NX - Earnings call transcript Q2 2019 | Quanex Building Products Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 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 be given at that time. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Scott Zuehlke, Vice President, Investor Relations and Treasurer. sir. ahead, go Please

Scott Zuehlke

the morning. joining call for this Thanks

Chief On our Officer; Chairman, with me Wilson, Brent Bill Griffiths, today is our George President and our Financial the Officer. Chief call Korb, Officer; Operating and Chief Executive

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

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

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

to the discuss now to call the results. I'll over Brent financial turn

Brent Korb

increase Scott. color our over $XXX.X the begin the with mainly handing revenue months European year. during inflation on market of million cash growth statement segment, sheet, sales of rest XXXX related raw the The income increases Bill three to to April and to compared due months which We material expectations three recovery. ended XX, with to the comments generated driven the of the on growth XXXX. before and net the performance some balance XX, and finish in million flow by for above $XXX.X strong April the call to I'll ended our was for Fenestration was Thanks, and review provide price

to segment share $X.XX the the reported the of result XXXX American related The of Components of net stock the diluted was $XX same lower semi-custom or decrease the away primarily per quarter period for net during Cabinet the mainly North $X.X in non-cash per $X.XX impairment to volume $XX due expectations share XXXX. the continued income cabinet share industry of the a second shift from to to loss diluted a segment, million per reported goodwill million in or earnings or in million We compared segment. $X.XX

On On million quarter million transaction in fees, and share adjustments second to made compared an of quarter foreign to basis, $X.X impacts, the gains attributable are advisory an or per of adjustments operational Cuts XXXX. second restructuring expenses, related diluted $X.XX of efficiency year-over-year second related for share quarter the implementation $XX.X share severance was initiatives. successful EBITDA and adjusted the in year. Act. the and XXXX basis, net The charges, last pricing to quarter The for transaction earnings to per to $XX.X primarily to income $X.X and compared Tax the during $X.XX earnings diluted during increased increased increase non-cash impairment Jobs adjusted million the of million currency or per adjusted and being

$X.X bank flow of allowed This the XXXX. of more We balance to Moving XXXX, on quarter million activities provided the million approximately the $X $XX.X cash $X million us repurchase is of of repay XXXX generated million activities period compared cash XXXX. common the XX, million generated cash quarter second million which operating in same during during to than cash flow months operating for we in the three and and double debt ended of stock. April months three by sheet; April $XX.X the XX, by the $XX.X to ended provided for free was

times. of ratio EBITDA leverage to decreased adjusted Our to debt net X.X

remaining approximately under had As share $XX.X program. million XX, XXXX, our we repurchase existing April of

this debt, to We second buying flow are continue year, expect ability in the confident down cash paying back of to generate in opportunistically our strong while free stock. half and

times to to We to ratio X.X net a between XXXX with expect leverage fiscal exit continue X also times.

Bill. to over turn I call will now the

Bill Griffiths

Brent. Thanks,

of period and basis strong We doubling than and points. revenue compared margin expansion year. largely price XX% segment led of the to foreign more almost with last with cash free European across with the last performance exchange late XXX driven above same Fenestration of impact market specifically, excluding expansion again combined are last Similar flow growth this the implemented to quarter, report quarter growth all increases growth pleased by and another way of was segments, to year. margin More revenue our

country This know, segments. Notwithstanding America impacted window poor to was Ducker's X% results growth negatively compared market XXXX much in still quarter from our of during North full window outperform you year the by the this, growth North with quarter. negative recently As down across weather estimate plagued Fenestration segment reduced first of X.X%, both the estimate latest to their calendar revenue X.X%. shipment of Ducker X%. shipment American

half Fenestration X.X%. During of growth has our the fiscal first of our North year, sales American reported segment

XX We realized quarter. also expansion this basis segment margin second points in in the of

