with benefit general, that quarter adjustments income of plant and in per and the diluted million by of carriers. XXXX, have a and first in we debt lower of was Similar was for SG&A for million able Plastics $XX.X as per during $X.XX driven during increases, to with basis, pressures an third cash up a by follows; market impacts sheet. of mainly to of The than decreased amortization. and decrease exchange three the generated an compared or accelerated cash flow July is of these Cash tax the period XX, $XX.X $XX.X growth $XX.X per million XXXX, as periods reported same inflation an previously per $XX.X on diluted for of and bank lower $XX.X were and reimbursement of to third million the XX, net consolidations, $XX.X $XX.X the as North to accelerated million per to the of per last ended expense. XXXX several price million related the raw facility of step-up the negative the million EBITDA months Components start addition higher I'll effective to and $X.XX fact third XXXX. or XXXX. million generated of intangible to Net compared XXXX. results Cabinet bank was year. of XXXX primarily months ended you, net On repay purchase million during Year-to-date, transaction debt and American impact. an to recognition, our diluted earnings quarter expense advisory basis, and On We sales foreign manufacturing XX, inventory three million income increase third share provided favorable $X coupled in of intercompany compared the flow Thank of depreciation quarter million same related XXXX. XXXX. charges was flow primarily the The a this share XXXX, or driven legal the due due were $XX.X to million income was depreciation increases in to $XX.X three half respectively, We of third of during XX. to in ended $X.XX of July and of from the HL quarter re-layout million versus million included insurance XXXX up during made restructuring million in to free diluted announced quarter million, operating segment, compared of and for XXXX. plants, which July $XX amortization share and activities We free the Components XXXX, with quarter increase during for the quarter was third balance $XX.X third quarter million the July being are largely of the July and equipment the price The assets our the cash foreign the year the and to $XX.X related quarter in slightly to third closure adjusted related fees. by depreciation share million nine or Engineered of currency months $XX.X repaid comments related Bill. wrap third $X European XXXX to note $XX.X to statement the with material, share $XXX.X during $XXX.X

cash, our and debt July we debt result XX Bill our times. as ratio but is flow LIBOR focus outstanding balance XXX of basis XX, our We to the lower comments. cash a leverage on have on now strong a renewed on X.X to This now points. turn XXXX points some As to bank paydown, returning closing I the now basis leverage paying lower capital generation means focused for over at back are generating spread shareholders. also free plus that call remain dropped of will ratio interest

William Griffiths

Brent. Thanks,

our of included plan. years, generation As options several our execute business a last This strategic our that generation, exploration process, sale margin forward of concluded potential week cash for the It the drive shareholder our to you Company. margin validation Quanex included candidates, strategic unanimously third-party the balance shareholder Board conducted after detailed deleveraging support potential plan merger balance work, Board been advisors path acquisition the the best maximize thorough a on over continued continue improvement, months, also for exploration of the a a strong and five-year flow Ultimately, flow to sheet. and know outside value. candidates, cash value to for potential also Recently, last and a comprehensive while is the creation focus has maintaining of expansion past of to sheet. the with two

in value steady American quarters. positioned $XX in leverage opportunity announced share, to ratio. a transactions flow, performance and Cabinet questions. to to The well We take that are million pleased for North creation. improvement, dividend quarter, in yesterday performing shareholders that summary, this generates We would authorized maintaining to to have our our we a confident while X% coming are performance repurchase share In well strong continued doubling executed low now your good the Board Components segment provides our of program and open price. a business which $X.XX happy a growth, capital return over Operator? results we stock be be Quanex yield the and to attractive is annual cash close Accordingly, on with based per market cash continued particularly a also quarterly the current which is we

Operator

from [Operator Research with Thompson Kathryn Instructions] question Our Group. first Thompson comes

Steven Ramsey

Kathryn. focus margins is Ramsey Steven morning. Good This on inflation. first and to on wanted gross I for

you you Are increases? discussed cost those would it and maybe out offset the had next extent in way that in closing You getting that has thought expected to price you you were the getting in to you the I price put confident on to quarter. call, you believe when the gap and highly quarterly last pricing played price inflation inflation

William Griffiths

different we've directly of one in trying at success thing are business. still So really difficult they're with to better to and with segment think year. had related to that significant get worse, either. some expansion. another the line the kind but not inflationary a of costs to what say generally price expected some all Pricing in part speaking, inflationary They're getting that and it's the the having levels Hence, we not of is getting of costs. I contraction early of cover is fair Not parts always margin margin different

