NX - Earnings call transcript Q3 2019 | Quanex Building Products Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Third 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Relations and Investor CFO. VP, Zuehlke, and interim Treasurer Scott Sir, begin. you may

Scott Zuehlke

morning. the joining for call Thanks this

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

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

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.

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

generated July financial sales million decrease in the XXXX. We segment, North XXXX now during million American July and ended the Cabinet $XXX.X Components was compared attributable environment, months a weather to $XXX.X months XX, our I'll three three discuss the weaker in of ended inclement demand for to mainly The U.S. primarily the XX, net results.

their our price markets, North European segments of Fenestration to largely net recovery. However, sales raw that above due American generate to material to increases growth related continued inflation and respective

the We to XXXX. transaction The for period being the third advisory increased the diluted or $XX.X certain income and fees, adjustments asset million reported to Tax $X.XX severance restructuring quarter or charges, same charges, Cuts per adjusted per transaction made $XX.X to and third net third quarter of diluted per million impacts, are currency $X.XX of share XX% to foreign during the $X.XX income income XXXX Act. an charges, impairment $X.XX non-cash for and Jobs of executive of related $XX.X EPS of million, to during adjustments $XX.X share basis, XXXX. per quarter share by compared diluted million or share net of XXXX On diluted or net during compared

$XX.X adjusted for an of with due earnings to adjusted EBITDA pricing in On of combined million gains. $XX.X operational basis, last implementation to the quarter year-over-year efficiency the increased in successful year. increase initiatives The was largely by million the to compared X% quarter third

quarter. cash Moving cash sheet. was flow activities three $XX.X operating to operating flow compared generation million and on provided provided XXXX months the ended during by by Free to balance for for Cash July the July cash million XX, was of XXXX. activities XX, three ended months the $XX.X the strong

compared $XX.X quarter generated in cash stock. XXXX. common of As us period million of allowed during same and third of such, we approximately quarter of the the $X.X $XX debt million we million flow repurchase million $XX.X during in This bank repay free XXXX to generated to the the

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

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

a in or of equal As are by LIBOR less of XXX interest pay The be result basis-point margin basis this outstanding times. basis decrease, the when XX we margin now a points, means is rate, the plus ratio a balance XX decreased on will we is would next our to which revolver paying points. than leverage our step-down X.X margin applicable

George the prepared to operational now call performance. on I’ll to turn over provide his remarks

George Wilson

Scott. Thanks,

margin versus of operational quarter. prior basis expansion strong resulted Despite third of quarter performance, softer-than-expected year another which points approximately achieved we consolidated revenues, XXX in

margin and we the Fenestration foreign realized exchange with segment, European expansion quarter, growth revenue XXX X.X% Our again way basis points. impact, approximately of the for of excluding led

growth last spacer Results segments silicone revenue Fenestration North Despite and segment demand, second negative market weaker of X.X%, latest in year quarter the window Ducker’s increases headwinds. American cost American for a above-market the estimate North our continue shipment X.X%. price continue our in segment outperformed to of for our both to face driven growth, by compared Sales to late products. with be of still improvements implemented calendar the

has to X.X%, positive a shipment from estimate their negative Ducker calendar X.X%. full-year growth down XXXX recently window reduced

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

realized also points our SG&A. along the margin in of expansion improvement This We in basis reductions was early the price increases year, in third driven by XXX with quarter. implemented continued

share semi-custom to moving of Now, American North continues to XX% The to year-over-year. will industry portion this or Components $X.X segment. we Revenue continue. cabinet expect trend and portion approximately that the on Cabinet our stock declined million the lose

mainly this segment quarterly the primarily to are on we quarter. volumes. impact margin top lower Bill comp, This in third with along the be expected As call, improvements line. continue softer timing last offset driven of and Operational of mentioned the certain this realized by and during due tough helping a to accruals us in segment our degradation realized a was

for and commentary forward. our his going I outlook call the Bill to will on strategy now turn over