Cabinet American months April to segment of continues. semi-custom our of negative this the and segment and ended charge the X.X% reporting continues six six growth growth surprisingly, biggest remainder segment, three more get the guidance challenged ended to the KCMA shift driver Components industry cabinet comps Moving the negative with negative X.X% negative XXXX. and X.X% the from We year, and difficult, fiscal outperformed the with be on market our XXXX. and stock months three the for North revenue was to for XXXX. semi-custom this XX, X.X% the and growth to of Unfortunately, XX, Not for we April for the revision the as sales expect of impairment in semi-custom

efficiencies On in a XXX quarter. to of the for continue basis margin expansion points note, improve, resulting however, positive

quarter, see flat exchange margin of expansion margin a in this period, XX second in revenue the margins in during of single-digit due continuation we to margin negative impact, in to foreign the the approximately in revenues segment do consolidated again excluding a with the of growth a expansion with expect reported half for basis comp, a we we revenue and approximately six-month Despite growth combined headwinds Assuming, of would year, QX. on tough this QX points. the X.X% degradation for cabinets, remain basis,

flow cash more and $XX.X free year-over-year for million. mentioned, Brent quarter was to the solid than doubled As

Revenue for low XX, is was end XXXX foreign six growth impact, guidance. ended our excluding the X.X% which of revenue original below approximately exchange the April months

expect We in a American growth Fenestration segment stronger second half segment. our strong Fenestration our continued and European North in

However, revenue headwinds are Components Cabinet segment. expected in North American our

between second with caused in performance Our first segment our mainly us EBITDA and million guidance for remain our half, original down combined million. to North in adjusted of and X% half outlook American confident fiscal guidance our our the revenue lower Despite Cabinet sales $XXX have growth. Components expectations revise slightly $XX X% expectations, the we to XXXX current very to growth growth

free ratio. enough the paying bank in to We debt cash also below flow down second X and still expect times expect well continue year generate half the leverage to to exit

stock expect opportunistically buyback a to first also to to rate continue We the repurchases. at half similar

And now, operator, we're ready for questions.

Operator

Securities. from Daniel Instructions] from the first CJS of line Our [Operator comes Moore question

Your question please.

Daniel Moore

talk the X% Thanks growth sense out quarter and Bill, and your with morning. maybe that to Last just then of bit Brent for still you between price? there? of inventory And maybe could just drivers questions. continues strong the FX volume quarter taking be building share. underlying -- the on taking start ahead Brexit, Good want my we start thought if going about to case really a and obviously this little is break EU and Fenestration George

Bill Griffiths

share, driven So at a continue as And similar any inventory HL. quarter, do to price really took we of late in particularly build half growth of year. the take actions to last about is do by we see We Brexit. not result the last change

think the growth finished, drawdowns, not I mean, profile I did strong see there. that's we inventory hedge

So very we're pleased.

this continue the year that balance at see to point. the expect We of through

Daniel Moore

a gears, what as American tastes and good Cabinets, in market seeing little stock. you to maybe and of you obviously you what the can shift [ph] term, that anything the shifting can then shift North more And on detail kind if mix the longer just But do maybe there? you're there and towards color shifts gave give

Bill Griffiths

the the X%, our the custom KCMA of six the market year-over-year. segment fiscal if year, X.X% up adjusted for is stock year, you Yes. the and fiscal look semi-custom Clearly, full down is months flat at about and for is first data our

So The year the similar for forecast half for of trending second is industry are the direction. the in that numbers. clearly,

And it's prudent of operations, so inside while at revenues we to particularly continue comps to year. the better look second at could flag half the how we see against stronger can through as we decreases the least do in we go some digit mid-single

price as in looking clearly to and better get is are term the course of margin positioned profile the points stock to is how at in the attractive. We necessarily as challenge strategies segment, the not longer

operating center and we have of getting particularly long-term an plans. start yet, answer next we into very don't it's plan but front much year's in as our So

Daniel Moore

clearly forward? Very a down one maybe and and trends margin it, quarter I'll in more outlook coming little an And materials general, prices had and of the impact about bit, how helpful. they in just raw Appreciate Bill. much have may on talk gross out. jump Wood the going

Bill Griffiths

say help flowing of gains had a either. materials It I impact raw finally us material the didn't that wouldn't in significantly efficiency it in total that the but and is Most productivity didn't improvement us, P&L. hurt through improving profitability. are

Daniel Moore

And out I'll jump with any Thanks. appreciate it. follow-ups. Helpful,

Operator

Thank you.

Securities. Garner Our line of next from question Reuben comes from the Global Seaport

question Your please.