I think the had the we've better it in in is opportunity time segments pretty level. some a segment, the and Cabinet we've are better than for at productivity been for improvements significantly much that is Components that clear margins

explains it. some of that So

we'll necessarily segment. Components Fenestration significant fourth quarter, not in see continued think I expansion going North in we're to margin American the see Europe but improvement the and

Steven Ramsey

outlook your on inflationary, then these ability margin to And kind tariff-driven different in to responses this drive pressures? the competitor changed Excellent. has that Has improvement? of environment, also

William Griffiths

Not really.

the never as is rather seen is part, very our environment. this business most our such, similar For than really manufacturing any a we've significant to environment and just-in-time And competitors, a build-to-stock tariff the commodity so the changed and part us. issue hasn't competitive it competition, costs the up really some not offshore for clearly, but environment. mean yet shown has most I for

Steven Ramsey

of that about would give specific then last And even that calendar Excellent. growth even or there is guidance with market but anything Kind you stepping company XXXX? concern thinking steady back partners, you here, the see in not XXXX into question. customers,

William Griffiths

I as be goes. to No, going think she it's steady

Obviously, point. think we're beginning we've our said see to consistently, we process that there because result for those do watching of the particular anything the differently material expect not and We're at of moves out companies, as any just and window recent knowledge our growth. that. in mean, don't cause of closely our planning would XXXX, business we a this I of consolidation us in mid-single-digit change So operating industry, sort

Steven Ramsey

Great. Thanks.

Operator

from comes question next Securities. with Our CJS Daniel Moore

Daniel Moore

morning. Thanks for Brent, questions. the Bill, good taking

William Griffiths

Good morning.

Brent Korb

Dan. Hi

Daniel Moore

next XX%. obviously additional as nice a beyond kind there is look strong forward? run described the upside year uplift, this of part good over out little is How over the two? cabinet a as over, for So current you. a rate or you potential much seasonally of the year margins, know tweaking initiatives that saw we Is go I to

William Griffiths

So is rate current much very looks as run think the it's The I though general sustainable. yes. answer

all there As we've we to wanted we than run this that. said rate. to us is repeatedly, get still to Clearly, upside it's believe taken longer

saw we still forward, that run cautious I'm shouldn't guide we to but at so we to point in reason how little be able sustain no least And going at a as to this QX. the rate see bit

Daniel Moore

from higher now, Capital And appreciate the far dividends, helpful. or out the year looking – allocation, having be Xs as the Very full million in of share repurchase you a leverage. were assuming in you greatly to the first with $XX probably able terms color. would even complete still as low

intention this repurchases, today? as what's this we it is about think round reassess? share and been we one How of beyond complete do the then think sort of should about So announced to

William Griffiths

view the million, spin-off to we've of Yes. to I should is I this take say a generate do commit innings And the low to more we $XX here. as maintain could still skepticism shareholder and continuing forward out, And may we approach and that down. the a can the greater still in are while a be and Clearly, into an you with cash of no will I the turn investor clearly don't premature. the think this it XX pretty better another kind times shareholders and two low the would which feel does to the clearly and point legs will prudent increased it's is we flow if rules exercise, even low is afford buybacks, year very something months continuing while cycle be be certainly ratio, be liquidity be business in latter stock conclusion end value was to than future. that our increase. generate There at is around this greater I if this leverage time the to in cycle. positioned, We regarding year confident, this we're Xs bracketing eat a cash think prudent we're going the as doesn't, point to think to return shareholder seen. want or there improve, or deeper that so because straight That here, at position, value at you And it cycle. clearly of in up dividend and well fact,

Daniel Moore

Very good.

still your to of part be, and types would a around that tuck-ins in current opportunities Lastly, of a entertain would Smaller is or business? sort clearly you B here. very obviously, intention articulated core your those

William Griffiths

would. We

at levels there the I think there returns back this conclusion arrived that isn’t it's to fair to that stock could our we attractive at us that’s generate out kind own buying say its low that does. a of lot because current

on want never, don't right you out never anytime now. anything a there see I zero whole So to study lot but with visibility soon

Daniel Moore

for again Got it. Thank you color. the

Operator

Zener question from with comes next Our Ken KeyBanc.