Bill Griffiths

George. you, Thank

continued even German forward, capabilities trend interest UK through impact, Europe, optimism with expand we facility. the out as continue in we soft excluding demand we lower despite gain expect Brexit, continue surrounding anticipate exchange and of In foreign still share Looking quarter. to uncertainty the our international growth rates, the the sales spacer our to fourth the surrounding above-market

and enters extrusion American by above-market of business customer Fenestration fourth largely quarter, segment incremental also in as volumes increased We full operation fueled North production. growth in our new in expect increased screens outsourcing our the vinyl

stock continued semi-custom growth our of a cabinets. in shift Cabinet most market will segment American in by Fenestration North Unfortunately, be offset above-market Components from the this to as decline to continues

now As we expect segments in North Fenestration however, further full anticipate a our European and Even fourth environment, the year. the and we American still demand year-over-year. quarter weaker margin consolidated with flat the expansion be in for to full-year revenues result,

midpoint are narrowing in between expansion North range million even our for revenues, at segment to the should our which guidance Consequently, We million. in also maintaining margins to Cabinet and of American margin equate softer $XXX EBITDA $XXX full the flat million, adjusted expect Components year. the but $XXX.X with QX, we

that flow from Based our we the perspective, our and historically business, will cash seasonality on the no quarter of this anticipate be has fourth year different. a been strongest

this Our be to year to we X.X back objective use to while continue ratio so cash also buying respect debt, that to a times, with stock. continuing closer the be exit paying will to down our with leverage opportunistic

expect XXXX million funding also year, We enterprise. strong a sheet the per the a balance $XX more adequately to capital flow than ability requirements to enter while free fiscal generate cash with demonstrated of of and

options the balance As investments additional we think about stock and environment, macroeconomic we considering include further possibly making capital completing capital support XXXX, future depending repurchases, of growth. on the to strategic are in sheet, deployment deleveraging

We business growing projects in vinyl are business, North the our our in currently Germany. screens three evaluating business extrusions fastest the our namely in and America, in of our UK, business capacity expansion spacer portions

also continuing investments believe competitiveness capabilities the and to allow technology to vinyl stock, evaluating our more already and business. profile flow potential us that free these deleverage also stock to of U.S. cash our of fund sheet. new our We healthy extrusion buying back improve in still while business, opportunistically investments and strong We will components are balance our cabinet capital all

we quarter have course when of report We December. full fourth our year strategy, our and capital great clarity future deployment in will results on

And with that, take we’re to questions. now happy

Operator

Moore CJS Dan from Securities. comes question first with our And

open. Your now line is

Pete Lukas

for Lukas Hi. It’s Dan. morning. Pete Good

starting cabinets. out with on Just the question quick a

shift to you August the improved? But, volume as have You semi-custom in mentioned the improvement has from July any stock. seen weather and

Bill Griffiths

to later and we July all Clearly, cabinet seeing I the I is in the in and said. yes, business clear the in August got the weather sort tougher year. decline QX, going that think really did that us line of much better We'll pretty improvement. the as an with the trend pretty just same a generally carry be But, it's see we've the in continued get summer, been now market, trend speaking. comps to as see

will expectations better although strong as in both clearly Fenestration is European American We North have softening and relative well. market the do we there market to the that

Pete Lukas

mentioned And and those Are silicone share any Fenestration, the price if with relation seeing costs. to market you. sustainable? you to increases gains? EU growth think you there do next Got due above so, you are And the market

Bill Griffiths

Yes, absolutely.

out And both in we are the German international the year only we in particularly price facility, the continuing are spacer expansion but of of UK place XXXX. silicone resin share gain last segment. vinyl price should hence to for to whether So, evaluating we continuing part opportunities, operations sales late expand increases in not the capacity our at took But, of look those increases. as recovery