Reuben Garner

cabinets the Just a question. on follow-up

you think, doing outperform would digits in your So exposure outperformance mid-single outperformed overall can digits, outlook, there first you're you so, that. your driving that data or said clearly what's end. something data cabinets Is guys been half that's you half and that Is down be you if I and the something in that difference market your a and guys, expectation have industry the the it's -- or the you may And between in second outperformance? down driving the like mid-single against so that. on

Bill Griffiths

participate bit actually, are semi-custom as Well, it stock. zero in clear-cut that on a isn't of basis. little a but XXX% clearly where stock we is limited and We segment, it that both

to statistics is outperform we market in the improve So, took general. some that profile because the helping our that that, is over driven earlier pricing and by sort are partly revenue raw of in I year think, actions our the of partly of it ability

Reuben Garner

to general outside helpful. to of XX you're growth six the secular Okay, I I if cabinets going customers for on construction pressures, the months the talking then, And R&R new will, guess, just your as forward? guess, and -- you next side, what's outlook on that's

Bill Griffiths

customers, weather second of of recover We're Clearly is high the actually in optimistic, expectation both construction I There is and perhaps a that even new overly are to half would our half. going optimistic. impacted first year. the say, most and R&R the

going far either least swell to see we see or if too think but of kind rates residential remaining to is here. we're year at I out static whole interest here, sector the I in right ground now, towards a Next think back tell fall

So the feel we about year. next for half, good and what actually second outlook very is optimistic the we and are where we're for

Reuben Garner

And one then for last me.

reorganization expansion talked your to is price half margin cost, How much about, flow volume kind on for within whether it's guidance been So your some items your the is expansion cabinets you much How how second starting control, within from internal growth, of or in of etcetera? the working your through. things is of control and business? the you've savings the much margin efforts

Bill Griffiths

strong for continues margin It's control. the essentially in to nervous cabinet are only semi-custom the reason The can't improvement and volume last I the any business to quarter remarks, can in year. we year, balance the enough. get if the severe our hard that beat within deteriorate, third expansion, comps to water, are fact, is for we continue be in is, tread completely to about thing compared market, whatever probably outlook as of going said those pretty the although It's to are the declines

that think we we So are in see likely, comps the shrinkage actually but recover some in QX cabinets, I margin little when easier. it's could will

Reuben Garner

you. Thank Perfect.

Operator

Thank you.

next question Thompson Our Ramsey from Steven of comes line from the Research.

please. question Your

Steven Ramsey

be X-year semi-custom? as equally you space two you a consolidation out into on to where Thinking tariffs even to and morning. position still years now from timeframe? the does get now, kind cabinets, stock as Mexico, you to are you looming in profitable that change you know, Good over in on of And X-year take think think that working can does the were the if where can potential we business

Bill Griffiths

being tariff or a profitability we the are business, very over positive confident we do But up if level end mix we very shift out No, two about to particularly look that. accordingly, are next whole that in could still and working adjust the for I the we optimistic issue on years. And and plans think the three will us.

see slightly the more worst revenue case profitable. this but a business, think is, scenario I we is smaller

Steven Ramsey

more positive on can for you end a up being And you? how tariffs share Excellent.

Bill Griffiths

tariffs the more immediate end a don't to or sticking if cabinet U.S., activity, think us, the to have it no manufacturers clearly anti-dumping I capacity. tariffs, is will drive is And I understand I and in Yes, will beneficiary, if up you end there quotation which most to Chinese because of and benefit back for sight tariffs the business particularly a have be of the relates it the lot think a increased clearly seen as we case. we think excess

Steven Ramsey

And the if me, special you bit increase little your your stock more ongoing today how your get on clearly on kind not does if is price of, movement, stock for zone stock results. here, the that And a change then stock permanently that good cabinets, dividend, stock attractive a last up that the but elevated less What do good buyback? buyback? cash stock does do consider for a to the happens, build even stays Or leverage? a dividend, moving maintain view you