Kenneth Zener

everybody. Good morning,

William Griffiths

Ken. Hi,

Brent Korb

morning. Good

Kenneth Zener

release. like obviously on next some some had of though more you're so not could of now there, of you in stuff quite A but on model window what of of highlighted comment kind for a if your what? – results to did year, necessarily trends or commenting of If kind terms business business of you. your end, could lot keep implied over but got has implications – their just the Thank focus in could business, demand a market? Could press your I Is over they've right there, year the [indiscernible] it well. little it so distinctive UK as you business you channeled. on obviously not some [indiscernible] business seems that you because you that's seeing type deceleration that October and are kind the slowdown, seeing UK,

William Griffiths

I have seen think is, that we answer general a to the that deceleration.

rates double-digits. time actually underlying fact growth year, last this In in Europe were our

in UK more of the in line, very, now, has issue what increases are silicon. now is pass sort that I business with price there a because to because of high There speaking, in to extent we the of particular is seeing we're very So shortage faced the also base pleased. Yes, spacer think generally it's significant lot business prices glass. But right UK in the extremely difficult that inflation window there margins there we're our are a price a in glass very and on. price

I mid year next in continue that in see think range. growth Europe we'll to single-digit rates

Kenneth Zener

some – to as cabinet kind down large get you that you mix? in supplier? your shifting in the business here there’s But Thank mid on expand impacting that out. versus said, you of Because shift for in put then, how mix, Could is inflation wood just of business on longer opposed is put that is shift products. you of some perhaps focused taking your mix? headed the units for cabinets, that we've to your you context market mix which are manufacturers Could Are it we're right been the could as moving OEM of downward seen that of And terms for that mid-tier broader in that You you an seeing have what our from you business category. price away that cabinets, which direction. obviously kind your and you’re seeing in commentary. kind

William Griffiths

Maple, biggest that reasonably has point question, were typical price shifts we in to it's That is stock you're in getting business well our I cabinet by which which significant. entry The But that I us is because wanted seen continue. business margins get think still And namely, increases where XX% that been to We've accordingly long think never strategy increases no go the XX% materials we And this semi into core year-over-year very I dramatic core some that single exacerbated price been accelerated that our downward. was and mean our the that business. strong. custom, aware the accordingly remains they’ve close that Cherry, reason our to shift Hard them. that to where is is there as taken adjusting adjusting going shift frankly mix very, pricing

We're has improvement been the continuing biggest to two that slow model. one to But business our adjust that's we're time. at by. margin things come So doing reasons the same of

produced at some having in we improvements, putting shift same to significant time. the productivity are products but We

difficult. it's So been

Kenneth Zener

the can perhaps what met cost you the Cherry lines that your comments in in channel? leading style? anything shift? be think there Is be cleaner to by other some be What's Is mix materials. game? more Or would to you. You supply there? suggest there lower-end cabinets? position a you judged and an can Some kind anything is useful? significant happening of fact see Thank given Is might in Any mentioned end that there it increase prefab

William Griffiths

Yes, no question.

shift that stylistically started. think I already

that lines I the an price with between clean spread and cherry engineered a because made the think hardwood it happen wood accelerated just much of that cabinet quicker. shift

just comment add final me though. a Let

there's Cabinet We business, honestly consolidation shift. new As stronger a is and a of segment market fundamentally level expensive space in been going and of the and the come in. believe that and lot believe homes. here still as more a lot be stronger to business the to you good that to share We know is it get becomes Repair back entry Remodel more Cabinet difficult

I see their remodeling we'll more think people and more homes.

the to years space good think, we is be. a cabinet the several over So next place

Kenneth Zener

Thank you.

Operator

next & Romero Our from Sidoti Company. with question Julio comes

Julio Romero

Hey, questions. good morning. for Thanks my

William Griffiths

Good morning, Julio.

Julio Romero

the I mix in shift. that a you given margin So the gross have segment? you How the conversation the know just would and in does a follow-up almost quarter, on affect headroom side? margin XX% How this had industry cabinets. the mix say you that goal prior much your margins long-term on gross on shift segment on gross that

William Griffiths

that of improvement believe the achievable. still level talked we originally about is We still Yes.

there. So no our change in expectations

a of there. product changes, to manufacturing changes going can overnight yet there's shift. exacerbated process of changes, it's a I get As lot pricing lot we come. still this It's I believe happen been said, not and by slower, to strategy because

Julio Romero

of have you you if allocation? a could on it. point to and would we operations if direction of can or flow us of target about Maybe free I aiming think flow to you just that you can level cash And capital ask maybe a Got the in return? flow terms a want Do in level cash couple target of return? cash maybe percentage-wise