Pete Lukas

the you. And factors type these and what of margins and me, on quarters? last of next do from Got with of the looming expect two revenue pound over Brexit each impact falling, couple you Fenestration one EU for

Bill Griffiths

on the be which will costs. The have the It's material raw could really the direct a impact translation just pound effect. between impact and euro, real input relationship

Operator

Research with our Thank you. next Thompson Group. Ramsey And from question comes Steven

Your line is open. now

Steven Ramsey

hoping I a Good maybe term where kind to product growth to and or morning. and to in couple to wanted hit business guess margin you aspirations near categories, ballpark, then spacer with long you’re get go? business, starting this sales it’s talk needed timelines, in kind of of and term, Can the to I the Germany. of if on the investment more growth the

Bill Griffiths

Yes.

North international for spacer things more somewhat gone been our more responsibility America Germany. into year, and of is business of we’ve one we doing the this through So, as quietly that the out transferred we’ve of sales

Firstly, to more than out on America. we actually importantly, there. Europe trade of out And of beneficial North have global a it’s stronger is capabilities mainland more basis, it

you So, world. And can one we’re pretty products our rest products the the anywhere a starting opportunities. if manufacture increased limited only the is to very much see of our radius. have spacer ship and recall, in that of The really we

the program you’ve active we throughout business grow capacity into we it we’re XXXX XXXX, this to in to we’ve to So, benefit seeing and that to an would seen be business that smart time international if where do. year. some go expansion consideration, in as a though Germany as had some Hence, continue as now thing the want looks for develop results

talked And window our may of underserved. in in labor we’re the screens. share evaluation. increased our in have business expansion where of profile in as That country intensive the capacity have vinyl about, we consider space. we going a of some require as other And one a additional to under before currently outsource of bit of then, business. struggled customers been Secondly, floor a the Europe, expansion selected portion into there fast-growing America, screen opportunities our takes the some lot up against seen and capacity take lines run easiest product in regions been is to we’ve little It’s constraints, And that’s UK XXXX may We’ve business, And business. taking as that you again, our North XXXX. competitors environment. again see in is

there I to XXXX a And clear that’s around it’s the from whole residential But, overall our now. going is right going take are be we pretty bright to into slow in seeing focus a at macroeconomic and ribbon on think, least thing, things we the spots to right And year indications we’re year through tie can environment this be of. the control. the segment, want growth that next relatively likely now, is certainly advantage to

our where segments growth, product we’ll of the do rest the market following business So, of there make anticipate see of and we investments that with sort the lines.

the million, we reach funded around every higher of that. growth these our $XX normalized one projects terms CapEx in but than could of to no cost, million if at we once, of spread $XX And you answer that two likely that may A what lengthy do years. would not asked. but over all next out covers that it’s that the hopefully And full, get

Steven Ramsey

shift dynamics I helpful. little in if sorry more How are on categories. you. pricing, in I'm and shift this, in very the the Thank business a missed wanted Yes, end-market you get given the the and capabilities the serve? shift but cabinets pricing approaching to own front, clarity to with your more product And in

Bill Griffiths

in Because in put business. price of that increases year, the early in last year for pushed sure on we’d not balance not XXXX. we year. have our cabinet part frankly, We increases are all I'm of going we getting late this at and for year, the the shift, the as cabinets dynamics through very quite of some in And successful enter the price price and consolidation be now, this

relatively be cost on small again, in capabilities, on segment, business structure which to So, our going a what we're cabinet control, can can and and we the that so our focusing work now. competitive stock of particularly, right more we portion is

Operator

Thank you. Sidoti. question Instructions] Julio comes Romero [Operator Next from with

open. Your line is no

Julio Romero

Hey. Good morning, everyone.

Scott Zuehlke

Good morning.

Bill Griffiths

Good morning, Julio.