Bill Griffiths

around And see be very to getting continues continue strong, one it year, the in X.X of of I we some serious delever paying with to of think what the the to is second down if stock depending when clearly, half generating to the you'll priority preference debt. price to pretty a cash Well, in think to us I start amounts happens target ultimately limited buyback down stock here, times. number

to and a -- with about. nice it's at, we year X.X and terms X next performing year that term. we what on problem dividend of to the is the about XXXX problem as closer what to year the we the it's the do we the close like worry price, times, excess I we with times, close at for expect will that expect to say year should would unlikely in will based today then stock our know in to think think short as then I a cash. I expect, have stock time. anything to if we'll do with going worry very this do strong a looks period more it be below cash XXXX, But we we of nice certainly But Assuming strong I to levels if hoard a the would be relative

Steven Ramsey

okay. so much. right, Thanks All

Operator

you. Thank

of Our next Romero Julio line question from Company. Sidoti comes from & the

Your question please.

Julio Romero

you're with Good squares how wanted with expectation just Can for the morning. in the I you screens to start of products. that trends for American the revenue off your the and year? Fenestration there and insulated glass about kind spacer seeing talk North away

Bill Griffiths

we certainly -- share. screens, Yes, we in to continue take

the as spacer the to extrusions. have Fenestration outperformance is in of one additional we not reasons in additional market think of really the improve, mentioned the taking rapidly on as before, now that's are in portion as we're And production the we business. outperforming some screen The vinyl I then Fenestration other business segments. continues is, other to business market

So our see that we year, see that will second level and once new a both in weather half back pretty our the here hence, customers of stronger confidence construction optimistic bounce are R&R we'll the clears. a

So growth to pretty feel goes. going negative to in cabinets. It's just potential about growth enough we offset where be not good

Julio Romero

the that to over driven or improvement on of there, seeing just color cabinets, sales. in by you're segment? on done then what's in saw any about expansion layout talk I And just going layout some improvements. the -- I some know that switching is improvements Is you've margins the gears further understood. flat you nice margin underlying Okay, some despite efficiencies guess, Maybe

Bill Griffiths

Yes, combination. it's a

general, we're general exists opportunity see As even But we it the in I hold able of we able driven effort slow not I of put and margins have half we the half a that of really I know, growth that able pretty negative We expand in the that be in that. and getting are though, in been with is improve to second that's think think to unfortunate -- QX automation may put We've margin there, in kind still but year. I about comp. expansion, pricing and as combination that, the transparent expect much the and beat combined, going pretty to of gains wouldn't some starting to margin be we'll half I second finally shrinkage. been flat. doubt lot well we've you cabinets profitability. margins layouts, said, with may think second I productivity a earlier to just efficiency year. tough That this along part a place further in the it's be we've to the complete has

Julio Romero

the piggybacking the earlier divestiture about And the and maybe OEMs activity from more just the question on broadly there. potential consolidation

guys you thinking potential threats come can and the in from changes that value are how that? Just chain about opportunities potential and the

Bill Griffiths

Obviously, talk of about Yes, simply look capacity place, take to customer's I our harmed the is at close that. we've with be them I windows, like for to facilities terms in we our to have structure, combined think don't drive improve as down continues are the productivity. current want in seen of all we cost too our not much directly will you because to at And our our consolidation of we've produce kind it to expectation more we by part very continued product most customers. to -- that and ability

more freeing actually up we're So capacity get we as profitable.

that, to keeps closely. It we'll monitoring it ability whereas take awake out, at customers incremental the some there obviously something business not our we're it that us of most on night. is to the see not, have but do here even exceptions plays consolidation, very we with maybe So now how

still said is be this time is think, by the be So, space good we're as several to so about there concerned opportunities all next done, there a the and as I years. We not be many will will it. risks, over in think

Julio Romero

very talk two and what the Okay, lastly outlook about can good. cadence be year outlook, just Thank SG&A me, for just the you for the you. quarters? for next might And the

Brent Korb

you is back last range over I is range. in that year's levels the $XXX.X at plus year's million how consistent of $XXX $XX QX level, we're of pretty the last of kind Yes, that million, QX, SG&A mean, the terms million, -- in million think, I it in half $XXX when about flows look year

So pretty in past these even two quarters.

Julio Romero

helpful. Okay, taking best the and of the of year. the that's Thank for half questions you back luck in

Bill Griffiths

Thank you.