William Griffiths

think No, as interest is improve expect to cases and is get of simply the mean, likely would generation before this, Obviously, should improve we in into will we XXXX lower come the the will We debt flow we current down cost to And levels, CapEx I've really slightly. and our I down our continue business, XXXX. to come is don't. working some cash expectation start a I with said level capital. little. including premise

look earlier, So $XX I when we reassess at incrementally current should get then. I think use it first better. as said And the million, that up levels we'll and

Julio Romero

had XXXX believe the in repurchase And you guys a or time Sure. last I XXXX.

fair modeling in be a assume deploying run that pretty to on XX-month Would kind that period. our that capital aggressive to a You're end? for XX- perspective rate of from

William Griffiths

so average only maximum a be to Well, XXbX-X. did time, under was million. the the at of purchase $XX is we This volume. can last look, – discretionary of difference this time market. a XX% is And It we going daily

we're on into very obviously, So quarters to it's stock happens the lot And even a to aggressive. going take several to year next it's what depend if price. going

Julio Romero

questions helpful. That's it. for guys. you Yes, Got my thank taking

William Griffiths

Thanks.

Operator

question Bill from next Baldwin Securities. comes Our with Baldwin Anthony

William Baldwin

Yes. morning. Good

William Griffiths

Bill. morning, Good

William Baldwin

Couple of questions.

know out spacer here come years window with there's I in last the of with see to over getting to you you lines folding date like up it. up your kind where large the product Can of running issues like them, that On in to XX up the and in so you, now companies, more terms equipment coming for of XX months – bring next been on? program for with that are the and for that forth get few you us how and initiatives the large you’ve kind in

William Griffiths

no Bill. really There's Yes. change,

producing this. They're that's capacity are are the other have well. They lines. And that four manufacturers building equipment We now on also as constrained. governor

as Not so rate. that more our as four as we've XXXX, like, beyond don't We would the to three new a same. to get but seen lines of expect we so fast control. we installation And the change into as year

William Baldwin

understand. I

lines running now, So right how you do many have Bill?

William Griffiths

I Bill. want front that I a me. bad to don't you number, And give of don't in have

don't So I on just me. have we'll you follow-up that. it in with front of

William Baldwin

strategically as fitting How see are us into profile long-term business? up the that with what the bring latest thinking your to Bill, on Quanex Okay. as you you far strategies? Also, date vinyl can thoughts your

William Griffiths

of more one is That’s there no Well, question. of competitive parts our the business.

really and strive keep applies to improved as productivity in mind margins that well. business continue that only U.S. the in We for to And yes,

Our business outstanding We're with an European business. pleased very, that. vinyl is very

very well. the obviously and as carefully we window space work in very vinyl So hard U.S., continue recent in the to moves watching the

William Baldwin

still to Is you product an in that new think, Bill, on line? bring opportunity there business that

William Griffiths

Yes. had There is no some customers we perhaps as discussions question current and gaining recent A we've to by talk additional we're the next little XXXX. we with encouraged year. enter premature some but have about high for business about it now, expectations

William Baldwin

I line business? were would you components successful, the move or trend business be – for to will your growth be it needle the the be of American the If for business? vinyl and profile the of important North kind Would to growth mean, it on it

William Griffiths

clearly in respect. be positive will It every

we when it's dollar not little major we'll or improvement but difference incremental think every Quanex, to I line, the at make you to going look a can. total take topline bottom the

William Baldwin

in the and very hard Bill. on I several the years. over Thank much put you understand, you last congratulations work guys

William Griffiths

Thanks Bill. End of Q&A

Operator

I'm questions showing time. Griffiths closing over further the And turn to back to Bill for call at this I’d remarks. any like not

William Griffiths

in as now. everyone, December. Thanks the we speaking coming the get we'll road in some Thanks look speak of bye here everyone and forward for listening to early out in and again weeks, on you to we and

Operator

Ladies and conclude this presentation. gentlemen, today's does

wonderful disconnect may have You day. now and a

Scott Zuehlke	Vice President, Investor Relations and Treasurer
William Griffiths	Chairman, President and Chief Executive Officer
Brent Korb	Chief Financial Officer
George Wilson	Chief Operating Officer
Steven Ramsey	Thompson Research Group, LLC
Daniel Moore	CJS Securities
Kenneth Zener	KeyBanc Capital Markets
Julio Romero	Sidoti & Company, LLC
William Baldwin	Baldwin Anthony Securities, Inc.

Quanex Building Products (NX) 7 Sep 182018 Q3 Earnings call transcript