Julio Romero

the last on Bill. Just point,

service Could take segment. undertaking stock You facility potentially a a or existing options have to XXXX does along convert talked something it manufacturing about some cabinets evaluating that those stock and lines? you or new for for greater for possibly the cabinetry,

Bill Griffiths

continue. technological existing elsewhere, the We're least facilities. there. new some at a to right, of out And investments some this trend facility. be an you're still but business capabilities clearly, strategically us is out conversion at to to looking wouldn't and going get make profitability And similar always stages of in as it enjoy a It of evaluation, levels a We our of looks priority part integral wanted to potential prospects. in high that way the recognize figure for growth at early

Julio Romero

that talk be about, ask Okay, affecting flow components the assume happening very in increase the tariffs on consequently some wanted should coming good. P&L way. China that that's out are about how how Quanex. cabinet driving industry to I quarters? your your and tariffs And if I quoting of you coming would through and Can would

Bill Griffiths

in are the think China. to of cost I business activity. driving fairness, it’s We other seeing countries quoting But low all outside increased

really of is Mexico, move Vietnam Indonesia. think moving So, to towards a lot and it to going I cabinet is of lot it facilities, to a manufacturers’ existing

So, being any cost in And awarded to successful as unlikely as have this I frankly, think, not it's goes business. now, been that low right we of other countries. yet, of

Operator

Thank from you. question KeyBanc. Zener next Ken And our with comes

open. now is line Your

Ken Zener

dynamic Good well, you’re reinvesting. only morning, perhaps because think, certain but is the are talking This on levels, than not expected of your also calls one everybody. better most Wow! about businesses performing I

about, you cycle? UK given your at just the modestly, of of your last housing kind how with margin new in experience this it balance are hesitations you do flat and German more kind add take I Obviously, with XXX% and So, view growth? cycle and of what running concerns up you basically be be our slowdown what expansion, would is fill you if do do it mean, that picture, could want have, have just But, you incremental those incremental mean, an I I of R&R. that investing saying point you're will to given this broad extrusion at that you perhaps both with as or drag, out? sales what capacity

Bill Griffiths

Yes.

of It's political continues business So, I that been trying in I think take it's to to jurisdiction in this piece. the a perform Europe there be a through fact that's all insulated things the -- around. to has mean, the the piece very talked general given and surprise clear many that we year by probably been U.S. were the chaos, see I this we acquisition continue think that positive if look from in going at. We've to opportunities, will past about

talking the We up for it talking of production point. in and us we way be pieces now we're is to continue this view growth at markets. there a not get investment settle all think there. about bricks-and-mortar, to continuing forward-looking a just capacity that grow Yes, Europe in for We XXX% ready to better want capacity expanding Our and We're of not is about this to are those bumping is -- we're is in to terms going view. feel capability. down place against

where for more it U.S., the more us isn't sense and same of go North issue And to can horizon, fuel to away. capacity potential actually few applies. growth. segments at the increase look acquisitions Any we we our America we The those thing the as going are makes get growth in far In between. in labor to know

is a and with facility. existing It's year. business. that. view. the competitive manufacturing monitor in setting dollars screen capital continue flattish business. growth we We are next are to potential for the to think, extrusion in enjoy product We investment what’s third will ones to least there hundred be more not few plant. which investments So, if utilize possibly XXXX. require harder The minimum. residential position up happen of may your And markets screen two lines, is thousand in against better The But, flat investment concur cabinet will there. a at a we think know, vinyl even We in our our one That do one will or lease can there increased facilities and likely you stock technology I opportunities starts to business, as

there’s down. not the in advantage, all a and on continue it’s that time downturn not slow really convinced if We’re take you And way. to things a put pieces business together, bad invest the when the to

Ken Zener

of your or Could outlook, have your XX% relative you could much think that quarter, offer XX% stabilized business growth regard? should incrementals. we to by each pretty in a in of you is now that within a ‘XX is mean, about from guidance hear some way that there done there -- way guidance incremental -- margins we companies usually [indiscernible] that I type segments? Has enough we

Bill Griffiths

Yes.

on would we that as more think, -- I I appropriate our call. be December think

As about bit. the completely difficult growth, business know, we said, screen are of our little seeing awarded has where as business business And will lowest product through it is you that the some we as been rate. in we’ve that is change a reason Clearly, different. kind which before, lines, the talked the becomes new are vinyl we drop business,

to a December. so, that job we attempt clarifying better of in we guide will as do towards And XXXX

Ken Zener

you very Thank much.