Operator

you. Thank

Our comes the from Ken from next question line Jenner of [ph] KeyBanc.

please. question Your

Unidentified Analyst

Good gentlemen. morning,

a with I think from revenue, was your taking? guys are there associated the gave just that and/or you actions SG&A dollar you guys what assume before, I been cost So that's bit guidance you down value. had lower

Brent Korb

No, I mean it's slightly down.

we talked think million I before. $XXX about

some took of to kind of it's QX, here -- the first first to continue We some $XXX So obviously, year. we've that, expect the the quarter $XXX in in back quarter actions would in million seen in million. from half the and benefit

Unidentified Analyst

Sorry, I [indiscernible]. said

the of right factors hearing term, the What's that you terms if that's is you margin there I on believe, and quarter. but about impressive. business EU last in, Could very could I talk the what from doing that noise. the guys given UK? we're were margins? your don't all why know I you think so, is happening you that there know, beat gave Now, mistaken, back in and be you think I guidance

Bill Griffiths

Yes.

of So down, vinyl fact are of some the both and the in part there levels, it maintained business. particular, the increases contractual rising input abated. of back business end kind we spacer costs, in put then both with price in is, in the are Ken, because we've recall, up of Since caught through a those increases price Europe, cost profile but year in pass-throughs coming good that last have you of if costs no in And Europe. at

that. expansion some enjoyed as result a we've of So margin

the there. replace the when is replacement that so old economy is cycle general bit it. the little It's a because from insulated infrastructure fails, the to And business reason economy. think this continues general you outperforms have a I and the window

In the remodeled. of our Almost construction. is addition all business to which almost in new of Europe, remember tied is particularly repaired and it, UK none in of

having the are combination UK So couple those I of market there are some gaining that of all of the are in think a some challenging competitors we in share. plus particular, times things, and

have So the working things why we all favor. in in case, three exceptional our That's performance. this

Unidentified Analyst

us, And about thank I to can think you that say, your useful. with where success know if way that, versus I understand I let's now, of at relative we Sticking for mean, that, time mean give so peers? the very acquisition. is you share that's could you how your is don't

Bill Griffiths

years about are all a six, ago similar of there that out couple market very started Yes, share. with

X% improved X% in others mid-teens, period the time. over all of to So, we've low by to some and that or relative

Unidentified Analyst

recent gains much. it update with has on you and maybe you like there pricing, terms on could very utilization? flowing input that might your your are oil believe the back really terms how and some your coming side, the customers okay. to Thank it's be of customers in So the helping companies and share But taken Fenestration, larger by this your through, than mix of that's cabinets you extrusion and U.S. costs how it's us old yourself shift. In I sounds obviously space the surprise in in

Bill Griffiths

raw material we escalation. if effect a way haven't that on we much particularly shouldn't And anyway, material of a resin on it's seen so the side, see the price Yes, have us. do in pass-through

through think, beginning up production customer continued utilization I back that year. of ramping in half. with are this the see the we We'll full started now one at that

QX, full up in going trials. have customer see some is but ramp yet production. QX . pre-production We in We're in another not We'll still through improvement

the dollar us awarded, to continue well. but we amounts. clearly screen, side as a that help The small will relatively get Fenestration So business on

the pretty share that's put combined future. improvement we So feel of the bulk But those about really our two good all for the in heading side. together where Fenestration

Unidentified Analyst

Thank you very much.

Operator

Thank you.

Daniel of the from Securities. line from comes Moore question next Our CJS

please. Your question

Daniel Moore

again. Thanks,

at strong flow million confident coming Just really half. CapEx still range and back housekeeping, changes cash million the in $XX million, about $XX in the looking we $XX any ops flow to Are there? to million in from cash obviously $XX

Brent Korb

changes No at forecast free level, to CapEx, and cash of in this changes right. point, those for any yes, flow that no

Daniel Moore

Perfect.

Okay, thank you.

Operator

to does the the Thank conclude Bill of to program. any you. program question-and-answer hand like for further Griffiths today's would back session This I remarks.

Bill Griffiths

everyone call, we quarter. for speaking Thanks joining the and to next you, Thank good you to look and bye. forward

Operator

program. Thank gentlemen, participation you, and ladies conclude the does your conference. for This today's in

You may day. disconnect. now Good

Quanex Building Products (NX) 5 Jun 192019 Q2 Earnings call transcript