Operator

with [Operator you. Thank comes question from Seaport Our Global next Instructions] Reuben Securities. Garner

open. Your line now is

Reuben Garner

Good Thanks. guys. morning,

some I technical difficulty. So, had

What bit. it guided is a you Was pressures ago top between guiding a just are was your guidance cabinets or pressures the softer months excuse me and of in want your outlook, you’re what -- guide? if few combination consumer today? line a difference a from you was two? and this try But, the the last So, to What the predominantly for little guys housing secular it to already understand really seeing I what asked. changed you

Bill Griffiths

have in I as back is bounce particularly think in by Fenestration summer that has biggest clearly going the sentiment housing of not sort change summer’s seen think, mid-to-late segment, our -- we base. weakened here. I the the And that that anticipated, customer there originally on was

we shipments growth window is year year, the forecasting to the that in full So, be the forecasted the low-single-digits the at marketing start shipment window now benchmark use, year-over-year. and Ducker forecast negative group of

are good than continue about, to X% In better numbers are KCMA the actually in to that. news I cabinets. just case. much market of of stock the The seeing we about we in compared in increase cabinets, doing is, So, that show things case because talked semi-custom, decline the a X% a

we're softness seeing continued So, since biggest. segment, a which American guidance of last But continuation in really, North our course that. change primarily is the the is our the Fenestration of

Reuben Garner

leading the Fenestration ordering this, in so, your to being customers knowing demand them in not they not me some of that is And would and but for up that's possible built better it otherwise segment, as have? inventory anticipation forgive as quickly necessarily

Bill Griffiths

I think don't so.

as I always think, the channel remains it has.

labor to going as I overall be pick business think the in the that's talked renovation would projects recall, in to was the now. the that first construction just not enough we're in really seeing see year we think And even was what There’s earlier new earlier year. lost we half as pickup demand well up the labor. I recover that half second for And you a on whether the constraint weather from the really is if in there. to

Reuben Garner

past as macro that mortgages we would to business to rates commentary you your there I good mean, flow concerns, have that continue there doing the year? builders. fiscal think you not as month Is has eventually some into This Can trend in, you but okay. the that Okay. that know changed seems be that quarter, lead may consumer mean, last anything believe I heard guys last anything through? wouldn't broader for to from would one order guys or come of is ultimately for we look next lead And that -- you the some in then, I me.

Bill Griffiths

August. in we is, of think reported of end in June see the I are continued of we we’ll the trend is, trends the just All expectation say And July. September saw closing that And numbers We're our July now, the well. we as these and of month right into process into of can continue month the as August.

no, around refinancing, new that's and remarks There's does we at seeing yet. construction, fall So, continue rates, the to of it -- all-time of here. to despite but are and optimism the said a an mortgage low, is be least a answer in seem what increase not an driving not it, I driving not interest rates to lot on lot

Operator

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

Bill Griffiths

early on updating us joining for look December. We everyone today. in to Thanks the call forward you the

close the strong things year the the direct have focus over. to expect continue that control as we We to on we

thanks. So, we few And once we’ll some the weeks. Thanks, everyone. as next here road hit see again, you of in the

Operator

participating day. gentlemen, Everyone, today's and conference. wonderful thank a for conclude have does and This today's in all you may Ladies you program disconnect.

Quanex Building Products (NX) 6 Sep 192019 Q3 Earnings call transcript